Temporary agency work examined

Temporary agency work, which currently involves under 1% of the labour force, was first regulated in Hungarian labour law in 2001. This article examines, as of late 2004, the legal framework for agency work, its extent and nature, current practice in companies, and the views of the social partners.

Although temporary work agencies (TWAs) began to proliferate in the 1990s as many private labour market agencies extended their services as early as the beginning of Hungary's economic and political transition period, until an amendment of the Labour Code in 2001 legal regulations lagged behind company practices. This article sets out the essential features of the legal framework and presents the available statistics on the number of temporary agency workers and user undertakings, as well as major findings of a recent study based on researchers’ interviews and the reports of labour inspectors (based on the Hungarian contribution to recent research on TWAs conducted by the Swedish National Institute for Working Life, Arbeitslivsinstitutet).

Legal regulation of temporary agency work

Act XVI of 2001 amended the Labour Code (Act XXII of 1992) in order to harmonise it with many EU Directives, and among a number of major changes it included a new title on temporary agency work (on 'munkaerőkölcsönzés' in Hungarian - 'employee leasing' in literal translation). Since then, a 2003 amendment of the Act on Labour Inspection has brought minor changes in the regulation of TWAs, clarifying that the Hungarian Labour Inspectorate (Országos Munkabiztonsági és Munkaügyi Felügyelet, OMMF) is entitled to investigate both the agencies and the user companies to check on unlawful practices.

The 2001 legislation is based on the so-called 'triangle' principle, ie the temporary work agency signs a contract with the employee on the basis a special sort of employment relationship (it must be indicated in the contract that its purpose is to fulfil temporary agency assignment), while there is a commercial contract between the agency and the user enterprise on the assignment. During the period of this special employment relationship, the employer’s rights and duties are shared between the agency and the user company. The employer’s main functions, however, are fulfilled by the agency, such as hiring, termination of the employment relationship, paying the wage, informing the employee about working conditions and reporting to different authorities. At the same time, the user enterprise’s regulations apply to work schedules (including working time, rest time and paid holidays) and to instructions on how the actual work is to be performed.

Another novelty of the 2001 legislation is the compulsory registration of TWAs, the details of which are regulated by a government decree (118/2001. [VI. 30.]). The application for registration is to be submitted to the competent labour centre - in practice to the county office of the Public Employment Service (Állami Foglalkoztatási Szolgálat, ÁFSZ). Apart from professional requirements, applicants must have a modest collateral (approximately EUR 4,000).

Temporary agency workers may be employed on both open-ended and fixed-term contracts - none of which, however, may include a probation period. An earlier 'normal' employment relationship may not be converted into temporary employment contract. A few other stipulations of the law aim to provide agency workers with security. The user enterprise cannot order them to work for another employer. Rights of employees granted by the Labour Code or other legal regulations may not be restricted or denied. Agreements not permitting the agency worker to enter into an employment contract with the user enterprise when the temporary employment contract expires - or requiring the worker to pay a certain fee to do so - shall be considered null and void. At the same time, the law provides the employer with greater flexibility by suspending the stipulations of the Labour Code on termination of employment, successive fixed-term contracts, further training and some other issues. The statutory notice period for an open-ended temporary agency employment contract is 15 or 30 days depending on the length of service, while that of a fixed-term contract lasts up to its date of expiry.

The use of TWAs is not limited by the law: they can be used in all sectors, provided that the user enterprise has the necessary legal permission to perform the activity concerned. There are no special preconditions for using temporary agency work, and renewing workers' assignments with the same user enterprise is not limited either. During strikes, however, companies may not use temporary agency workers.

Although the law does not suspend the general 'equal pay' principle for temporary agency workers, in practice neither the same wages nor the conditions of employment as for comparable employees at the user enterprise are guaranteed. The only stipulation providing temporary workers with a certain income security is that the agency is responsible for paying wages even in the event that the user enterprise fails to pay the agreed fee in due time.

As to the role of employee representatives, the law only requires the user enterprise to inform its works council and trade unions regularly on the number of temporary workers used, at least once in a year.

Extent of temporary agency work

Parallel to the abovementioned compulsory registration of TWAs, a government decree (No. 189/2001. [X.19.]) ordered compulsory data collection on temporary work agencies as of 2002. According to data from ÁFSZ there were 282 registered agencies in 2002 and 339 in 2003. In 2003, they concluded contracts with a total of 39,083 employees. While this was a 30% increase from the previous year, temporary workers made up less than 1% of the employed population.

In 2003, almost half (45%) of the agency workers had fixed-term contracts and 55% worked on open-ended contracts. Most workers had only one assignment during the year. The average period of the contracts was 76 days, slightly longer (90) for workers with open-ended contract, and slightly shorter (63) for those on fixed-term contracts. As to the characteristics of temporary agency workers, 47.5% were women and 52.5% men in 2003. The vast majority (88%) were manual workers, of whom only 17% were skilled, 76% semi-skilled and 7% unskilled.

As to the sectoral distribution of the user enterprises, only the shares of agency assignments are available. The biggest users were manufacturing (64.6%) and sport and other services (10.2%). Other industries absorbed less than 4% of the assignments each. Although there is no statistical data available on wages, all the abovementioned data confirm the hypothesis that the vast majority of agency workers are employed by manufacturing companies in low-skill and low-wage jobs.

