New controversial rules on overtime and reference period in Hungary

The amendment raises the maximum amount of overtime and the maximum length of the reference period that employers can apply. The changes have been labelled as “slave law” by critics and are highly debated both from social and legal perspective.

We will take a close look at the ins and outs of this disputed new law.

As an opening observation: it is noteworthy that OECD statistics show that Hungarians work longer hours than many of their western neighbours. In 2016, Hungarians worked an average of 1,740 hours a year, compared with 1,613 in Austria — but received, on average, about half the pay.

What is the essence of the new overtime rules?

To put it simply, the amendment raises the yearly cap on overtime to 400 hours from 250. More precisely, employers can demand overtime of up to 250 hours in a calendar year. If a collective bargaining agreement is in force at the employer, then the parties can agree in the collective bargaining agreement that a maximum 300 hours of overtime can be ordered in a calendar year. According to the amendment, if the employee and the employer agree in writing, an additional 150 hours of overtime can be ordered by the employer beyond the 250 hours cap. If a collective bargaining agreement is in force at the employer, then the employee and the employer can agree in writing that a maximum extra 100 hours of overtime can be ordered in addition to the 300 hours cap.

Importantly, the additional amount of overtime can only be ordered if the employee and the employer freely agree on this in writing. The Labour Code calls this “voluntarily undertaken overtime”. One of the issues that arose is whether in an employment relationship the employee's freely given consent is possible at all due to the imbalance of power? Critics fear that employees might be forced to sign agreements on increased overtime; therefore we expect that the Labour Inspectorate will closely monitor the lawfulness and fairness such of agreements. We note that, according to the Labour Code, employees are entitled to terminate such agreements on increased overtime by the end of a calendar year. The Labour Code also specifies that the termination of such agreement by the employee cannot result in the termination of employment by the employer.

Also of importance is that the employee and the employer can agree on the terms of the “voluntarily undertaken overtime” within the framework rules of the Labour Code. This means in practice that the employee may try to negotiate (or the employer may offer) more favourable terms for the increased overtime. For instance, it can be specified in the agreement that the employer pays an increased amount of overtime allowance for the overtime performed above the general 250 hour cap, or that the employer is not entitled to order overtime beyond the general 250 hour cap in certain well-defined circumstances. Needless to say that it is a question of how this would work in practice and whether this is a real option at all.

How is overtime regulated in other EU countries?

Although increased overtime rules sparked protests and criticism in Hungary, it must be noted that the 400-hour cap is in line with the relevant EU laws and also not unique in the EU, especially in other CEE countries. The overtime regulation in Slovakia is similar to the Hungarian. Employers can demand overtime of up to 150 hours in a calendar year, while an additional 250 hours of overtime (in total 400 hours) can be ordered based on the parties’ agreement, similarly to the new Hungarian overtime regime. In Poland, the annual overtime that can be ordered by employers is also 150 hours, however collective bargaining agreements, workplace regulations (applicable only at employers with more than 50 employees) or in the absence of these, individual employment agreements can increase the annual limit to 416 hours in line with the EU Working Time Directive.

The annual overtime cap is considerably lower in other EU countries however. Contrary to the above mentioned CEE countries, in the Czech Republic the annual limit of 150 overtime hours cannot be increased in any way, excluding managerial employees. In France and Belgium, the annual overtime limit is 220 hours and 100 hours respectively. Employees are highly protected especially in Belgium: in addition to the above mentioned relatively low overtime cap, their written consent is required for overtime and the consent must be renewed every six months.

In certain EU countries, for example in Denmark or in the Netherlands the maximum amount of annual overtime is not regulated expressly. This does not mean, however, that employers can order unlimited hours of overtime. The employer must always be compliant with the statutory provisions on scheduling working time, which gives adequate protection to employees.

Is freely given consent possible in the employment context?

As mentioned above, one of the major concerns regarding the new overtime regulation is that free and voluntary consent in the employment context is questionable. By way of analogy, according to the well-established principle of data protection law, employees are almost never in a position to freely give, refuse or revoke consent, given the dependency that results from the employer/employee relationship. Given the imbalance of power, employees can only give free consent in exceptional circumstances, when no consequences at all are connected to acceptance or rejection of an offer. The Hungarian government argues that the labour shortage has vested employees with better bargaining power, therefore the risk of employers enforcing agreements on extra overtime is low. On the other hand, critics say that this was a short-sighted approach, not considering potential future changes in the labour market, let alone rural countryside where a significant number of defenceless employees typically do not have multiple jobs options so their bargaining power is very limited.

Can collective bargaining agreements exclude the possibility of “voluntarily undertaken overtime”?

