New Labour Code takes full effect

A new Labour Code was passed by the Hungarian government in December 2011. The code partially came into force in July 2012, taking full effect on 1 January 2013 after a six-month transition period. It replaced the Labour Code 1992, which was introduced immediately after the democratic transition from state socialism. The expectation of the government is that the law will make employment more flexible, cheaper and more market-compliant. However, it has been criticised by unions.

General terms

A new Labour Code has been introduced by Hungary’s government which aims to align the regulation of collective rights with that of contractual individual law enshrined in the country’s Civil Code. The Labour Code, in principle, allows collective agreements, agreements with works councils in companies where there are no unions, and individual labour contracts to regulate the content of work differently to that stipulated by law. To achieve further flexibility, it also now allows agreements to deviate in favour of the employer and not only in favour of the employee.

The Fidesz-KDNP coalition government wanted to introduce a more radically revised Labour Code, but had to back down following protests from the Hungarian social partners, other political parties and the general public, and also to comply with international labour standards and European common law.

Changes to termination of employment

There are a number of key changes to the rules on the termination of employment that tend to favour employers.

The new Labour Code has increased the possible period of probation to three months, and within the terms of a collective agreement it can be extended to six months. During probation, employees can be dismissed without explanation, so the extension of the probation period makes this form of dismissal available to employers for longer.

The code now makes it possible for employees to be told about the termination of their employment during a period of sick leave. However, the 30-day notice period starts only from the first day back at work.

It is no longer the duty of employers to re-employ unlawfully dismissed employees at the employee’s request. Reinstatement can now be awarded at an employee’s request only if equal treatment was not respected or the employment was terminated during a period connected to maternity leave or military service, or if the employee concerned was an employee representative. With previous Labour Codes, reinstatement has always been within the power of a court.

The code reduces layoff costs for employers by stipulating that lump-sum redundancy payments shall be calculated on basic salary and not on average income.

The code also allows for the termination of fixed-term employment.

Working time and allocation of leave days

The newly-regulated working time and shift supplements allow employers to be more flexible and to cut overtime costs when there is a sudden surge in labour force demand.

The new rules raise the statutory maximum for overtime hours from 200 to 250 per calendar year. Collective agreements or work agreements are permitted to raise overtime to 300 hours per calendar year.

Another measure allows employers to change the working time regime with four days’ notice, previously seven days. The Labour Code stipulates a one-shift supplement (not a two-shift supplement of 30% for afternoons and 50% for nights as before), which is 30% of an employee’s basic salary, and to which employees are only entitled when working regularly between 18.00 and 06.00. However, there are some detailed shift-related regulations which should be taken into consideration if an employer is willing to pay shift supplement wages.

Nonetheless, contractual partners can agree to replace overtime supplements with an annual salary or a monthly fixed amount of compensation.

Basic holiday allowance remains at 20 days, and additional leave increases with age, although this should not exceed 10 extra days off annually. This means, in effect, that the number of leave days in each age group will not change, but workers’ rights may change when defining, for example, leave allocation. Workers can decide on 10% of their basic leave, while 90% is allocated by the employer. In this case, 10% of 21/22/23+ days or of 20 days makes a difference, and above the minimum of 20 days, the additional days can be reduced by agreement in mutual contracts with the employee or in collective/company agreements with the social partners.

Employers are obliged to allocate seven working days of the vested holiday time in a given year in no more than two parts, and at a time requested by the employees. Unless otherwise agreed, holiday allocation must contain at least 14 consecutive days at a time. Collective agreements may stipulate that the employer may allocate a quarter of the employee’s vacation time by 31 March of the following year.

Extra leave for employees with children is retained, but both parents are now entitled to it.

An important element is the elimination of the average wage. For periods of absence, the average wages stipulated by the previous Labour Code will not be paid. It will be replaced by absentee pay, and the wage to which the employee is entitled during the period of absence will not be taken into consideration.

Absentee pay will be calculated on the basic wage in effect at the time, and on the performance-based wage and wage supplement paid for the previous six calendar months.

For the duration of sick leave, 70% of the relevant absentee pay will be paid under the new code.

Shifting risks from employer to employee

The new code shifts some of the work-related risks from the employer to the employee. It stipulates, for instance, that in case of unavoidable external influences, such as a power cut, the employee is no longer entitled to receive their basic salary. It also stipulates that the employer is only liable for damage which is within the overseeing capacity of the employer, and which the employer could have averted.

The code also introduces the payment of a guarantee deposit for employees handling money or valuables. This precautionary guarantee deposit may be as high as one month’s salary and is taken to make it possible for the employer to cover possible losses.

The compensatory burden on employees for causing harm to the employer, for example through negligent work, has increased. This may be as much as four months’ absence payment. Within the terms of a collective agreement, liability for damages in cases of negligence may exceed the employee’s absentee pay due for eight months. Compensation for damage caused intentionally or through grave negligence shall cover the full extent of losses.

