Major amendment of Labour Code comes into effect

A major amendment to Hungary's Labour Code came into effect on 1 September 2002. The amendment, supported by the new left-wing government, has considerably strengthened the rights of local trade union sections and diminished the rights of statutory works councils. Furthermore, the amendment has revised some of the most controversial changes made to the Code in 2001, by curtailing a number of the flexibility measures introduced by the previous right-wing government. The new amendment has been fully supported by the trade unions, while employers' associations have criticised both the law-making process and the partial curtailment of flexibility in working time and other areas.

In 2001, the then right-wing government introduced a major amendment of the Hungarian Labour Code (as originally adopted by Act XXII 1992). This amendment was an effort to harmonise Hungarian labour law with the 'acquis communautaire'- the body of European Union law that candidate countries must adopt - and transpose nine EU Directives into the Labour Code. The amendment increased the rights of employees and offered new guarantees for them in various fields. The incorporation of EU Council Directive 93/104/EC on certain aspects of the organisation of working time (the 'working time Directive') and the resulting 'reregulation' of the working time section of the Labour Code, however, became an issue of sharp debates between the government and trade unions. Trade unions claimed that the government intended to flexibilise the regulation of working time and to reduce wage costs by rendering various compensation schemes practically redundant under the pretext of adoption of the working time Directive. The unions, launching a major protest campaign, demanded the withdrawal of those elements of the proposed bill which would be detrimental to employees.

Despite the protests, the parties in the governing coalition voted to pass the bill and make it an Act (Act XVI of 2001). The then major opposition party, the Hungarian Socialist Party (Magyar Szocialista Párt, MSZP) embraced the demands of the unions and voted against the bill. Furthermore, MSZP declared that, if it won the next elections, due in April 2002, it would repeal those sections of the amended Labour Code that were most detrimental to employees. This declaration became part of the election programme of MSZP, and the party promised to revise the Labour Code within its first 100 days in government.

Having won the April 2002 elections (HU0206101F), the MSZP-led coalition government - also involving the liberal Alliance of Free Democrats (Szabad Demokraták Szövetsége, SZDSZ) - confronted the twin tasks of reversing the criticised amendments to the Labour Code and re-establishing the tripartite Interest Reconciliation Council (Érdekegyeztetõ Tanács, ÉT) (HU0209101N) within its first 100 days. Setting such a short deadline for amending the Labour Code made it practically impossible to negotiate with the social partners to reach an agreement over the draft proposal while establishing a new tripartite body, the ÉT. Failure to conduct meaningful negotiations with the social partners, however, was one of the major criticisms leveled by MSZP in the election campaign against the outgoing right-wing government. The coincidence of these two promises created a politically difficult situation for the government.

To break the deadlock, the proposal to amend the Labour Code was submitted not by the government, but a group of 19 socialist MPs. Furthermore, the government held a series of bipartite meetings with national-level union trade union confederations and employers' associations to discuss with them the reversal of the previous changes to the Labour Code, along with other pertinent issues. Predictably, the unions were pleased with the results of these meetings, while the employers' side gave voice to its unease concerning both the procedure adopted by the government and the substance of the planned amendments. Despite the concerns of the employers’ side - and of opposition political parties – the government successfully pressed for adoption of the bill in the July 2002 session of parliament.

The resulting Act XIX of 2002, which came into effect on 1 September 2002, has revised the Labour Code in two major areas: it increases the rights of trade unions' local sections; and partially curtails the flexibility introduced in various areas through earlier modifications by partly restoring the pre-2001 legal regulations.

Strengthening the rights of trade union sections

Section 1 of the new Act re-establishes the duty on employers to consult with local trade union sections over measures which affect employees or a group of employees, especially in the event of reorganisation, contracting-out and privatisation. This amendment represents a major shift in the Labour Code's concept of the collective representation of employees. The Labour Code of 1992 institutionalised works councils at workplace level and separated the authority of local union sections from that of works councils, both representing the employees of the same workplace. Basically, it gave the right of collective bargaining to local union sections, while works councils were designed to be information and consultation body. The separation was achieved through transferring information and consultation rights from unions to works councils. Nonetheless, the separation of responsibilities was not perfect between local union sections and works councils, as unions had successfully fought to retain some information and consultation rights for their local sections.

