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Labor and employment law challenges in business transformations

Hungary

Workforce restructuring

The key practical issues in workforce restructuring include:

  • Legal justification
  • Works council and employee representatives’ process
  • Labor administration process
  • Costs and timing
  • Litigation risk

Applicable legislation

Collective redundancies are governed by Sec. 71-76 of the Hungarian Labor Code. Collective redundancy obligations are triggered if an employer within 30 days dismisses:

  • At least 10 employees while employing 21-99 employees
  • At least 10% of its employees while employing 100-299 employees
    Or
  • At least 30 employees while employing 300 or more employees

Required legal justification

The reason for a collective redundancy must relate to the operations of the employer and unrelated to the employee (i.e., it is not connected with the abilities or behavior of the employee). The grounds must be valid, justified and reasonable.

Works council/unions or other employee consultation requirements

Consultation requirements with works council/unions

Works council: The employer, shall inform the works council, in writing, concerning all relevant information on the collective redundancy at least seven days before the consultation, including:

  • The reasons for the projected collective redundancies
  • The number of employees to be made redundant (broken down by categories or the number of employees employed during the preceding six-month period)
  • The period over which the projected redundancies are to be effected, and the timetable for their implementation
  • The criteria proposed for the selection of the employees to be made redundant
  • The conditions for and the extent of benefits provided in connection with the termination of employment relationships, other than what is prescribed in employment regulations

After that, the employer shall initiate consultation with the works council which must last at least 15 days unless an agreement is reached before. The employer is not obliged to conclude an agreement but to consult in good faith, with the purpose to conclude an agreement. The employer may not carry out its planned measure (such as a collective redundancy) during the time of negotiations, or for up to 7 days from the first day of negotiations, unless a longer time limit is agreed upon. In the absence of an agreement the employer may terminate negotiations when the said time limit (15 days) expires.

Trade unions: The employer is not obliged to initiate a consultation with trade unions. However, trade unions have the right to initiate consultation in connection with any planned measure of the employer affecting employees, such as a collective redundancy. If a consultation is initiated, the employer may not carry out its planned measure (such as a collective redundancy) during the time of consultation, or for up to seven days from the first day of consultation, unless a longer time limit is agreed upon. In the absence of an agreement the employer may terminate consultation when the said time limit expires.

Consultation requirements with other employee representatives

The Hungarian Labor Code does not require specific consultation requirements with other employee representatives.

Consultation requirements with employees

There is no legal barrier to open communication with employees on a collective redundancy. After consultation with the works council, the employer can decide to implement the collective redundancy. Moreover, the employer must notify the affected employees about the decision on mass redundancy in writing at least 30 days prior to delivering the notice of dismissal.

Approval/notification of the labor authorities or other government authorities

The employer simultaneously with the notification to the works council shall notify the Hungarian labor authority of its intention regarding collective redundancies, and of the following details and aspects:

  • The reasons for the projected collective redundancies
  • The number of employees to be made redundant (broken down by categories or the number of employees employed during the preceding six-month period)
  • The period over which the projected redundancies are to be effected, and the timetable for their implementation
  • The criteria proposed for the selection of the employees to be made redundant
  • The conditions for and the extent of benefits provided in connection with the termination of employment relationships, other than what is prescribed in employment regulations

A copy of the agreement concluded in the course of negotiations between the employer and the works council along with a copy of the notification sent to employees must be sent to the Hungarian labor authority. Further, the employer shall also notify the Hungarian labor authority in writing of its decision regarding collective redundancies at least 30 days prior to delivering the notice of dismissal to the employees.

This notification shall contain the following information about the employees to be made redundant:

  • Identification data
  • Position
  • Qualification

Generally, approval of the Hungarian labor authority is not required for the implementation of the collective redundancy; however, certain sector-specific regulations and/or strategic agreements with the government may set forth certain prohibitions or approvals.

