Covid-19 business criminal law and other issues in Hungary

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The COVID-19 pandemic has created a number of major obstacles for commercial activities and the business sector which posed particular challenges to the management of Hungarian businesses. Generally speaking, businesses and their management should take any measures needed to mitigate such adverse impacts and protect the health and working environment of their employees, clients, business partners and the public sphere in general.

As a response, the Hungarian government declared a state of emergency effective as of 11 March 2020. Given this special legal order, the Hungarian government commenced the adoption of several urgent measure-packages in the form of government decrees in order to limit the spread of coronavirus and its impact on the Hungarian economy.

The main measures affecting people in Hungary in general were introduced by Decree 71/2020 on 27 March 2020, however, as of 30 April 2020, these measures were lifted by Decree 168/2020 for all parts of Hungary except for Budapest and the county of Pest as these are the regions mainly affected by COVID-19.

The cornerstones of the restrictive measures adopted by the government can be summarised as follows:

  • Restrictions on the lawful ability of Hungarians to leave their homes, allowing individuals to venture out of doors for "significant reasons" only, which include attending the workplace or business engagements, delivering underage children to day care facilities (the sizes of which are limited), seeking healthcare treatments, getting exercise (e.g. walking or jogging), and attending marriage or funeral services (the sizes of which are also limited);
  • Individuals were permitted to leave their homes to shop at food stores, pharmacies, animal food stores, agricultural outlets, markets, medical supply shops, petrol stations, tobacco shops, and automotive or bike shops, to visit hairdressing and nail salons, and messenger services or waste-management services;
  • The government has also decreed specific shopping hours according to age and vulnerability, based on which seniors who are 65 years old and older are obliged to shop between 9 am and 12 pm daily. All other individuals must conduct their shopping outside of these hours;
  • When absolutely necessary, individuals can visit banks, post offices or insurance companies;
  • People can also leave their home to care for the elderly, ill or under-aged, but when outside of the house for any of these "significant reasons" individuals must maintain the recommended 1.5 metre protective distance from other individuals with whom they are not residing;
  • The above measures could be enforced by the Hungarian police, military police and other authorities and any violators shall be fined in the amount ranging from HUF 5,000 to HUF 500,000 (EUR 14 and EUR 1,400 approximately).

By way of Decrees 57-61/2020, the government also suspended certain enforcement measures, company and tax enforcement procedures during the state of emergency connected to the coronavirus epidemic until 16 days after the state of emergency has ended; extended the list of industries considered to be hardest hit by the outbreak, providing them exemption from paying social security taxes for employees and for the personal activities of entrepreneurs; and reduced the social security contributions payable by employees and entrepreneurs.

1. Could your business face criminal (or administrative) liability for exposure or risk of exposure to COVID-19 to (1) staff or (2) business partners and the public, under existing laws or new measures to combat the virus?

Employment legislation

The Hungarian legislation does not impose special rules with respect to labour safety regarding COVID-19. The reason for this is that general labour safety rules define the pertaining obligations of the employer in a way that the employer should monitor the possible labour safety risks at the workplace on a regular basis. Thus, the extent and means of safety measures shall always be applied according to the actual level of danger.

The above-mentioned risk assessment is considered to be an occupational safety activity, i.e. the employer is obliged to involve appropriate experts in the identification of hazards. In addition, the employer shall appoint a person from the employees who is responsible for labour safety at workplace. According to the information available to us, labour safety experts and employees are currently busy monitoring the increased level of risk because of COVID-19.

The general rule of the employer’s liability for the damages of the employee is the following: the employer shall be liable to provide compensation for damages to the employee caused in connection with the employment relationship. The employer shall only be relieved of such liability if it is able to prove that:

  1. the damage occurred in consequence of unforeseen circumstances beyond its control, and there had been no reasonable cause to take action for preventing or mitigating the damage; or
  2. the damage was caused solely by the unavoidable conduct of the aggrieved party (in the present case the employee).

The employer shall compensate the employee for all his/her losses in full. No compensation is required if the employer is able to prove that the occurrence of such loss could not have been anticipated.

We are of the view that if the employer reopens its premises and the employees working in the office get infected with COVID-19, it would not be possible for the employer to rely either on point a) or b) above to be exempted from liability. We would like to note that reopening shall also be done with caution and in cooperation with the landlord of the premises, as the unused premises may develop additional danger.