The new amendment, which stipulates for employers a duty of consultation towards union sections – while maintaining the same duty of consultation towards works councils – further confuses the separation by establishing a twin consultation duty and requiring the employer to consult with both the local trade union section and the works council. Moreover, as all representative unions at a company are entitled to consultation rights, the amendment may result in several parallel channels of consultation if union pluralism exists at a given workplace.

Section 2 of the Act has re-established the original regulation of the 1992 Labour Code concerning time off for union activities at workplace level, reversing an amendment to the Labour Code made in 1995 by the previous MSZP-led government coalition, in office between 1994 and 1998. The Act thus now stipulates two hours of time off per month for local trade union activities for every three union members in a given workplace. The new regulation is beneficial for larger workplace-level union sections by increasing the monthly time off from 1.5 hours to two hours per three members in the case of 201-500 strong union sections, and from one hour to two hours in case of sections with over 500 members. The new Act also makes compulsory the payment, on request, of compensation by the employer if the local union section has not used all the stipulated time off for union activities. The sum of the compensation is composed of the unused hours multiplied by the hourly wage of the union activists. The union, however, can request compensation of only up to the half of the 'time budget' available for the union section. The repealed Section 25 (2) of the Labour Code also allowed the payment of compensation, but this was a matter of agreement between the two sides.

Section 14 of the Act repeals the amendment made by the previous right-wing government which authorised works councils to conclude a workplace agreement with the legal effect of a collective agreement, if there was no union section at a given workplace. Consequently, the new Act re-establishes the bargaining monopoly of trade unions.

Section 16 of the new Act modifies the regulations of Act XXIX of 1991 on check-off rules. The amendment compels the employer to deduct union membership fees from employees' pay and transfer it to the union concerned, on the basis of a written request by the employee. The employer is not entitled to any compensation for deducting and transferring union membership fees.

Partial curtailment of flexibility

Section 4 of the new Act curtails the flexibility of the employer to move an employee from one place of work to another when the employer relocates the company or a site of the company to another place. The repealed Section 76C (4) of the Labour Code stipulated that such a relocation of the company involved a change in the employment contract only if the move represented a disproportionate burden for the employee in terms of commuting time and commuting costs, or for personal and family reasons. The new amendment makes these stipulations more precise by adding that a relocation should involve the renegotiation of the employment contract if the commuting time using public transport increases by one and a half hours, or by one hour in the cases of women with a child younger than 10 years old or employees with disabilities. The amendment also stipulates that, in renegotiating the employment contract, the parties shall agree on sharing the commuting cost arising due to the relocation of the workplace.

Section 10 of the Act revokes the provision of Act XVI of 2001 concerning the calculation rules for claiming afternoon-shift and night-work pay premia. Act XVI of 2001 modified Section 117 (1) of the Labour Code and provided that an employee was entitled to an afternoon-shift premium or night-work premium if more than two hours of their working time fell in the period from 14.00 to 22.00, or from 22.00 to 06.00 respectively. The new amendment reintroduces the requirement that employees are entitled to an afternoon-shift or night-work premium, if any of their working time is in the period from 14.00 to 22.00, or from 22.00 to 06.00 respectively.

Section 11 of the new Act provides that the daily working time is eight hours and the weekly working time is 40 hours. The repealed Section 171B (1) of the Labour Code stipulated only the daily eight-hour working time.

