Grounds for Termination
The grounds for termination vary depending on whether it is initiated by the employer or the employee, whether the contract is terminated with or without notice, and whether the contract is for an indefinite or fixed term.
In accordance with the Hungarian Labour Code and established judicial practice, the cause for terminating employment must meet the requirements of clarity, truthfulness, and causality (i.e., the cause must be sufficiently serious to justify termination). The burden of proof lies with the party initiating the termination. Termination must be provided in writing, and the employer is obligated to inform the employee about available legal remedies.
Termination with notice
In case of indefinite contract, the employment can be terminated by notice by the employer on following grounds:
- Misconduct
- Medical incapability/other incapacity – Most onerous ground for an employer to prove. Such reasons could be related to medical condition (i.e. the employee loses his eyesight, or related to any capability (i.e. unsatisfactory people management, language or time management skills).
- Organisational issues – This is the easiest method for an employer to terminate employment. The court cannot analyse the employer’s economic reasons behind redundancy.
- Employment contract of executive employees and pensioners can be terminated without reasoning.
Employees can terminate their indefinite-term contracts without providing a reason.
The employer can terminate a fixed-term employment contract:
- with immediate effect at its convenience, without a cause, but then they must pay the employee absentee fee for the outstanding period, with a maximum of 12 months’ absence fee.
- with notice: (i) during liquidation or bankruptcy proceedings; (ii) a reason related to the employee’s abilities to perform the role; or (iii) if for an unavoidable external cause, which makes the continuation of the employment relationship impossible. Notice period: as in the case of permanent employment.
An employee may terminate their fixed-term employment by giving notice if they provide justification that maintaining the employment relationship would be impossible for them or would cause disproportionate harm considering their circumstances.
Termination without notice
Both employers and employees can terminate the employment contract without a notice if the other party acts in a manner which wilfully or by gross negligence breaches their primary employment obligations, or otherwise demonstrates a behaviour that makes the continuance of the employment impossible. The same rules are applicable to indefinite and fixed term contracts. In this case, the employment ends on the day when the termination was delivered. The termination must be delivered within 15 days of the misconduct being revealed to the other party and within 1 year of the misconduct occurring.
Collective Dismissals
Under Hungarian law, collective dismissal refers to a situation in which an employer, based on its average total number of employees during the preceding six-month period, terminates employment relationships within 30 days for reasons connected to its operations with:
- At least 10 employees if it has between 21 and 99 employees;
- At least 10% of its employees, if it has between 100 and 299 employees; or
- At least 30 employees if it has 300 or more employees.
The rules on collective dismissal apply only if the terminations of employment occur within a single 30-day period. However, it is not unlawful for an employer to avoid these rules by spreading out terminations over a longer period.
The employer must notify the works council (if one exists at the workplace) at least 15 days before making a decision to carry out collective dismissal.
Additionally, the employer is required to submit written notifications to the competent labour authorities (employment centres):
- Intention to implement collective dismissal: This notification must be submitted before the process begins, though no specific deadline is set.
- Decision to implement collective dismissal: This notification must be submitted at least 30 days before issuing termination notices to employees. It must include specific details for each employee affected, such as their social insurance number, last position held, qualifications, and average earnings.
If there is no works council, these two notifications can be submitted simultaneously to the labour authority.
The employer is required to notify employees who are to be made collectively redundant at least 30 days before issuing a termination notice. This notification is of particular importance because the termination notice can only be delivered to employees 30 days after the notification. Failure to comply with this timeline renders the termination wrongful.
The timing of the notification is also significant in terms of termination protections. Employees can only invoke protections against termination if the circumstances giving rise to such protections already existed at the time of the notification.
Failure to comply with the Labour Code regulations can lead to unlawful employment termination. The consequences of unlawful termination do not apply for mutual termination agreements. If the employment is terminated unlawfully, the employer must pay lost wages (no more than 12 months’ average earnings) and compensate any damage suffered. If the employer fails to notify the labour authorities or the notification is defective or the employer provides incorrect data, the labour authority has the right to levy a fine of up to EUR 1,700.
Individual Dismisals
The employer must not terminate the employment contract of an employee with ordinary termination when the employee is:
- pregnant,
- on maternity leave,
- on leave of absence without pay to care for a child,
- in voluntary reserve military service or
- undergoing treatment in connection with an assisted human reproduction procedure within the meaning of a separate statute, but only up to six months (this rule applies to women only),
- on paternity leave,
- on parental leave,
- on caregiver absence.
The date when the termination notice is given will determine whether the protection applies.
The employee may request, in writing, reasons for their termination if they think their termination was due to being on reasons set out below.
- Taking a period of caregiver’s absence, paternity leave, parental leave, unpaid leave to care for a child,
- Requesting to transfer to an existing vacant position,
- Requesting to change working conditions.
The employer is obliged to give the reasons for terminating the employee within 15 days of the request.