At the same time there are certain circumstances which can influence the liability. If the employer introduces strict measures to assure that no person infected enters the premises (for example introduces temperature measuring) and an employee gets infected due to contact with people outside of the workplace and / or due to the control introduced by the employer, then the affected employee is identified and sent to quarantine. The employee will have the burden of proof that in fact his/her infection was caused in connection with the employment relationship. In such a case we are of the view, although no actual practice exists, that the employer might be able to prove that the damage suffered by the employee was not caused in connection with the employment relationship.

Criminal Law

Criminal liability under Hungarian criminal law may only arise with respect to natural persons falling under the scope of the Hungarian Criminal Code, therefore, as a rule, businesses cannot be held criminally liable for the offences described therein.

Although Act CIV of 2001 on Corporate Criminal Code sets out criminal measures which could be applied vis-á-vis legal persons, this Act is applicable only (1) in case of criminal offences committed intentionally, if (2) such conduct is aimed at obtaining or resulted in an advantage for the legal person. The Corporate Criminal Code may also be applicable if the legal person is used by the offender for the perpetration of the intentional criminal offence. As these prerequisites are not at all likely to be met with respect to any of the potential offences of the Criminal Code in connection with the COVID-19 situation, one may reasonably conclude that businesses may not be held accountable for exposure or risk of exposure to COVID-19.

Civil Law

In Hungary, civil liability may arise both on contractual and tortious basis.

Civil liability for breaching a contract is governed by the general provisions contained in Sections 6:142 and 6:143 of the Civil Code. On this ground, the person who causes damage to the other party by breaching the contract shall be liable for such damage and compensation shall be provided in the form of damages for the loss caused.

On the other hand, under Section 6:519 of the Civil Code, tortious liability for damages arises if a person wrongfully causes damage to another person. The tortfeasor is exempted from liability in case he/she proves that he/she took all measures which could have been reasonably expected in the given situation to be taken.

The contractual civil liability of the company arises in case either any of its employees or the management of the company – acting in this capacity – causes damage to its business partners with whom it has a contractual relationship. In such cases, the business partners may bring claims against the company for compensation for the damages they suffered due to exposure or risk of exposure to COVID-19.

With regard to the members of the public, who are considered to be third persons as no contractual relationship exists between them and the business, tortious liability arises on the part of the business. In light of the provisions set out in Paragraph 2 of Section 3:24 and in Section 6:540 of the Civil Code, the fact of whether it is the employee or the management itself who causes the damage to the third person is without prejudice to the person against whom the civil claim shall be submitted, as, in all cases, it is the civil liability of the business which arises due to the damage caused.

On the contrary, in case the damage is caused by an agent of the business acting in connection with his/her assignment, not only the legal person’s liability arises, but the business and the agent will be jointly and severally liable under the rules of tortious liability.

2. Could senior management or other company representatives face criminal or other liability for any such exposure or risk of exposure?

Employment legislation

Directors are liable towards the company for damages caused to the company by violation of the law or breach of the company’s constitutional document or resolutions of the members, in the course of the management of the company and in accordance with the general rules of liability for the breach of a contractual obligation. As a general rule, if a director causes damage to a third person in relation to his/her position as a director, the company shall be held liable for such damages. However, as an exception, the director and the company are liable for these damages on a joint and several basis if the damage was intentionally caused by the director (although this case in our view is highly unlikely in the COVID-19 scenario).

As to the risk/liability resulting from the employees’ visiting/contacting contracted partners, we note that currently there is an instruction by the employer towards the employees to refrain from such activity due to the danger of potentially getting infected. If such an instruction is changed and the prohibition is lifted and visiting (contacting) contracted partners result from the employees’ job, we suggest giving detailed instructions to the employees and provide mandatory precautionary measures to be followed by them.

Criminal Law

Although the Hungarian Parliament has amended the Criminal Code relating to the COVID-19 pandemic, none of these amendments affect the criminal liability of businesses and their management regarding risk of exposure or exposure to COVID-19. Thus, the rules of criminal law which were already in effect before the emergence of the coronavirus pandemic are to be assessed in this regard.

In the framework of the Hungarian Criminal Code, the criminal liability of the management of businesses may reasonably arise only under Section 165 regulating Professional Misconduct. The Criminal Code provides that any person who causes imminent danger to the life, bodily integrity or health of another person or persons or causes bodily harm by professional misconduct, is guilty of a crime.

Accordingly, in case the management or other company representatives do not act in compliance with corresponding employment law and health and safety regulations, in particular rules on the protection of employees described above (such as but not limited to employers’ obligations to ensure a healthy working environment), their liability may arise under Section 165 of the Criminal Code for Professional Misconduct. Therefore, reckless decisions with regard to COVID-19 measures including whether or not the business reopens its premises may give rise to the criminal liability of that person who is responsible to ensure compliance with these health and safety rules provided that the foregoing statutory provisions are all met.

