Amendments to the Hungarian Labour Code: Significant changes from 1 January 2023

The Hungarian Labour Code has been amended with effect form 1 January 2023. A number of key areas subject to regulation, including employer information obligations, the termination of employment relationships, the modification of employment contracts and employee leave entitlements have undergone changes as a result. It is no doubt that these are the most extensive and most important modifications that have been made since 2012, when the Labour Code entered into force. Several of the rules that have changed require employers to take certain proactive steps and to exercise more vigilance.

The key takeaways for employers are as follows:

  • Information notices pursuant to Section 46 of the Labour Code must be updated by employers as more extensive information is now required. In the event of any change, information must be provided to employees at the same time as a change is implemented, which requires a much faster response from employers. Non-compliance may result in the imposition of sanctions by the Labour Authority or in certain cases, lawful refusal on the part employees to follow employer instructions.
  • Termination of employment may result in higher risks for employers. It will be easier for employees to invoke the abuse of rights in the event of termination. Greater care is needed when terminating employment relationships and in certain cases, employers must take into account higher risks and greater financial exposure.
  • Termination of employment must, if an employee so requests, be accompanied by reasons for the termination in certain cases, which was not a requirement previously. These cases include the termination of employment during probationary period as well as the termination of executive employees and of employees who are pensioners. Vigilance is now needed in termination matters which were previously considered risk-free.
  • Employees are entitled to request part time work, telework and other more predictable and secure forms of employment and employers can only refuse such requests for good reasons. If such reasons are not provided, labour courts can modify employment contracts to bring them into line with employee requests and employees may also assert claims for damages. Employers must be ready to handle such requests, and they might have to revise their approach to part time work, telework, fixed-term employment and similar arrangements.
  • New and modified leave entitlements have been introduced, including paternity leave and parental leave. These changes may mean that employers will have to revise internal policies and procedures.

We elaborate on the most important Labour Code modifications of relevance to employers below.

1. Modified employer information obligations

As of 1 January 2023, employers will have to observe a shorter deadline for providing employees with more extensive information on the essential terms and conditions of their employment. The new rules are the result of the transposition of EU Directive 2019/1152 regulating transparent and predictable working conditions.

Importantly, written information must be given to all employees, except for employees working less than half an hour a day.

The modified rules contained in Section 46 of the Labour Code include an extended list of information that must be provided by employers in writing. The new information categories include:

  • commencement and duration of employment;
  • place of work;
  • days on which work can be scheduled, potential duration of overtime, specific nature of the employer’s activities;
  • rules relating to the termination of employment;
  • employer policy on training, and the time that employees can spend on training;
  • name of the authority to which an employer pays employment-related taxes;

Some of the information can be provided by reference to the relevant Labour Code provisions or other employment relationship-related rules (for example, collective bargaining agreement rules).

Employees must be informed of the above within 7 days (previously, 15 days) of the commencement of employment. Employees must be informed of any change in the information or in the name and other basic data of the employer on the date on which any change is implemented. Previously, the Labour Code provided 15 days following such date for employees to be informed. Thus, this new rule requires a much faster response from employers.

Importantly, the above extended information obligation applies primarily to new employment relationships that commenced after 1 January 2023. Nonetheless, according to the applicable rules, existing employees may request additional information from employers in writing until 31 March 2023.

In the light of the above, it is advisable for employers to update information notices in line with these rules. Importantly, if an employer fails to duly fulfil its written information obligation, then the Labour Authority can initiate an inspection procedure, which may have adverse consequences, including the ordering of the employer to provide appropriate information or the imposition of a fine in more serious cases.

2. Modified rules on termination of employment and abuse of rights

One of the most significant amendments to the Labour Code is the introduction of new provisions concerning the “prohibition of the abuse of rights”. The prohibition of the abuse of rights is one of the fundamental principles enshrined in the Labour Code. The principle is not defined exactly, but, in essence, covers all conduct that is intended to or may result in the harassment of others or in injury to their legitimate interests, restrictions on the enforcement of their interests and remedies, or the suppression of opinion.

A typical example of the abuse of rights is an employer dismissing an employee for a reason ostensibly connected with the employer’s operations (e.g., reorganization or the elimination of a position) whereas, in reality, the employee is being terminated because of, for example, past arguments with his superior.

Under the rules that were in force until 31 December 2022, if an employee claimed that his termination violated the principle of the prohibition of the abuse of rights, then the burden of proof rested with the employee. Such regulation of the burden of proof was highly disadvantageous for employees given that documentary or other similar evidence is rarely available to employees once they have been terminated.

Under the amended provisions of the Labour Code, employees are now in a better position, as the new rules split the burden of proof between the parties as follows:

(a) the party alleging an abuse of rights (typically the employee) must prove the facts and circumstances underpinning the violation as well as the adverse consequence suffered;

(b) the defending party (typically the employer) must prove that there is no causal link between the facts and circumstances as well as the adverse consequence suffered.

Furthermore, under the amended provisions, employees may request courts to reinstate the previously terminated employment relationship, and this may have two significant consequences:

(a) the employment relationship will ‘revive’ as continuous from the previous termination date and, the employer must, start employing the employee again;

(b) the employee will not be barred by the 12-monthly salary cap in relation to lost (unpaid) salary claims, meaning greater financial exposure for employers.

The new rules could produce a result that legislators did not intend it to have, in that employees may try to allege an abuse of rights just for the sake of it. Employees may be able to force employers to negotiate a settlement by threating them with the potential reinstatement of employment and claims exceeding 12 months’ salary.

