Government amends labour legislation in bid to tackle economic crisis

In an attempt to alleviate the effects of the economic crisis, the Hungarian government amended several laws in favour of employers as of 1 June 2009. The legal modifications affected the Labour Code with respect to several working time related issues, as well as the laws stipulating the rules of exclusion for law-breaking employers from state subsidies and public procurement. From the outset, the trade unions strongly opposed the draft versions of the legal amendments.

The Hungarian government has introduced a number of legal amendments, as of 1 June 2009, in an effort to alleviate the employment consequences of the ongoing economic crisis. The amendments pertain in particular to the working time rules in the Labour Code and to the law on ‘orderly labour relations’, which stipulates the criteria for the exclusion of companies from state subsidies and public procurement, which came into force in January 2006 when the government placed particular emphasis on fair and declared work.

Employer objectives

Employer organisations are believed to have lobbied for the recent legal amendments on the basis of two main aims. Firstly, they sought to render working time provisions even more flexible, although these provisions had already been relaxed in the past few years. Secondly, their aim was to amend the formerly strict rules on exclusion from state subsidies (such as active labour market policy measures) and public procurement, for employers committing relatively minor breaches of the labour legislation.

Labour Code amendments

New reference period for statutory working time

The statutory working time of eight hours a day, or 40 hours a week excluding overtime, may be increased to 44 hours a week, only if the average basic working time does not exceed 40 hours a week over the reference period between 1 April 2009 and 31 December 2011. Such an increase in working time is only possible on the basis of a written agreement between the employer and worker. During the period in which the weekly working time exceeds 40 hours, the worker is protected from ordinary termination of their employment contract for operational reasons. According to the Labour Code Act regulating the organisation of working time, the length of the basic weekly working time will not automatically affect a worker’s salary.

These new legal provisions, however, do not affect the rules on the maximum length of working time including overtime, which, in accordance with the EU Working Time Directive (Directive 2003/88/EC), is 48 hours a week on average in a reference period of up to one year. Therefore, even if the length of the basic weekly working time has been increased to 44 hours, the maximum weekly working time including overtime cannot exceed 48 hours.

Increase in reference period for calculating working time

According to the previous regulation in force, the employer had the possibility to unilaterally order a three-month reference period for calculating the basic weekly working time. This reference period, however, could be extended to up to 12 months under certain circumstances by way of collective agreements. As of 1 June 2009, an employer has the possibility to unilaterally set the working time reference period at four months.

Individual agreement on overtime

The general maximum of allowed annual overtime amounts to 200 hours. This can be increased to 300 hours a year by way of collective agreement or by individual agreement between an employer and worker. Prior to the recent legal amendments, individual agreements could only be concluded under strict conditions; with the changes to the Labour Code, the conditions for concluding such an individual agreement have now been relaxed.

Rest period after stand-by duty abolished

A further Labour Code amendment has abolished the former regulation that granted rest periods for workers after stand-by hours, even if they did not carry out actual work during their stand-by duty.

Amendments to public procurement and state subsidy exclusion legislation

The so-called law on ‘orderly labour relations’, which stipulates the criteria for the exclusion of companies from state subsidies and public procurement, was first applied in a case in the chemicals sector in November 2007, suspending subsidies due to labour law abuses (HU0801079I). It has received much criticism ever since. There were cases of major construction companies being excluded from public procurement for five years because one of their subcontractors employed one single undeclared worker and the construction company had no means to prove that the said worker was not one of its own employees.

Prior to the latest legal changes, a rather complicated system had been in place to assess labour relations, in accordance with the following. If in the two years preceding a labour inspection an employer breached the laws on declared work or bogus employment contracts, or infringed trade union or works council rights, the employer was automatically excluded from state subsidies. If the infringement was qualified as ‘less severe’ – such as discrimination, or a breach of working time rules or pay provisions – the employer was entitled to state subsidies but only once ‘law-respecting’ employers had been considered first.

