Magyar Telekom, Hungary: Exit policy
Magyar Telekom Company of Hungary has instituted a reserve employment status as an alternative to dismissal, thus maintaining employment in the legal sense.
The Magyar Telekom Telecommunications Public Limited Company is Hungary’s largest telecommunications service provider and is the successor to the Hungarian Telecommunications Enterprise (MATÁV), which was separated from the former state postal monopoly in 1989. Magyar Telekom was privatised in 1993, and as of 31 December 2006, the biggest shareholder is Deutsche Telekom AG, with 59.21% of shares; the remainder (40.79%) of the shares have been publicly traded on the Budapest Stock Exchange and the NYSE since 1997. After the gradual liberalisation of the telecommunications market (full liberalisation was reached in 2001), the market ceased to be a monopoly and was increasingly forced into competition in the different telecommunications areas. The market’s main services are provided through its member companies; among the main activities are hard wire telephony (T-Com), internet service (T-online), cable television (T-Kábel) and mobile phone services (T-Mobile).
In addition to its telecommunications activities, Magyar Telecom also deals with business consultancy (T-Systems), and has subsidiaries in Macedonia and Montenegro. The company’s total revenue in 2006 was 2,539.8 million euros; its pre-tax net profit was 422.6 million euros.
At the end of 2006, Magyar Telekom had 7,090 employees in Hungary. This number has declined in recent years from a total of 9,861 in 2003. Women comprise 34.4% of employees, 18.9 % of whom are over 50; 65.6% of the employees are men and 13.2% of these employees are over 50. Thus, 15.1% of the total labour force are over 50 (42.9% are women, 57.1% men). There is both a trade union (2,834 members in 2003) and a works council at the company.
Description of the initiative
Over the past three years there have been substantial reductions in the numbers employed at Magyar Telekom Plc, with the total falling to 72% of the number employed at the end of 2003. The company coordinated the dismissals with the trade union and the works council.
The trade union signs a collective contract, and exercises its rights in dealing with the employer. The trade union’s principal responsibility is to its members. The average age of union members is significantly higher (40 to 45 years) than the average for all employees.
The works council supervises the implementation of the collective contract and the trade union also delegates representatives to the works council. The company policy (reserve employment list) was established as an initiative of the trade union.
The initiative provides that in case of redundancy, instead of being dismissed, workers over 50 can be placed on the reserve employment list for a maximum of 36 months. When placed, the employee does not receive the severance pay in a lump sum but in monthly instalments. The condition for this, however, is that the monthly instalment must be equivalent to at least the minimum wage. In this way it is regarded as wages and the employment status is maintained. This is advantageous for the worker who remains entitled to the rights attached to official employment status.
Persons on the reserve employment list are entitled to only part of the social benefits regulated at company level (e.g. subsidised holidays), but not to others (e.g. support for travel expenses). These workers are no longer required to come to work unless the employer needs them (generally temporarily during promotional campaigns). This must be coordinated with the employee two to four weeks in advance. If employees are unable to come to work because they already have employment elsewhere, they are removed from the reserve list (the employment status is terminated). There is no rule about whether persons on the list can enter employment elsewhere. It is more typical that the new employer insists on termination of the reserve employment list status at Magyar Telekom Plc. If the person does have double employment status, the new employer must report this fact to Magyar Telekom Plc.
The only changes in actual implementation of company policy (internal regulations) that are less advantageous for the employees compared to the version proposed by the trade union are that the employer decides:
- who will be offered a prolonged period of exemption from work (which can be up to 12 months);
- who will be paid a lump-sum severance pay;
- who will be given the option of inclusion on the reserve employment list.
There are individuals who would have been better off with the lump-sum severance pay than with the wage paid during the prolonged exemption from work. Prolonged exemption from work can be applied if the employee reaches retirement age within one year, or attains the age plus service period required for entitlement to advanced old-age pension.
At the same time, the policy can be of benefit to employees who have no more than 36 months to go before reaching the advanced old-age pension (but at least 12 months, because in that case the prolonged exemption period applies). By placing an employee on the reserve employment list, the employer is able to employ the person right up to retirement without terminating the employment status. This means that the number of years of service further increases during the time on the reserve list.
In 2005 and 2006, 947 employees over 50 exited the company in various ways: 36% were placed onto the reserve list, 24% retired, 12 % were involved in prolonged exemption and the rest were dismissed.
The benefits to employees made redundant, on which reserve list status is based, favour older workers in two ways:
- Indirectly: benefits increase proportionately to the period of service at the company and older workers have typically been with the company for many years.
- Directly: the company takes age into account in calculating benefits and, as a result, older workers are entitled to higher ‘placement support’. The company-level Conciliation Council decided in 2005 on the introduction of this placement support.
The benefits are based on the following principles (exact multipliers derived from the monthly salary are a business secret and are not included):
- The Labour Code specifies that the sum of severance pay must be in correlation with the time spent in employment.
- The employee receives supplementary benefits (additional months of salary) that depend on the length of service with the company. The method of calculation of this additional benefit is set out in the company’s collective agreement.
- The situation of older employees is further improved by the rule that if the employment is terminated within 5 years of reaching the retirement age or the age of entitlement to early retirement, an additional sum is added to the severance pay.
The placement support forms the other part of the benefits. This sum also increases with the length of the period of service, although entitlement begins at a higher age than the limits applied for severance pay.
Aside from the indirect supports, age is taken into account directly for the placement support: older workers can count on several months’ wages.
The initiative provides a means whereby, in the case of two workers of the same age, the one who has been with the company longer will receive a higher sum of placement support (positive weighting for the period of service), and that, even with identical periods of service, the older worker will receive a higher sum of placement support (positive weighting based on age). Benefits due to length of service with the company and age increase with the growth of both factors.