For example, if the business reopens its premises for employees and allows more people to sit in one office, because of which the protective distance required by applicable regulations cannot be assured, and as a result, one or more employees get infected with COVID-19, the personal criminal liability of the person tasked with ensuring compliance with health and safety rules may arise.

However, while in theory, the liability of a member of the company’s senior management could be established under the above criminal law rule, in practice, it is highly unlikely that such a high-ranking person would supervise and overrule the decisions of the person explicitly responsible for ensuring compliance with employment protection rules. As long as a senior executive is not directly engaged in exercising duties related to health and safety, his or her criminal liability may not arise relating to the crime of professional misconduct.  

It is also to be noted that there has to be a causal  link between the exposure or risk of exposure of staff members/business partners/members of the public, and the unlawful conduct of the management and other company representatives in order for criminal liability to arise and the burden of proving such causality would lie with the criminal authority investigating the case.

Civil Law

As described above under Question 1, no such scenario is regulated under the Civil Code when the civil liability of the management in itself arises for exposure or risk of exposure to COVID-19 (except if the damage is intentionally caused).

3. What are the potential penalties for (1) the business and (2) its management?

Potential penalties for businesses

The main piece of legislation on occupational health and safety in Hungary is Act XCIII of 1993 on Health and Safety (the "H&S Act"). As a general rule, the H&S Act does not include special rules with respect to the businesses' (as employers) health and safety obligations regarding COVID-19 and the H&S Act has not been amended either due to the announcement on the state of danger because of COVID-19.

It is clear that under the H&S Act and under Act I of 2012 on the Labour Code (the "Labour Code") the employer is responsible for providing working conditions that do not put the employees' health at risk and that are compliant with the safety regulations. Whether the employer complies with its material obligation above may be checked by the labour safety authority during an audit.

If it is disclosed during the audit that the working conditions impair or may impair the employees' health status, the authority imposes a fine towards the employer. The amount of the fine is capped at HUF 10,000,000 (approx. EUR 28,570), but it is imposed following breaches by the employer at all seats or branches in which the same irregularity is found to arise. In addition to the fine, considering the circumstances of the case, the labour safety authority may – among others – prohibit the work of employees working under conditions that are in breach of occupational health and safety rules or order the suspension of the operation of the business. These measures may also be ordered by the labour safety authority with immediate effect.

As described above, penalties of a criminal nature cannot be imposed on businesses as the scope of the Criminal Code extends only to natural persons falling under its scope at the time of the perpetration of a criminal offence and it can be almost completely ruled out that the preconditions of the Corporate Criminal Code would be met in this pandemic situation.

From a civil law perspective, persons exposed to COVID-19 may initiate civil law proceedings in order to obtain compensation for their damages. The amount of compensation is determined on a case-by-case basis.

Potential penalties for the management of businesses

As concluded above, the liability of the management under employment or civil law may not in itself arise, therefore, no potential penalties may be envisioned in this context.

As detailed under Question 2, the management and other company representatives may be held criminally liable for breaching health and safety rules while engaging in professional duties. The following penalties are envisaged by the Criminal Code for the crime of Professional Misconduct:

  • If the health is threatened but not impaired by the crime, or the illness does not cause permanent physical disability or a serious health impairment, the penalty may be imprisonment not exceeding one year (the execution of which may be suspended), detention not exceeding 90 days, fine, community service, prohibition to exercise profession, probation and reprimand depending on the characteristics of the case.
  • If the criminal offence results in permanent physical disability or a serious health impairment, the penalty may be imprisonment up to three years (the execution of which may be suspended provided that the extent of imprisonment does not exceed 2 years), detention not exceeding 90 days, fine, community service, probation and reprimand depending on the characteristics of the case or a mass disaster (i.e. large number people get ill, at least one of them seriously).
  • The penalty shall be imprisonment between one to five years (the execution of which may be suspended provided that the extent of imprisonment does not exceed 2 years) if the crime results in death; cumulatively, fine and prohibition to exercise profession may also be imposed.
  • The penalty shall be imprisonment between two to eight years if the criminal offense results in the death of two or more persons or a fatal mass disaster (i.e. large number people get ill and at least one illness is fatal); cumulatively, fine and prohibition to exercise profession may also be imposed.
  • The above penalties are increased to imprisonment not exceeding three years / between one to five years / between two to eight years / or between five to ten years respectively in case the professional duty is violated wilfully.