As a result, employers must now pay even more attention to termination matters than before. It must be assessed internally whether an employee may assert an abuse of rights claims. This particularly applies to cases in which an employee may have been previously involved in conflicts with superiors or colleagues. It is more important than ever before that an employee should never be terminated for a ‘covert’ reason.

3. Modified rules on termination of employment and reasons

According to the modified rules, in certain cases employers must – in response to an employee request - provide reasons for the termination of employment even if that as a main rule is not required by the Labour Code. These modifications primarily seek to implement EU Directives 2019/1158 and 2019/1152, which regulate issues related to work-life balance as well as transparent and predictable working conditions.

In the case of termination of employment by an employer, reasons must be provided and this fundamental rule has not changed. However, in certain specific cases – including termination of employment during probationary period as well as the termination of the employment of executives and of employees who are pensioner –¬¬ the employer is not required to provide any reasons for termination.

Under the modified rules, an employer must provide reasons for the termination of employment if an employee asks to be provided with them, even if that is not mandatory as a main rule and if, in the employee’s opinion, the termination occurred because of the taking of certain forms of leave (e.g., paternity leave, parental leave and unpaid leave for caring for a child) or of requesting more predictable and secure forms of employment. An employee may request that such reasons are supplied in writing within 15 days of the service of notice of termination. An employer must supply the reasons in writing within 15 days of receiving such request from an employee. The reasons must comply with the labour law principles of true, clear and causal reasoning.

In the light of the above, employers must act carefully with respect to terminations that were considered almost entirely risk-free previously. More diligent preparation is advisable in such cases, and employers need to think over what would be good reasons in the event of a potential request submitted by an employee.

4. Modified rules on modifying employment contracts

The Labour Code continues to require employees to be informed of certain more predictable and secure forms of employment, including part time work, telework and indefinite term employment. Similarly, according to the unchanged rule, employees have the right to request the modification of their terms of employment and employers are obliged to respond to them in writing within 15 days. However, before 1 January 2023, employers were allowed to exercise discretion and were not obliged to provide a reason for their decisions.

Under the modified Labour Code rules, an employer must provide reasons for refusing an employee request. In addition, in cases of unlawful refusal or failure to respond on time, the new rules provide for significant consequences. The modifications primarily aim to implement EU Directives 2019/1158 and 2019/1152 regulating issues related to work-life balance as well as transparent and predictable working conditions.

Under the amended rules, except for the first six months of employment, employees may request a transfer to full time or part time employment, teleworking or indefinite term employment if available based on information provided by the employer. In such cases, employees may request the modification of their employment contracts in writing and by providing reasons. The employer is obliged to respond in writing within 15 days. In the event that such a request is rejected, the employer must provide clear, true and causal reasons for doing so. In the event of unlawful refusal or failure to respond in time, the courts will amend the terms of employment in line with what was requested by the employee. Importantly, all employees enjoy such rights and not just employees with children, for example. In addition, it is worth noting that these rights, along with their potential consequences, only apply if such forms of employment are available at the employer.

Moreover, except for the first six months of employment and until a child reaches the age of eight, employees may request a change in their place of work and work schedule as well as a transfer to telework or part time work, doing so in writing and by providing appropriate reasons. The rules applicable to such procedure are similar to those described above, meaning that the employer is obliged to respond in writing within 15 days and in the event that the request is refused, the employer must provide clear, true and causal reasons for doing so. In the event of unlawful refusal or failure to respond on time, the courts will amend the terms of employment to conform to what was requested by the employee.

These modified rules may have a significant impact on certain internal policies and strategies concerning for example telework, definite term employment and part time work. Employers are advised to prepare for responding to the types of employee requests described above and to carefully examine when flexibility can be exercised and when refusal might be necessary.

5. Modified rules on leave entitlements

The amended Labour Code provisions introduce new and modified leave entitlements for employees.

Employees caring for relatives and persons living in the employee’s household, provided that such individual requires caring by the employee for medical reasons, are also entitled to be absent from work for five working days annually. These days off are to be granted by employers in up to two instalments in line with an employee request and no compensation is payable during this type of leave.

According to the modified Labour Code rules, fathers (including adoptive fathers) are now entitled to 10 working days of paternity leave. Paternity leave is granted in up to two instalments at the request of an employee. The leave must be granted within two months of the birth/adoption of a child. For the first five days of paternity leave, a 100% absence fee (average salary) is payable, while only a 40% absence fee is payable for the second five days. Importantly, fathers whose children were born between 2 August 2022 and 31 December 2022 will also be entitled to this enhanced paternity leave. This rule is also applicable to adoptive fathers provided that the adoption took place within the same time period.

A completely new leave entitlement means that fathers and mothers now individually have 44 working days of parental leave until a child reaches 3 years of age provided that the employee has at least one continuous year of employment with the employee’s employer. The employee is entitled to 10% of his absence fee during the parental leave from which certain social security benefits (e.g., childcare allowance) are to be deducted. As a general rule, parental leave must be granted in accordance with what is request by the employee. If the child reaches the age of 3 between 2 August 2022 and 30 June 2023, the employee will still be entitled to 44 working days of parental leave until the latter date.

Under the modified Labour Code provisions, an employer may take the following steps if they are necessary in connection with major economic interests on the part of the employer or for reasons directly and seriously affecting its operations, while providing reasons in writing for doing so:

(a) postpone leave, except for paternity leave, for a maximum of 60 days,

(b) interrupt the leave which has already begun except for paternity leave and parental leave,

(c) where a collective bargaining agreement so provides, grant one quarter of the leave no later than by 31 March of the following year.

The new and modified leave entitlements may require the revision of the internal policies and procedures of employers, especially with respect to leave policies and employee handbooks.

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