Section 12 of the Act curtails to some extent flexibility in working time allocation by partly repealing the earlier regulations on rest periods. The repealed Section 124 of the Labour Code stipulated only that an employee should have two rest days a week, a period which might be shorter, but not shorter than 40 uninterrupted hours, depending on the given work schedule. Act XIX of 2002 stipulates that an employee shall have two rest days weekly and that one of the rest days in the week shall be Sunday. Employees working in a flexible working time ('time frame') scheme must have a weekly 48-hour rest period, including a Sunday. At least one Sunday per month must be a rest day in those workplaces which: work regularly on Sundays; or employ a continuous flexible working time model including Sunday as a working day; or have three or more shifts in a continuous production system.

A concession was given for those workplaces which use a flexible working time scheme over a certain period of time - namely that employees may have only a 40-hour rest period per week, which should include at least one whole Sunday monthly, provided that over the period of the flexible working time scheme as a whole employees have a weekly 48-hour rest period on average. Furthermore, if a normal workday falls on Sunday due to a shift pattern or flexible working time scheme, those who work on Sunday receive a 50% Sunday work pay premium.

Section 5 of the Act partially revokes the regulation introduced by Act XVI of 2001 concerning the temporary posting of employees to another job within the company. The new regulation stipulates that in such cases employees are entitled to have a wage according to the work performed, but this sum cannot not be less than the average wage for their permanent job. The Act furthermore stipulates that if employees performs additional tasks belonging to another job, beyond their normal duties, they are entitled to an income based on the actual workload, but this sum cannot be less than the average wage for their permanent job.

Section 9 of the Act provides that if employees are posted to another employer to perform a job which is better paid, according to the collective agreement applying to that workplace, than the original job of the posted employee, they receive compensation for the work according to the collective agreement of the company to which they are posted.

Views on the amendment of the Labour Code

In a television interview, the Minister of Labour stated that goal of the government in amending the Labour Code was to rebalance the equilibrium of the duties and rights of employees and employers, which in recent years had shifted to the benefit of employers. Evaluating the first 100 days of the new government, the minister emphasised that the most important element of the amendment is that it secures a 40-hour working week and increases the weekly rest period from 40 to 48 hours. He particularly underlined the fact that the increased rest period should include, as a general rule, Sunday and stated that the importance of this provision is that it facilitates a more harmonious reconciliation between the work and personal/family life of employees. It should be noted that, in the parliamentary debate over the bill, the Minister of Labour declared that the government is open to beginning discussion of a complete revision of the Labour Code in the new tripartite ÉT.

Trade unions have welcomed the amendment of the Labour Code. According to the National Association of Hungarian Trade Unions (Magyar Szakszervezetek Országos Szövetsége, MSZOSZ), this amendment is the first of the 31 amendments of the 1992 Labour Code to date which is fully advantageous for employees and trade unions. The amendment, however, has not reversed all the amendments carried out between 1998 and 2002 which were beneficial for employers and detrimental to employees. Furthermore, unions have expressed their interest in a wholesale review of the Labour Code, hoping that they will be able to bargain for more 'employee-friendly' regulations while the current government is in office. The president of the Democratic League of Independent Unions (Független Szakszervezetek Demokratikus Ligája, Liga) stated that trade unions are also interested in having clear and respected procedural rules, and hoped that in the future the government will not circumvent the procedural rules of tripartite consultation.

Employers’ associations criticised the fact that the amendment was carried out without consulting properly in the tripartite body set up by the previous government with the social partners. They also criticised the government for circumventing the tripartite forums on the grounds that the proposal for amendment was submitted by a group of MPs and not by the government itself. Employers’ associations stated that a bipartite meeting with the Prime Minister was not the right forum to discuss the amendment in detail, and that informal negotiations with the Ministry of Labour were not as efficient as a tripartite discussion might have been. The employers’ side also claimed that the consequence of the amendment will be a loss of competitiveness, in terms of both curtailed flexibility and increased wage costs. The amendment thus, according to employers, might have negative consequences for employment and contradict the economic plans of the government, which is seeking to trigger off steady economic growth.

