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Hungary: A Short Guide to Employment Contracts

27/07/2015

In this article we set out to provide some useful guidance on how to prepare legally and commercially feasible employment contracts under the new Hungarian Labour Code. The actual terms and conditions of an employment contract depend extensively on the employer’s operations, structure, the given position and the parties’ negotiations.

As a general rule, in an employment contract parties may deviate from most of the provisions of the Labour Code (or from a collective bargaining agreement) as long as the change is beneficial to the employee. However, certain provisions of the Labour Code expressly prohibit deviation from the relevant provision. It is also important to keep in mind that an amendment of contractual terms is only possible with the consent of both parties.

To be valid, an employment contract has to be concluded in writing and specify certain mandatory terms. These terms are the parties to the employment agreement, the employee's gross base salary (not less than the statutory minimum salary) and position. There are also certain optional terms that need to be expressly stipulated in the contract in order to bind the parties. The most important examples are the following:

If the parties intend to agree to part-time employment, this must be expressed in the contract, otherwise the contract will be deemed to be concluded for full-time employment. Similarly, if the contract is concluded for a fixed-term (maximum 5 years) this must also be stated in the contract. Further, the parties might want to agree on a probationary period (not exceeding 3 months) which is quite common in practice and also needs to be stipulated in the contract.

For a senior executive employed on a contractual basis his/her status as a senior executive, established on the basis of relevant statutory terms and conditions, must be specifically stated in the employment contract. As a consequence, different rules will apply to the employee in relation to termination of the employment contract, conflict of interest and liability. It is also worth noting that the provisions of the employment contract of a senior executive may deviate from many rules of the Labour Code even to the detriment of the employee and there is, therefore, more room for negotiations.

Although the place of work is not an essential term, it is advisable to specify it in the contract to minimise any risk of dispute. It can be determined as one or more specific places or by way of reference to a bigger geographical area. Otherwise, the place where work is normally carried out is deemed to be the place of work.

In terms of salary, the parties may agree that the employee’s base salary includes certain allowances (e.g. shift allowance, night work allowance). It is also possible to agree in the contract that instead of allowances a monthly lump sum is provided to the employee.

The employer can determine the schedule of the employee’s working time, but it is important to note that both parties’ agreement is required to schedule a break longer than 20 minutes but in any case not more than 60 minutes (e.g. a one-hour lunch break).

Regarding annual leave, the parties may provide for certain terms and conditions to make the allocation of annual leave more flexible or to allow a certain part of annual leave to be allocated to the next calendar year.

If the employer wants to have the option to apply disciplinary sanctions, they need to be stipulated in the contract if no collective bargaining agreement applies. For the termination of an employment contract, the general rule applies (i.e. deviation in favour of the employee), but the parties can include in the contract a longer notice period (maximum 6 months) which would apply even in the case of the employee’s regular notice (which would otherwise be 30 days regardless of the employee’s seniority.

It might be practical to include in the contract terms and conditions the purpose of which is to clarify the general principles of employment. Examples of such principles include protecting the employer’s economic interests and reputation, the rules on conflict of interest and confidentiality.

Finally, certain terms and conditions may need to be agreed on in an employment contract in the case of atypical employment relationships (e.g. telework, job sharing and employment with multiple employers).

Authors

Picture of Gabriella Ormai
Gabriella Ormai
Partner
Budapest