Workplace experiences

As the law does not stipulate explicitly that agency workers must be paid the same wages as employees in comparable jobs at the user enterprise, unsurprisingly case studies have found that agency workers earn 10%-20% less than permanent workers in the same jobs at the same workplaces, and the difference is even greater in terms of the non-wage elements of compensation. The agency workers' income and job security is further undermined by the common practice of the agencies whereby they terminate the contract once there is no further assignment for the worker concerned. Thus they are never paid beyond the statutory notice period of an open-ended contract, or beyond the expiry of a fixed-term contract. In practice, agencies prefer open-ended contracts as the termination of fixed-time contract is often more expensive. It happens very rarely that the user enterprise hires a former temporary agency worker (in such cases the agencies charge the user companies some fee, for instance the equivalent of the cost of a one- or two-month assignment),

Despite compulsory registration, many TWAs complain of unfair competition. Allegedly, many companies perform similar activities without proper licences (naturally, there is no information on the extent of illegal agencies). A typical abuse of the law is that some companies (registered or not) actually operate as agencies but their workers are self-employed who perform their assignment through a civil law contract (HU0310102F), or a part of the work is done under a civil law contract. In certain activities, student cooperatives (iskolaszövetkezetek) often undercut the prices of other registered TWAs as their wage levies are smaller.

The country’s EU membership has not affected the activities of Hungarian TWAs so far. A series of case studies on TWAs (done in 2003) found that only a minority of agencies planned posting workers to EU Member States by the time of accession in May 2004, and most of them were not prepared in terms of knowing the regulations of the possible host countries (nonetheless, posting workers to the 'old' Member States is not a brand new phenomenon, as Hungarian subcontractor companies have long been working there, for example in construction firms in Germany under the quotas set by bilateral agreements with the governments concerned). On the other hand, following the EU enlargement in May 2004, the appearance of TWAs from Slovakia is a new phenomenon in the Hungarian labour market in the border region.

Lack of regulation through collective agreements

As the company is the dominant level of collective bargaining in Hungary (HU0401103F), the few sectoral agreements have no significant impacts on wages and working conditions of agency workers. Sectoral agreements are especially rare in those manufacturing branches where most temporary agency workers are used. As for company-level bargaining, case studies have found that there are practically no collective agreements at TWAs. Despite the legal regulation, which requires the user enterprise to inform trade unions on the assignments of TWAs, collective agreements in user enterprises generally do not contain any stipulations on agency work. Consequently, as a rule trade unions have neither a say on the extent of use of the agencies nor on the working conditions of agency workers. Thus wages are completely set by individual bargaining, though the national minimum wage is enforceable in the case of agency workers, too.

Interestingly, the exceptions are the Hungarian subsidiaries of some multinational enterprises. For instance, a French-owned company in the chemicals industry applies the same rule here as in the parent company: temporary employment (fixed-term contracts and temporary agency workers together) can not exceed 10% of the total workforce. One other notable exception was the Hungarian IBM plant, which was closed down in 2002. Through negotiations with the trade unions, temporary agency workers and the company’s own employees received practically the same treatment in the course of the mass redundancy. (HU0211103N)

Social partners' views

While trade unions fiercely oppose the use of temporary agency workers, in practice they are not able to block such company practices. Although employee representatives should be informed about the number of agency workers, in practice decision-making on this issue remains a management prerogative. The unions’ position is arguably quite understandable: the agencies have no collective agreements and the user company’s collective agreement generally does not cover agency workers, thus they cannot be organised. Moreover, there are examples of deliberate company policies to cut wage costs, especially the non-wage provisions stipulated by the user company’s collective agreement, by employing large number of agency workers (this is the experience from some well-known cases in manufacturing, where the majority of agency workers are used - trade union views from other sectors are unknown.)

Employers’ associations basically view TWAs as an important flexibility tool, sometimes as a possible means of saving labour costs through lower wages. On the other hand, employers (both TWAs and user companies) often complain about the perceived overcomplicated procedures established by the law and see some stipulations as unfortunate (for instance, ruling out probation periods for agency workers). As an extreme position, some employers demand a 'new type' of labour contract, which would allow the immediate termination of the employment relationship in case of a drop in labour demand.


The 2001 legislation’s basic aim was to provide employers with firm rules on running agencies and on using them in line with the international standards (set by the International Labour Organisation and the EU). In this respect, the law functions relatively well though abuses and illegal practices are reported by inspectors and researchers. At the same time it is a fairly 'liberal' regulatory regime: only minimum standards are set by the law, and it was not the aim of legislation to influence to what extent agencies should be used. At the moment there is no known government proposal to change the regulations in force. It is worth noting that a recent proposal by leading labour lawyers to overhaul the Labour Code envisages further flexibilisation that might affect TWAs (HU0411102F).

On the whole, the extent of temporary agency work in Hungary is still lower than in many 'old' EU Member States, and is mainly concentrated in low-skilled jobs in certain sub-branches of manufacturing. (László Neumann, Institute of Political Science, Hungarian Academy of Sciences)

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