Interestingly, some Hungarian subsidiaries of multinational companies recently declared that they will not apply the new rules meaning that they will not conclude agreements on extended overtime. The question arose whether an employer could undertake this in a collective bargaining agreement as well? According to the Labour Code, the collective bargaining agreement can deviate from the new overtime rules of the Labour Code only in favour of the employees. It is a debated legal issue whether the collective bargaining agreement can restrict or exclude the possibility of concluding individual agreements between the employer and employees on voluntarily undertaken overtime. The question is what can be considered as being in favour of the employee? Most experts say that considering the interests in protecting employees’ health and work safety it is lawful to restrict or exclude in a collective bargaining agreement the possibility of agreements on voluntarily undertaken overtime.

What is the essence of the new rules on reference period?

The amendment increases the maximum length of the reference period to three years instead of one. A reference period is a period set by an employment agreement or collective bargaining agreement over which weekly working time can be averaged. The aim is to provide a greater degree of flexibility in the organisation of working time, allowing employers to vary weekly working time, as long as average working time over the set reference period does not exceed the set limit.

According to the Labour Code, the reference period can be a maximum of four months. In case of specific jobs and special work schedules as defined by the Labour Code, the reference period can, however, be six months at maximum. If a collective bargaining agreement is in force at the employer, then it may specify a reference period of 36 months maximum provided that objective or technical reasons or reasons related to the organisation of work necessitate. Before the amendment of the Labour Code, a collective bargaining agreement might have set a reference period maximum of 12 months in line with Article 19 of the EU Working Time Directive. Clearly, this is a quite significant increase in the maximum length of reference period resulting in undoubted unpredictability for employees and increased flexibility for employers. Nonetheless, as a reference period up to 36 months can only be specified in collective bargaining agreements, it is questionable whether any trade unions will be open to agree on such a long reference period. Therefore, experts say that in practice the risk of forcing employees into a highly unpredictable situation is relatively limited.

Importantly, in case of applying a longer reference period, other protective rules must also be considered by the employers. For example, the scheduled weekly working time cannot exceed 48 hours per week. In case of reference period, this requirement must be complied with on the average of the reference period; however, in case of a reference period of 36 months this requirement must be complied with on a 12-month average if a collective bargaining agreement specifies so.

Similarly to the agreements on “voluntarily undertaken overtime”, collective bargaining agreements can regulate various aspects of a longer reference period within the framework of the Labour Code - by providing further protection for the employees - e.g., the recording of working time, regular information to be provided for the employees on worked hours, and payment terms of overtime.

How is reference period regulated in other EU countries?

The maximum length of reference period does not exceed 12 months in almost all of the EU countries. We are aware of one exception: in France the reference period can be extended up to three years in a collective bargaining agreement. However, when the reference period is longer than a year, a weekly limit of 39 hours is set for the counting of overtime i.e. whenever the employee has worked more than 39 hours a week, the hours worked in excess of this limit must be considered as overtime and must be paid as such at the end of the month. In the light of the above, the Hungarian regulation of maximum reference period (36 months in certain circumstances) is exceptional.

Is the 36-month reference period in compliance with the EU Working Time Directive?

Trade Unions and many experts have been emphasising that the extended 36-month reference period is most probably in contravention of the EU Working Time Directive (Directive 2003/88/EC concerning certain aspects of the organisation of working time). Let us take a closer look. Article 16 (b) of the EU Working Time Directive specifies that “Member States may lay down: for the application of Article 6 (maximum weekly working time), a reference period not exceeding four months.” Additionally, Article 19 of the EU Working Time Directive provides that “the option to derogate from Article 16(b), provided for in Article 17(3) and in Article 18, may not result in the establishment of a reference period exceeding six months. However, Member States shall have the option, subject to compliance with the general principles relating to the protection of the safety and health of workers, of allowing, for objective or technical reasons or reasons concerning the organisation of work, collective agreements or agreements concluded between the two sides of industry to set reference periods in no event exceeding 12 months.” That is to say in any case the reference period – with respect to the 48-hour maximum weekly working time (including overtime) – cannot exceed 12 months.

As mentioned above, the Hungarian legislator has introduced a rule according to which the scheduled weekly working time cannot exceed 48 hours per week, and in case of a reference period of 36 months (more precisely a reference period longer than 12 months but maximum 36 months) this requirement must be complied with on a 12-month average if a collective bargaining agreement specifies so. So the Hungarian legislator has tried to creatively ensure that the new amendment of the Labour Code is in line with the relevant EU law. However, most experts say that such an argument would probably fail before the European Court of Justice, and that the Directive’s 12-month cap on the reference period cannot be circumvented in such way.