Other but similarly strict regulations with regard to public procurement made it possible to exclude companies – fined by the Hungarian Labour Inspectorate (Országos Munkabiztonsági és Munkaügyi Felügyelet, OMMF) for using undeclared work or bogus employment contracts – from public procurement for five years. If a company had been fined by OMMF for discrimination, it could be banned from public procurement procedures for two years.

The latest legal amendments have relaxed these strict rules as follows. With respect to state subsidies, the duality of ‘serious’ and ‘minor’ offences has been maintained. Any employer breaching the legal provisions on declared work or substantial trade union and works council rights – considered as serious labour law breaches – will be reported to the labour court or OMMF. In addition to being fined for such serious breaches of labour law, the employer will automatically be excluded from receiving state subsidies.

If an employer commits a ‘minor’ offence, they can be excluded from receiving state subsidies only if they had been fined for such a violation twice within a period of two years. The following offences are considered as minor by law: employing people on bogus contracts; breaching working time rules and/or pay provisions; employing migrant workers without a work permit; and discrimination.

With respect to public procurement, the companies that committed a serious labour law offence – as described above – shall be excluded, if they have also been fined for such serious breaches. The limit of being excluded for a two-year period also applies in this case, so it was significantly reduced compared with the five-year period that had been applied previously.

Amendment of Labour Inspection Act

The Labour Inspection Act was amended in such a way that, in certain cases, OMMF has no longer the discretionary power to decide whether or not to impose a fine. Therefore, if OMMF discovers a labour law breach that is mentioned in the act, it is mandatory to impose a fine on the employer. The following aspects are listed as labour law breaches in the act: employment on bogus contracts; employment contracts with formal mistakes; use of undeclared work; lack of working time records or a breach of working time provisions if at least 20% of workers are affected; violation of special provisions on the employment of women, minors or people with disabilities; illegal temporary work agency activities; breaches of pay provisions, if at least 20% of workers are affected; and breach of basic trade union and works council rights.

Social dialogue on draft versions of legal amendments

Debates on the draft versions of the legal amendments proposed by the government commenced at the National Interest Reconciliation Council (Országos Érdekegyeztető Tanács, OÉT) at the end of February 2009. From the outset, the trade unions strongly opposed both draft versions of the amendments. As far as the Labour Code is concerned, they basically considered the government plan to be unjustifiably optimistic regarding the unfolding economic crisis, as it projected a recovery for Hungary as early as in 2010. Furthermore, the government plan was based on the assumption that the excess working time required to ensure the country’s economic recovery in 2010 would equal the non-utilised working time possibility of 2009. Even if this projection proves valid, trade unions would welcome government actions to facilitate job creation instead of excessive overtime. They emphasised that it was unacceptable for the government to curb workers’ rights and the scope of collective bargaining by referring to the ongoing economic crisis.

As far as the ‘orderly labour relations’ law is concerned, the trade unions opposed the government plan to give a waiver to employers committing minor labour law infringements, since they believe that this implies a competitive advantage in relation to ‘fair’ employers. Moreover, they criticised the proposed classification of serious and minor labour law breaches, since the draft law interpreted breaching fundamental rights, such as freedom of association, as a minor offence. Finally, in June, the trade unions objected to the amendment of the ministerial decree which cancelled the information right of trade unions and/or works councils upon the employer’s statement about its ‘orderly labour relations’. The trade unions considered this amendment as ‘one sided’, since it had been issued without prior consultation with the social partners.

Although the employers acknowledged some of the trade union arguments on technical issues, they overwhelmingly welcomed the draft versions of the legal amendments.

Commentary

Despite the employers’ enthusiasm, the new regulations do not promise a remedy for all of the employer complaints. For instance, despite severe criticism from the employer side, the regulation regarding undeclared work has not been changed: if an undeclared worker cannot be affiliated to a subcontractor, the contractor will be held responsible for the undeclared work.

The social dialogue on the draft versions of the legal amendments highlighted once again that Hungary’s economic and political crisis resulted in a power shift between the social partners at national level (HU0810029I). The trade unions’ weakened position has been directly translated into a change in employment relations in the workplace by the abovementioned legal changes and new laws.

Gábor T. Fodor and László Neumann, Institute for Political Science, Hungarian Academy of Sciences

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