Regulation of industrial relations

Probably the most important changes for unions in the new code are cuts to the entitlements and rights of union activists. These specify that:

  • only up to five union officials are entitled to legal protection, depending on the size of a workplace – the former code provided legal protection to all officials;
  • the statutory working time exemption for performing union duties has been reduced from two hours per month each for up to three trade union members, to one hour per month for each of two trade union members;
  • the legal right of union officials to claim financial compensation for unused exempted working time has been removed;
  • the working time exemption for trade union education of representatives has been removed;
  • the code no longer mentions the right of unions to participate in the electoral committee which organises works council elections;
  • the unions’ rights of veto and control over the living and working conditions of employees have been limited;
  • in some cases, unions’ consultation rights have been shifted to company works councils;
  • unions with at least 10% membership at a company are entitled to conclude a collective agreement.

The role of the works council

The information and consultation role of the works council has been given more emphasis than in the former code. The new code has also given the task of monitoring the observance of employment rules to the works councils. However, in order to conclude a collective agreement, the employer remains obliged to provide economic information to a representative trade union.

Works councils now have the right to conclude works agreements with the employer in cases where there is no collective agreement in force and no representative union present at the workplace. The works agreement may regulate terms and conditions of employment in a collective agreement, with one important caveat – it cannot regulate wages and other forms of pay.

Some of the entitlements of works councillors have been reduced. Only the president of the works council is entitled to legal protection while holding office and for six months afterwards, providing he or she has served in the role for at least 12 months. The former code provided employment protection to all works councillors during their term of service and for 12 months afterwards, providing they had served as works councillor for at least six months.

Unchanged is the statutory working time exemption for performing works council president duties, at 15% per month, and 10% for each council member.

Social partners’ reaction

Representatives of employer organisations were unhappy that even though the code shifted the balance towards the employers’ side, they were not consulted beforehand. When the government presented the code, the unions were surprised by the scope of the regulations. For a long period they were told they would have no chance to suggest amendments. However, the government eventually agreed to a minimum level of consultation. Six months were still available for negotiations, and in the end the code was introduced based on a negotiated agreement.

According to one of the largest employers’ organisations, the Confederation of Hungarian Employers and Industrialists (MGYOSZ), the code supports to a large extent the competitiveness of the Hungarian economy. MGYOSZ says it gives space to social partners to both negotiate and agree on the framework of employment and working conditions. It provides flexible possibilities for employers, takes the security interests of employees into consideration, and creates chances to increase employment in Hungary.

The National Association of Entrepreneurs and Employers (VOSZ) emphasised that the changes to overtime regulation were especially important. According to VOSZ President Ferenc David: ‘It increases flexibility which gives more freedom to the employers.’

The National Federation for Providers of Temporary Employees (MMOSZ) was also positive about the new code. It said the code increased the flexibility of temporary workers and would attract foreign investment to Hungary.

Zoltán Zs. Szőke, President of the Hungarian National Federation of Consumer Co-operative Societies and Trade Associations (AFEOSZ), said that the code was a framework regulation and would ensure that real regulations would be codified in each work contract or would play a role in each given framework contract. He said that compromises suggested by both the employers and employee groups had been taken into account – for example, in the ruling about trade union rights.

The trade unions, however, feel that the code clearly changes the balance of regulation between employers and employees. They have condemned the code’s lowering and diluting of minimum standards, flexibilisation and the shifting of some of the risk of employment to the employee. In their view, it now ensures flexibility for employers and, at the same time, lowers substantially the security of employees (HU1111011I).

Three unions, MSZOSZ, Munkástanácsok and LIGA, eventually formally accepted the code, despite their persistent condemnation of the way negotiations were concluded before it was introduced, and even though they continued to condemn it as the second most flexible Labour Code in Europe – a description seen as positive by Prime Minister Viktor Orbán.

The President of the National Association of Hungarian Trade Unions (MSZOSZ), Péter Pataky, said:

...the level of flexibility will be very expensive for the employees, especially in companies were there is no trade union.

But the code does at least ensure the minimum conditions for the functioning of trade unions in workplaces, which was given as the reason why MSZOSZ had to accept the new code.

Imre Palkovics, President of the small Christian confederation the National Federation of Workers’ Council, Munkástanácsok, said the introduction of the code was ‘the most bitter pill’ since the destruction of the interest bargaining system for armed forces in 2011 and 2012. The results would only be truly noticeable in 2013, and this might entail a reduction in wages and exploitation at workplaces.

István Gaskó, President of the Democratic League of Independent Trade Unions (LIGA), said that a recent investigation had shown that there had been a number of legal problems even in the transition period, and his union would carefully watch for possible anomalies and would act against them in 2013.

Ildikó Krén and Zsuzsa Rindt,

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