4. Have prosecutors or regulators brought any cases so far?

To date we are not aware of any actual cases where businesses or their senior management have been prosecuted relating to COVID-19.

5. Are there any specific measures mandated for companies continuing to operate or resuming operations during the pandemic, concerning exposure to staff, business partners and/or the general public?

Within the ambit of COVID-19 regulations, no measures have been adopted which are mandated for companies in general in connection with their operation during the pandemic. However, some specific rules have been enacted (1) with regard to the operation of certain businesses, and (2) regarding general rules of conduct for preventing the spread of coronavirus which could affect the operation of businesses.

On the one hand, as referred to under Question 1 above, the government has decreed specific shopping hours according to age and vulnerability. Seniors who are 65 years and older are obliged to shop between 9 am and 12 pm daily. All other individuals must conduct their shopping outside of these hours.

Regarding general rules of conduct, on 30 April 2020, by way of Decree 168/2020, the government enacted certain measures of protection to be applied on the whole territory of Hungary (except for Budapest and Pest county as stricter rules continue to apply due to their higher exposure to COVID-19), complimenting the simultaneous lifting of all previous restrictions.

Measures introduced by Decree 168/2020 are the following:

  • Everyone is obliged to restrict social contact with other people to a minimum and to keep at least 1.5 meters from other persons.
  • Everyone is obliged to wear a device covering their mouth and nose (for example a medical mask or scarf) when doing shopping or using public transport.
  • Seniors who are 65 years old or older continue to be obliged to carry out shopping in the period between 9 a.m. and 12 p.m., and during this period only such persons are allowed to be present in these grocery stores, drugstores, pharmacies or medical aid stores.
  • All shops are allowed to be open and people are allowed to stay on the balconies and in the gardens of catering establishments, however, no person may stay inside the stores for which their operators are responsible. In the catering establishments social distancing rules must be respected within each table set.

Additionally, with Government Resolution 1109/2020. (III. 18.), the government allowed the military to be involved with securing the continuing operation of strategic industries (both public and private companies) and called for military personnel to be appointed to oversee and direct the activities of such companies.

6. What potential liability could there be for civil claims by (1) staff and (2) business partners or members of the public in respect of infection (or other health issues) allegedly connected with a business’ operations during lockdown or in the aftermath? How might liability arise? Could companies face class-actions/ group claims?

As detailed under Question 1, depending on how businesses adapt to the pandemic situation and how they implement measures of protection, civil claims with respect to the civil liability of the business may be brought by the staff, the business partners and the members of the public against the business. The possibilities of initiating such civil proceedings as explained above are summarized as follows:

  1. Claims by staff related to exposure to and infection with COVID-19: The general rule of the employer’s liability for the damages of the employee is the following: the employer shall be liable to provide compensation for damages to the employee caused in connection with the employment relationship. Therefore, in case the infection of the employee is connected with the business’ operations during the lockdown or in the aftermath, the member of the staff may initiate employment law proceedings against the employer seeking compensation for the damages sustained.
  2. Claims by business partners related to exposure to and infection with COVID-19: Business partners may bring contractual compensation claims against the business in case either any of its employees or the management of the company itself – acting in this capacity – causes damage to its business partners with whom it has a contractual relationship. In such cases the business partners are entitled to submit claims against the company for compensation for the damages they suffered due to the infection of the employee in connection with the business’ operations during the lockdown or in the aftermath.
  3. Claims by members of the public related to exposure to and infection with COVID-19: Members of the public, as third persons, may bring compensation claims on tortious basis against the business under Section 6:519 of the Civil Code for the damages they suffered by contracting the virus in connection with the business’ operations during the lockdown or in the aftermath.
  4. Collective redress: Act CXXX of 2016 on Civil Procedure Code provides for the possibility of a class action initiated by the employees of a business. In Section 583 it provides that at least ten plaintiffs shall initiate the class action lawsuit which may be brought only in particular cases, which include labour disputes provided for in the Civil Procedure Code. Accordingly, in case at least ten employees of the business (who have been infected in connection with business operations during the lockdown and in the aftermath) decide to enforce their rights of such cause for all plaintiffs and the facts underlying the right enforced are the same in substance with respect to all plaintiffs, a class action may be brought in connection to COVID-19.
Portrait of Zsolt Okányi
Dr. Zsolt Okányi
Partner
Budapest
Portrait of József Kohl
József Kohl
Senior Associate
Budapest