New conflict of lawsrules introduced

Hungary officially harmonised its law with the Rome Convention with respect to individual employment contracts in 2001. However, the wording of the Hungarian rules on which law applies where both the employer and the employee are Hungarian but the habitual place of work is another country has led to some controversy and debatable rulings by the courts. New legislation that came into force on 1 January 2006 aims to remedy this problem.

According to the general rule set out in the Rome Convention on the law applicable to contractual obligations, parties to a contract may chose which country’s law they wish to be applied to international contractual obligations, including individual employment contracts. If the parties have not chosen a law, the contract should be governed: (a) by the law of the country in which the employee habitually carries out work in performance of the contract even if he or she is temporarily employed in another country; or (b) if the employee does not habitually carry out work in any one of the countries, by the law of the country where the business through which the employee is employed is situated, unless it is apparent from the circumstances that the contract is more closely connected with another country, in which case the contract shall be governed by the law of that country.

According to the Rome Convention, the choice of law should not deprive the employee of the protection accorded to him or her by the mandatory rules of the law that would be applicable in the absence of choice.

Hungary's 2001 harmonisation

The Rome Convention is not a European Union norm, but an international treaty between the 'old' Member States of the EU. As far as the new EU Member States are concerned, negotiations are reportedly going on about them joining this treaty, or alternatively, replacing the Rome Convention by an EU instrument. Despite the fact that the Convention's rules apply only to EU Member States, most of the Member States have very similar 'conflict of law rules' applicable to non-EU relations too. In 2001, Hungary envisaged a similar kind of 'harmonisation'.

However, the text of Hungary's Act XVI of 2001, which amended Law Decree 13 of 1979 on international private law, contained the rules of the Rome Convention with one notable deviation: the choice of law made by the parties should not deprive the employee of the protection accorded to him or her by the mandatory rules of Hungarian law, in case this should be the applicable law in the absence of choice.

This change has an important result: the protective rule mentioned above does not apply if the law to be applied in the absence of choice is not the law of Hungary. For example, in the quite common circumstances where both the employer and the employee are Hungarian but the habitual place of work is Germany, the parties may choose the Hungarian law, while the more favourable rules for employees of the German law (for example, with respect to the wages) would not apply, according to the 2001 rules.

Remedies for the problematic legislation

Controversial situations that have arisen in terms of which law applies where both the employer and the employee are Hungarian but the habitual place of work is abroad have been resolved by the labour courts. However, they have done so in a way that has been considered open to dispute, in that in a number of cases courts have qualified working abroad as 'posting', in accordance with the law transposing EU Directive 96/71/EC on the posting of workers in the framework of the provision of services. This practice of the courts is, however, seen as highly questionable since posting is by nature temporary and no permanent work abroad can be deemed as posting. Nevertheless, this practice has at least applied the protective measures of the Directive when the measures of the Rome Convention could not be applied. As a result, at least with respect to the most important issues covered by the Directive, especially wages, the legal provisions of the country of the place of work have been applied by the courts in cases where they were more favourable for the employee than the law of Hungary.

Act CLIV of 2005, which came into force on 1 January 2006, has introduced new 'conflict of laws' rules which are in line with the provisions of the Rome Convention and do not include the abovementioned 2001 reference to Hungarian law.

The social partners represented on the tripartite National Interest Reconciliation Council (Országos Érdekegyeztető Tanács, OÉT) (HU0502105F) had no objections with respect to the amendment.

Commentary

By passing the new legislation, the Hungarian parliament seems to have put an end to the controversial situation, since as of 1 January 2006 Hungarian law is more in harmony with the rules of the Rome Convention. As a consequence, the protection of workers working in a country with more favourable labour legislation than Hungary can now be assured by default. Although migration by Hungarian workers is currently restricted by many of the 'old' Member States in line with the accession treaty between Hungary and the EU, migration between the new Member States, for instance of temporary agency workers (HU0511102F), is an issue of growing importance and undoubtedly over time East-West migration and 'conflicts of laws' will increasingly become an everyday phenomenon. (Gábor T Fodor and László Neumann, Institute of Political Science, Hungarian Academy of Sciences)

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