Termination Protections
In case of an employee not on leave of absence or maternity leave and has a child under the age of 3 (in case of male employees only if he takes care of a child alone), the employment may only be terminated with notice on the grounds of
- the employee’s incompetence or reasons associated with the employer’s operations if the employer does not have a vacant position that matches the employee’s competencies, qualifications, or experience or if the employee refuses to work in such a position offered to them;
- if the employee acts in a manner which wilfully or by gross negligence breaches their primary employment obligations or otherwise demonstrates a behaviour that makes the continuance of the employment impossible
The same termination protection rules apply to employees within 5 years before retirement.
Employees on rehabilitation aid can also only be terminated for unsuitability due to medical reasons if the employer is unable to employ them in the original position and cannot offer the employee a position suitable for their medical condition or if the employee refused such an offered position without good reason.
Is Severance Pay Required?
Employees are entitled to severance pay if the employer terminates the contract with notice, provided they have at least 3 years of service. Severance is also payable if the employee initiates termination without notice due to the employer’s breach of contract.
However, no severance is payable if the employee is terminated
- with immediate effect due to a significant breach of a material obligation under the contract,
- for misconduct or lack of capacity, capability, or skills (other than health-related issues) or
- if the employee qualifies as a pensioner.
Severance pay equals 1 month’s salary after 3 years of employment. It increases by law to 2 months after 5 years, 3 months after 10 years, 4 months after 15 years, 5 months after 20 years, and 6 months after 25 years. Additional severance is payable if the employee is terminated within 5 years of retirement age, ranging from 1 to 3 extra months’ severance based on the length of employment. The parties may agree to a higher severance pay.
Separation Agreements
Is a Separation Agreement required or considered best practice?
Employees and employers are free to determine the terms of a separation agreement. Generally, employees are willing to enter into such an agreement if they receive a higher exit payment than they would in case of the employer’s termination.
A separation agreement benefits the employer because it is difficult for the employee to challenge it (only in cases of misleading or threatening by the employer or if both parties misunderstood a significant assumption).
What are the standard provisions of a Separation Agreement?
A separation agreement must explicitly reflect the shared intent of both parties to terminate the employment relationship and include an agreement on the termination date. Beyond this, the parties are free to agree on any other terms, as the Hungarian Labour Code does not regulate the details of separation agreements.
Does the age of the employee make a difference?
The age of the employee does not make a difference.
Are there additional provisions to consider?
An employee may challenge a mutual agreement if it was concluded under duress, based on a mistake, or due to deception. For example, this could occur if the employer initiated the mutual agreement but withheld vital information about benefits due upon the termination. In such cases, if the employee successfully challenges the agreement in court, they may seek remedies for wrongful termination, including compensation or reinstatement of the employment relationship.
Remedies for Employee Seeking to Challenge Wrongful Termination
Claims for lost income in unlawful termination cases are capped at a maximum of 12 months’ salary (absentee fee). However, the employer is also liable for other damages arising from the unlawful termination, including non-pecuniary damages.
Employment reinstatement is permitted only in specific circumstances, such as the following:
- Termination that violates anti-discrimination laws or breaches equal treatment rules.
- Termination that constitutes an abuse of the employer’s rights.
- Dismissal of an employee who is protected against termination under legal provisions.
- Situations where an employee successfully challenges a mutual termination agreement.
- Termination of a trade union official or works council president without the required approval of the trade union or works council.
- Terminating an occupational health representative without the approval of the occupational health committee.
In cases where reinstatement is granted, the employee’s claim for lost income is not subject to the 12-month salary cap, allowing for full compensation for financial losses incurred during the period of absence.
Whistleblower Laws
Companies must establish whistleblowing systems based on their size and the nature of their activities. These systems are mandatory for larger companies, employing at least 250 employees, and those subject to specific regulatory obligations, such as the Money Laundering Act. Whistleblowing systems are designed to allow individuals to report unlawful acts, alleged unlawful acts, or misuse of power within the organisation.
The whistleblowing system must be accessible to many individuals, including current and former employees, job applicants, trainees, volunteers, contractors, subcontractors, and suppliers. Reports can be submitted anonymously, ensuring confidentiality and protection for whistleblowers.
Companies must designate an independent person or department who cannot be instructed in this role to operate the system. This responsibility may be combined with other positions, such as compliance managers, HR managers, integrity advisors, in-house lawyers, or external whistleblower protection lawyers. The system must accommodate various reporting methods, including verbal submissions via telephone or in-person meetings (which must be recorded or documented) and written submissions through posts, complaint boxes, or online platforms.
The Labour Inspection Authority oversees compliance with these requirements. Although the authority does not impose fines, it can demand that companies rectify any violations. Non-compliance with whistleblowing regulations may lead to breaches of other laws, such as labour, competition, or data protection laws, which could result in significant fines or penalties.
