Labour lawyers propose overhaul of Labour Code

In 2003, the Hungarian government and social partners agreed that there was a need for a wide-ranging revision of current labour law. In response, in mid-2004, a group of leading labour law professionals presented a 'Conceptual paper on the creation of the new Labour Code', which proposes fundamental changes to the framework of labour law. It is unclear at present whether the current government will start legislative work on a new Labour Code during the remainder of its term of office, which expires in 2006.

In early 2003, an agreement on the need for an overarching revision of labour law rules was concluded by the social partners and the government in the National Interest Reconciliation Council (Országos Érdekegyeztető Tanács, OÉT) (HU0209101N). This resulted in the creation of a Labour Law Codification Committee (Munkajogi Kodifikációs Bizottság, LLCC), consisting of leading labour lawyers with academic, ministerial and practitioner backgrounds After a series of meetings of the LLCC, a 'Conceptual paper on the creation of the new Labour Code' was drafted and published in mid-2004. Sociologists and economists were involved in the discussions and, although the social partners were not invited to participate in a direct way, some of their representatives were present as experts. The concept was drafted by only four of the members of LLCC, two professors from Pécs University (Pécsi Tudományegyetem, PTE), a senior official from the Ministry of Employment and Labour (Foglalkoztatáspolitikai és Munkaügyi Minisztérium, FMM) and a practicing lawyer with substantial experience in civil administration.

Reasons for an overhaul

The introductory chapter of the concept summarises the reasons for, and the aims of, a revision of labour law and the necessity of codification. Starting with a historical overview of the development of the Hungarian labour law over the last half a century, the paper argues that the Labour Code enacted in 1992 and amended about 50 times since (HU0210101F) is still adequate to meet the basic needs of society and the economy. The enormous number of modifications, however, has affected negatively the coherence of the Labour Code and led to an increasingly complicated legal text which is difficult to use for non-professionals, especially for employees, their representatives and small and medium-sized enterprises (SMEs) not equipped with human resource management experts. Nonetheless, the key themes of the concept's introductory paragraphs are flexibility and competitiveness in the globalised economy, in which companies need a 'state-of-the-art' regulatory framework.

Apart from the lack of coherence, the incremental changes in legislation have led to imperfect regulation in a number of cases, and several issues have remained unsolved or to be re-examined, states the document. This is said to be mainly due to the fact that the present Labour Code is designed for the classical 'Fordist' manufacturing model. Over the last decade, however, the share of employees working in the service sector and at small employers has grown, where a number of provisions of the current Labour Code are hard to apply. This, according to the authors, requires the introduction of special rules for 'independent' or 'confidential' employees. Contrary to the uniform employment pattern of the traditional industrial model, the new legislation should take into consideration the widespread use of 'atypical work', ie various forms of employment situation, which also need differentiated regulations. Although 'fake' civil law contracts for workers (HU0310102F) are proliferating in a number of trades, the authors state that the main cause of the phenomenon of 'escaping from labour law' is the heavy burden on employment, especially high taxation and social security contributions. Therefore, labour law in itself cannot solve this issue; appropriate rules might give employers incentives to keep their workers under the auspices of labour law, at best. At the same time, the authors argue that 'economically dependent' workers (not qualifying as employees) should also be protected to a certain extent, but not by the strict Labour Code rules.

In line with the preambles of many EU Directives, the authors declare that the main function of labour law regulation still has to be the protection of workers, including fair wages, anti-discriminatory practices, fair working time and rest period rules and, to a certain extent, job security through termination protection. Finally, the authors present their opinion that, in order successfully to finalise any labour law codification, a wide consensus is required between the government, the social partners and other relevant parties.

Structure and principles of new legislation

At present, Hungary has a unified Labour Code, which contains the vast majority of labour law rules for the business sector and, following the subsidiarity principle, its stipulations are often used in the case of public service employment, too. The authors of the concept argue that, on the one hand, the complexity of the issues to be covered makes it questionable whether the majority of labour law rules should be included in a unified code but that, on the other hand, Hungarian legal traditions support the maintenance of the unified code system. Furthermore, a unified code is easier to access and use by the non-professional labour law users, especially employees. The final conclusion of the authors of the concept is that the unified code system should be continued.

According to the authors the new regulation should mostly be based on private law and thus the new Code - unlike the present one - should not include provisions on national-level tripartite institutions. Most trade union rights, say the authors, should be regulated in collective agreements, and not by law. However, the law should regulate the relationship between collective agreements and the Labour Code.