The employers’ associations particularly criticised the introduction of the Sunday pay premium and the increase of statutory time off for union activists, as measures which will increase wage costs. The new rules on working time will, in their view, curtail flexibility and make it difficult to ensure the flow of production in workplaces employing two or more shifts, and thus might have a direct negative impact on employment. Finally, employers expressed their hope that a new round of negotiations would begin over the review of the Labour Code in the new tripartite body. They have already stated that they would seek the renegotiation of the current amendment, in the hope that tripartite discussion might offer a better chance to reach compromises over these points with the three sides of the ÉT.

The former government parties, now in opposition, said that the amendments brought by Act XIX of 2002 serve only the interests of the trade union bureaucracy. The amendments were also criticised for cutting the rights of works councils in favour of unions. According to the opposition, the bill - which was prepared by MSZP together with the unions – was given in exchange for the unions’ support of MSZP in the election campaign. The opposition parties also heavily criticised the government for failing to discuss the bill in the tripartite forums, and for sidelining the employers during the preparation process of the bill.

Newspaper interviews with various company managers suggest that one impact of the new legislation will be an increase in compensation for employees for weekend work, but that it is not likely to achieve a major reduction in Sunday work.

All parties on the tripartite ÉT signalled their intentions to undertake a comprehensive review of the Labour Code in the near future. It remains to be seen which side will benefit from the amendments which result.


The latest modification of the Labour Code was provoked by an earlier Act, which, by incorporating the EU working time Directive, made working time regulation on the Hungarian labour market more flexible. The flexibilisation measures introduced by Act XVI of 2001 were widely criticised by trade unions for having a negative effect on employees. The new amendment, proposed by a left-wing government, has actually partly restored the rigidities of the Hungarian Labour Code by partially re-establishing higher minimum standards in certain areas of working time than stipulated by the Directive.

The new amendment, as a whole, intends partially to curtail the flexibility measures introduced by Act XVI of 2001 and to reinforce the protection of employees in certain areas. Concerning the rules on relocation, Section 4 has not revoked completely the modifications of Act XVI of 2001, but has made it clear when there is a need to renegotiate the employment contract in the event of relocation. Concerning working time flexibility, the Act secures, as a general rule, Sunday as a rest day and a 48-hour weekly rest period. Furthermore, it has augmented the entitlement of employees to pay premia for working on afternoon shifts, during the night or on Sundays. By stipulating 40 working hours per week, on top of setting eight hours as daily working time, Section 11 of the Act, however, might have a controversial impact as it can be interpreted in a way which opens the possibility for a variable working time allocation within the week, by having daily working time of between four and 12 hours while maintaining a weekly average working time of 40 hours.

The re-establishment of the obligation on employers to consult local unions sections over major issues affecting employment has resulted in an overlap between the rights of local union sections and statutory works councils at workplace level. This amendment is in line with the efforts of unions to regain those information and consultation rights of their local sections that were transferred to works councils in 1992. However, the resulting overlap inevitably contributes to the confusion over the roles and separation of functions between these workplace-level worker representation institutions.

The increase in time off for union activities and the rules concerning compensation for unused time off were especially attacked by the opposition parties, arguing that it was a part of a political deal with trade unions for their support of MSZP in the election campaign.

As for the quasi-bargaining role of works councils, it was a long-standing demand of trade unions to repeal the amendment made by the previous right-wing government which authorised works councils to conclude a workplace agreement with the legal effect of a collective agreement if there was no union section at a given workplace. Trade unions were especially irritated by this amendment, claiming that authorisation was thereby given to works council to weaken unions. Nevertheless, the earlier entitlement never had much practical effect. At non-union workplaces, in general, works councils do not exist. The new amendment has formally weakened the possibilities of employee representation at workplaces without unions, and it may have a negative impact at a few workplaces, where works councils have already started to negotiate over a workplace agreement. (András Tóth and László Neumann, Institute of Political Science, Hungarian Academy of Science)

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