Employee selection criteria

When choosing which employees to dismiss in a collective redundancy process, the employer must comply with the following:

  • Relevant rules regarding the selection process of the collective bargaining agreement if such applies to the employer
  • Guidelines for the selection process agreed with the works council (if any)

Further, per general labor rules, certain employees are afforded special protection against termination during the redundancy process, such as:

  • Pregnant employees
  • Female employees on maternity leave
  • Employees on leave of absence without pay for caring for a child
  • Employees on military service
  • Female employees — up to six months from the beginning of a treatment related to reproduction procedure

Actions required to limit the negative impact and social plan

There is no explicit legal obligation for the employer to limit the impact of the collective redundancy, but during the negotiations between the employer and the works council they shall, at least, cover the following:

  • Possible ways and means of avoiding collective redundancies
  • Principles of redundancies
  • Means of mitigating the consequences
  • Efforts to limit the number of impacted employees

Internal alternative employment/redeployment
There is no statutory obligation to offer internal alternative employment/redeployment to the impacted employees in Hungary.

Other measures
There are no statutory obligations to implement any other measures.

Estimated timeline

The legal time frame to fully implement a collective redundancy may take approximately two months. However, the time required to fully implement a large-scale redundancy may vary depending on the number of redundancies, the collective bargaining agreement applicable and the unique circumstances of the employer.

Estimated costs

Mandatory costs

The key components of mandatory HR legal costs are as follows:

  • Compensation for the notice period: a minimum of 30 days (for termination of indefinite-term employment contract with notice) extended based on the impacted employee’s years of service with the employer (e.g., a total of 35 days in case of at least 3 but less than 5 years of service, a total of 45 days in case of at least 5 but less than 8 years of service, etc.).
  • Severance payment: the impacted employee’s absentee payment (as defined by the Hungarian Labor Code) subject to his or her years of service with the employer. This amount is increased with 1 to 3 months for impacted employees close to retirement age, subject to the length of their service with the employer.
  • Compensation for unused vacation.

Customary additional costs

Customary additional HR legal costs may include payments such as bonuses, non-compete compensation, or additional payments (longer notice periods, higher severance) if stipulated in employment contract, etc.

Hiring restrictions post-redundancy

Although there are no explicit regulations, the employer should take utmost care before hiring any employee to the terminated employees’ position or to a similar position within a reasonable time after the collective redundancy (concept of “reasonable” time is not defined in the Hungarian Labor Code and requires a case-by-case analysis); otherwise, the terminated employees affected may challenge the lawfulness of the collective redundancy.

Litigation risk

Interested parties

The following interested parties can bring lawsuits related to the redundancy process:

  • Impacted employees: could challenge the lawfulness of the collective redundancy before a court within the limitation period of three years.
  • Works council: similarly, the works council is also entitled to challenge the lawfulness of the collective redundancy before a court within the limitation period of three years.

Litigation does not stop or slow down the collective redundancy process by virtue of law.

Damages and other remedies

Challenges by the employees may lead to payment of compensation for damages or the obligation of reinstatement by the employer, in accordance with the general rules concerning the consequences of unlawful termination by the employer. Challenges by the works council may lead to payment of compensation for damages by the employer to the works council.

Damages for unfair dismissal
The employer shall be liable to provide compensation for damages resulting from the wrongful termination of an employment relationship. Compensation for loss of income from employment payable to the employee may not exceed the employee’s absentee payment (as defined by the Hungarian Labor Code) due for 12 months.

Reinstatement
If the termination of employment was unlawful for certain reasons (e.g., because it impacted a protected employee or it violated the requirement of equal treatment), the labor court may reinstate the employment relationship at the request of the employee.

Criminal sanctions
Hungarian law does not impose criminal sanctions specifically in connection with collective redundancies.

Country-specific issues

There are no other issues specific to Hungary.

Contact

Primary Contact for Hungary Labor and Employment Law

Gabor Jagicza
Vámosi-Nagy Ernst & Young Law Office
+3614518124

Global Labor and Employment Law Guide
Workforce restructuring
2016-07-01
Hungary
HU

Contacts