The authors criticise Government Decree 1003/2003 on the 'Concept of the new Civil Code'. This government decision requires that the regulation on the individual employment contract is to be included in the new Civil Code. This would 'empty the Labour Code', the authors state, arguing that such a regulation should be retained within the Labour Code.

The authors also propose that certain guidelines drawn up by labour courts should be incorporated into the new code, for example that limiting the freedom of the parties to choose between different types of individual contracts (ie employment contract or civil law contract) for the given work performance.

Envisaged changes in collective labour law

Reiterating an issue raised in the introductory chapter, the authors state that the new Labour Code should not include the rules on national tripartite negotiations, because the current OÉT has powers also outside the field of labour law in connection with public policies, for example economic policy including taxation. Their opinion is that the powers of the OÉT are not in line with the requirements of Act XI of 1987 on Law Making, as the OÉT with its broad authorisation is actually incorporated into the legislative process. Therefore the powers of the tripartite council should be brought in line with Act XI of 1987. Then, in return, OÉT and similar national bodies in the public sector might have a de facto right to conclude nationwide collective agreements, which would assist in handling the problem of the low collective bargaining coverage in Hungary (HU0401103F). This solution would also help to make use of the entitlement provided by various EU Directives to deviate from their general rules through collective agreements - the present weakness of sectoral bargaining structures in Hungary hinders the creation of special rules tailored to the needs of particular economic sectors.

The new Labour Code - according to the authors - should not include any provisions on the representativeness of trade unions or on their right and ability to conclude collective agreements. These issues, together with the rules on works councils, should be handled by a separate act, to come into force simultaneously with the new Labour Code.

Interestingly, the competence of works councils (HU0401106F) would be strengthened by another proposed novelty: in case of collective redundancies due to operational reasons the employer should consult the works council. Moreover, a sort of co-determination is proposed in the field of selection of the redundant workers to meet the 'socially justified' criteria, which would upgrade the authority and responsibility of works councillors.

New approach to individual employment contracts

The structure of the present Labour Code on individual employment contract should be revised, states the concept. The requirements of 'flexicurity' (ie combined flexibility and security) should be a main guideline of the new legislation. Assessing the present situation, the concept claims that the 'unreasonably strict rules' of the Labour Code co-exist with a low level of law enforcement. Employees in bad negotiating position are often intimidated and, being afraid of reprisal, do not start court proceedings; while trade unions cannot through collective action provide protection and law enforcement either, as they are weak or simply do not exist in an ever greater part of the economy. The new legislation has to facilitate law enforcement, including the correction of certain 'wrong orientations' among law users. The new Labour Code should include the promotion of collective bargaining and improve the effectiveness of court procedures and labour inspection. Economic chambers and non-governmental organisations should also to cooperate in order to enforce the law, and labour law should be harmonised with other legal regulations, which does not always happen at the moment.

The authors emphasise that the differences in the size and fields of activities of employers and the differences in the tasks and responsibilities of workers has to be taken into consideration. 'Atypical work', if possible, should be kept within the boundaries of labour law. New types of contracts - differing from the usual employment contract and civil law contracts - might also have to be introduced. However, in case there are no real differences from the usual types of contracts, it is not reasonable to introduce new types of contracts just for the sake of a more preferable taxation regime (the authors here implicitly refer to a recent proposal that special types of contracts should be designed for journalists, actors and private security guards).

The new Labour Code has to be able to regulate flexibly the different aspects of work, the concept argues. While it has to include basic rules to be observed by all employers, specific provisions also need to be introduced for small companies and for 'independent workers'. In exchange for high salaries, such employees might be subject to severer obligations and less protection. Similarly, employees of small enterprises might also be provided with less protection in terms of traditional labour law tools. Furthermore, temporary agency work, telework (HU0410101F), casual work, work in family business and home-based work require different regulation too, according to the authors.

The conceptual paper deals with many aspects of the individual employment relationship. The most delicate issue is termination of employment. In contrast to the present regulation, the proposed new Labour Code should allow termination of fixed-term employment contracts (HU0308101F) by giving ordinary notice. On the one hand, in order to improve employers’ flexibility, the notice periods stipulated by the Labour Code could be shortened through collective agreements. Notice periods might be longer in case of termination by the employer and shorter when the termination is initiated by the employee. Rules on protection from termination could be different for small employers than for others. On the other hand, in order to improve protection of workers, termination by the employer due to operational reasons should be 'socially justified'. That means that in the event of such termination, the employer should consider the individual circumstances of the employees and the works council should be consulted.

