Court ruling on failure to consult may delay Budapest Airport privatisation

The privatisation of Budapest Airport may be delayed due to a controversial labour court decision in August 2005, which ruled the exercise invalid because of failure properly to inform and consult the works council. Meanwhile, trade unions at the airport have threatened strike action in support of a demand for a pay rise.

The privatisation process in Hungary, which started in the late 1980s and early 1990s, is nearing its end. The companies that still have state ownership are usually ones with a certain strategic importance, such as being vital for public transportation, like the Budapest Airport Co (Budapest Airport Rt), which operates the capital city’s Ferihegy Airport. The Privatisation Act requires that at least 25% plus one share of Budapest Airport remain in state ownership. Nevertheless, the Hungarian Privatisation and State Holding Company (Állami Privatizációs és Vagyonkezelő Rt, ÁPV Rt) decided to sell the shares of Budapest Airport over this limit, issued a call for tenders in June 2005 and shortlisted potential buyers.

Labour court ruling

The Budapest Airport works council (HU0401106F) challenged the privatisation at the Budapest labour court on grounds that - among other complaints - it had not been informed or consulted appropriately on the privatisation tender, and therefore argued it should be cancelled. In its ruling, issued on 29 August 2005, the court upheld the works council’s claim and ruled the privatisation tender to be invalid. At first sight, this might mean that the whole privatisation process, which has gone as far as the selection of a successful bidder, has to be restarted.

In its ruling, the court referred to Section 65 of the Labour Code, which requires employers to consult the works council prior to taking a decision in respect of plans affecting a large group of employees, including the employer's privatisation. Section 67 stipulates that any action by an employer in breach of the provisions of Section 65 shall be invalid.

Legal debates on the case

The court ruling seems to be rather controversial in labour law terms, and the Budapest Airport will certainly appeal. Some legal experts doubt that the Budapest court ruling will be the final one in the case. According to their arguments, the Labour Code does not specify any obligations for the employer’s owner - thus informing employees’ representatives and holding appropriate consultations with the works council are obligations on the employer and not on the owner. This is the case even if certain decisions or actions by the owner might influence the working conditions of the employees. Furthermore, the Labour Code states that it is the employer’s duty to inform and consult the works council, no matter who makes the decision. It is the action of the employer that might become invalid under Section 67 if it is in breach of Section 65, and not the action of the employer’s owner. As a consequence, the action of the owner of the employer (in this case ÁPV Rt’s) cannot be deemed invalid under Labour Code Sections 65 and 67. Another legal argument is that the Labour Court does not have the competence to decide on civil law issues, such as the validity of a privatisation tender.

However, there are some serious arguments in favour of the labour court’s ruling. Basically, the information and consultation process, which is regulated in Hungary in line with the relevant EU Directives, must be enforceable in all cases, including commercial transactions. Nonetheless, those sections of the Labour Code transposing the EU Directive on transfers of undertaking refer clearly to the superior organisations’ decision making and maintains the information and consultation duty of the management. Although this is not a 'transfer of undertaking' case, Act XXXIX of 1995 on Privatisation also stipulates detailed procedural rules for information and consultation. Moreover, previous court rulings also imposed similar consequences on civil law transactions, namely selling companies’ social welfare facilities, though in this case works councils have co-determination right.

Strike threat over pay rise

Meanwhile, tensions between trade unions and the Budapest Airport/ÁPV Rt are growing over another issue. Trade unions at Budapest Airport are demanding a pay raise as part of the negotiation of a new collective agreement, plus normal employment contracts for those workers hired from temporary agencies but working regularly for Budapest Airport. While Budapest Airport and ÁPV Rt appear ready to accept some of the demands, no agreement has been reached so far. Should the parties continue to fail to agree, trade union members might start strike action. A two-hour 'warning strike' took place on 5 September, causing the delay of about 15 flight departures.

Commentary

In the short term, if the court of second instance upholds the August ruling of the Budapest labour court, a long legal debate is expected on the legal consequences of the court decision, which might slow down the privatisation of Budapest Airport. As to the final outcome of the debate, it must be taken into consideration that the privatisation of Budapest Airport is already a highly politicised issue, with the major government and opposition parties having already clashed on this high-value transaction. Nevertheless, the lessons of this case may be well used in the long-due revision of the Labour Code. (Gábor T Fodor and László Neumann, Institute of Political Science, Hungarian Academy of Sciences)

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