'Favourability principle' should be further eroded

In the current Labour Code, the rules on the individual employment contract are - as a general rule - a 'one-sided dispositive', meaning that any deviation from the Labour Code's rules through collective agreements are to be made only in favour of the employees. The concept proposes that the new Labour Code - as a general rule - should introduce 'full dispositivity'- ie allowing variations both upwards and downwards - except for observing minimum international and European labour standards, as well as certain constitutional rights of employees. This novelty, however, would only be valid for deviations made through collective agreements. As a result, social partners’ agreements could differ from most provisions of the Labour Code in both directions. However, by and large, with respect to individual agreements, the 'one-sided dispositivity' system should be maintained. Still, even in the case of individual agreements, more exceptions should be allowed from the general rule of the 'favourablity principle' than in the provisions of the current Labour Code. Thus the concept envisages more opportunities for the employer and the employee to agree on deviations from the general rules of the Labour Code, even to the detriment of the employee.

Law enforcement and dispute resolution

As labour law regulations are often evaded, labour inspection activity should be enhanced, the concept states. Another proposal is the introduction of a 'labour law audit', ie independent auditors with legal qualifications could monitor regular labour practices at large employers.

The final chapter of the concept deals with labour dispute-resolution methods. The authors propose to review certain labour court procedural rules as well as to create various means to facilitate mediation instead of litigation (HU0403101T). Some consideration is given to the idea of arbitration panels playing a role in labour law disputes, and of harmonising the Act of 2002 on chartered mediators - who are approved and registered by the Ministry of Justice (Igazságügyi Minisztérium, IM) - with the stipulations of the Labour Code. Finally, the paper envisages the introduction of an in-house grievance procedure at larger employers equipped with an human resources department and having sound industrial relations. The detailed rules of such procedures, however, should be established by collective agreements.


The 'Conceptual paper on the creation of the new Labour Code' proposes both fundamental changes in the conceptual framework of labour law and amendments in a number of imperfect rules on issues of minor importance (not fully discussed above). The feasibility of the proposed solutions, however, certainly raises doubts. To highlight such possible debates it is enough to mention two of the suggested solutions.

First, the idea of 'socially justified' termination of employment is taken from German labour law. It is rather doubtful whether this institution could work properly in Hungary. Considering the personal circumstances of employees that have nothing to do with their work performance in redundancy situations is not at all common in Hungarian shopfloor practice. Moreover, Hungarian works councils, with their weak authority, seem rather reluctant to take over management responsibilities, for instance to select redundant workers.

Second, the concept simply disposes of the problem of social partner representativeness by delegating this issue to other laws. Given the last decade’s persistent debates on representativeness, both at sectoral and national level, it is doubtful how other laws can solve the question of legitimacy of the OÉT. Critics say that a large share of workers and employers are not related in any way to the organisations taking part in tripartite councils or in sectoral committees. Moreover, the concept raises the question of representativeness at company level, too, but fails to provide any guideline for future regulation. It is important to note that these elements of the 1992 Labour Code - the introduction of works councils, granting the collective bargaining rights in a pluralistic union structure, and the relationship between company unions and works councils - have been the most debated labour law issues in Hungary for 15 years (HU0402101N).

As far as the chances of legislative work based on the proposal are concerned, scepticism prevails. It is worth noting that the origin of the work by the labour law profession on a new concept dates back to 2002, when it felt a sort of frustration over the amendment of the Labour Code by the incoming socialist-liberal government (HU0210101F). Their criticism stemmed from the frequent and politically motivated changes in labour law. It was a view shared by many, regardless of their political affiliation, that it is bad practice to revoke certain elements of labour law (for instance, stipulations on works councils and certain working time regulations) every four years, whenever a new government comes into power. At the same time it is hard to imagine that political influence could be fended off completely in labour legislation.

The concept was released in mid-2004. For the moment it is unclear whether the present government has the political will to start legislative work on a new Labour Code in the remaining one and half years of its term. Both the concept's authors and ministerial experts are quite pessimistic. The latter see no way to reach the necessary compromise with the social partners any time soon on trade-offs between employers’ growing room for manoeuvre and the needs of employees (and their representatives) for security. Whatever the fate of the current proposal, it is undoubtedly an excellent collection of the changes expected by many professionals, and certainly will have a major influence on legislation in the long run. (László Neumann, Institute of Political Science, Hungarian Academy of Sciences)

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