CMS Expert Guide to employment termination law and legislation

Global comparison

1. Dismissal of employees

1.1 Reasons for dismissal

The reasons for regular termination as set out in the Labour Act are as follows:

  • if the need for work ceases to exist for economic, technical or organisational reasons (‘notice due to business reasons’); or
  • the employee is incapable of fulfilling his employment-related duties due to certain personal characteristics or qualifications (‘notice due to personal reasons’); or
  • the employee intentionally breaches a contractual obligation (‘notice due to misconduct’); or
  • if the employee did not satisfy the employer’s requirements during the probationary period.

Generally, employees in Hungary are not required to justify ordinary dismissals (“felmondás”) in case of an open-ended employment relationship. Nevertheless, they must observe prescribed notice periods.

If the employer terminates an open-ended employment relationship, as general rule, it must provide a reason for it, which has to be in connection with (i) the behaviour; (ii) skill; (iii) health status of the employee; or (iv) the operation of the employer. However, the employer is not required to give reasons for terminating a permanent employment relationship if the employee in question qualifies as a pensioner.

Certain “vulnerable” employees enjoy additional protection against dismissal (e.g. a more serious infringement to justify a dismissal, an obligation to seek another job profile for the employee in specific cases, etc.). These include women or single parents until their child reaches three years of age as well employees within the five-year period prior to the statutory age limit for a retirement pension.

The employer shall be permitted to terminate a fixed-term employment relationship by notice (i) if undergoing liquidation or bankruptcy proceedings; (ii) for reasons related to the employee’s ability; or (iii) if maintaining the employment relationship is no longer possible due to unavoidable external reasons.

Employees are required to give reasons for terminating their fixed-term employment relationship. The reason given for termination may only be of a nature that would render maintaining the employment relationship impossible or would cause unreasonable difficulties in light of his/her circumstances.

Discriminatory dismissals or dismissals due to “illegal reasons” can be challenged by employees before the relevant court.

An employment contract can be terminated at any time by an employee with notice, without having to justify the termination. In some cases (exhaustively provided in the Bulgarian Labour Code) the employee is entitled to terminate the employment contract in writing without notice.

Termination of employment contracts by an employer can only take place on the exhaustive grounds provided for in the Bulgarian Labour Code. Reasons relate to the employee (e.g. lack of efficient working performance), business (e.g. business closure, reduction of work volume), and conduct (e.g. disciplinary breaches).

1.2 Form

Written form, including reasons for termination. Decision is to be delivered to the employee.

An employment relationship can be terminated only in written form.

Must be in writing, signed by the employer. Must be registered with the National Revenue Agency within seven days of signature.

1.3 Notice period

Regular termination: notice period ranges from two weeks to three months, dependent on the employee’s length of service with the same employer.

The three-month period is extended by an additional two weeks / one month for 50 / 55-year-old employees who have 20 or more years’ continuous service with the same employer.

Extraordinary termination (summary dismissal): no notice period. Termination during probationary period: notice period of at least seven days.

Termination by employee: notice period cannot be longer than one month if the employee has a good reason.

If the employment is terminated because the employee  breaches his contractual obligations, notice periods are halved.

The notice period is 30 calendar days, which can increase up to 90 days depending on time spent in employment. 

The parties may agree on a different duration of notice period, but not for longer than six months. 

For ‘indefinite’ term employment contracts: statutory minimum notice period of 30 days, statutory maximum of three months.

For ‘limited’ term  employment contracts: statutory minimum notice period of three months, but the notice period may not be longer than the unexpired term of the contract.

1.4 Involvement of works council

The works council must be informed of the employer’s intention to dismiss. The works council‘s consent is required for dismissal of the following employees:

  • members of the works council; and
  • candidates running for works council positions and members of the election committee for a period of three months following the announcement of the results of the election to the works council; and
  • employee representatives in a body of the employer; and
  • employees with diminished ability to work and employees in immediate danger of physical disability; and
  • employees over 60 years of age.

Only in cases of the termination of the employment relationship of works council representatives. 

No works council involvement.

If an employee is an elected employee representative, prior approval for his dismissal must be sought from the National Labour Inspection.

1.5 Involvement of a union

If there is no works council, consent is given by the union commissioner (the union representative employed with the respective employer). The union‘s consent is required for the dismissal of a union commissioner during their period of office and for six months thereafter.

Only in cases of the termination of the employment relationship of trade union representatives. 

If an employee belongs to the management of an establishment-based union, or a national, territorial or branch union, prior approval for his dismissal must be sought from that union. This protection applies in case the employee is dismissed on certain exhaustively provided grounds and while the employee is a member of the union management, and for up to six months after he ceases to be a part of its management.

Where so provided for in the collective agreement, the employer may dismiss an employee due to downsizing of personnel or reduction in the volume of work after obtaining the advance consent of the relevant trade union body in the enterprise.

1.6 Approval of state authorities necessary

If the works council or union commissioner do not consent, consent can be substituted by a judicial or an arbitral decision.

No involvement. 

In case the employee is dismissed on certain exhaustively provided grounds the permission of the labour inspectorate should be obtained prior to dismissal for certain groups of employees: pregnant female workers; female workers in an advanced stage of in vitro treatment; mothers of children below the age of three years; occupational rehabilitees; employees suffering from diseases explicitly listed in a regulation of the Council of Ministers; employees on leave; elected workers’ representatives; elected workers’ representatives on health and safety at work matters; members of special negotiation bodies, European works councils or representative bodies of European companies or cooperatives.

Employees on maternity leave (410 days, of which 45 days before giving birth) can only be dismissed in the event of closure of the whole business. This limitation is absolute and cannot be overcome with any approval of state authorities.

1.7 Collective redundancies

Employer who expects to terminate at least 20 employees, five of which due to business related reasons, all within a 90-days’ period, is obliged  to duly consult the works council / union commissioner in order to possibly reach an agreement to save the employees and / or limit the number of terminations. The employer is obliged to provide the works council / union commissioner with written information concerning the reasons for termination, total number of employees, number, professions and positions of employees who are supposed to be terminated, election criteria for such employees, amounts and way of calculating their severance payments and measures undertaken to prevent such terminations. Employer is obligated to consider and explain all possibilities and suggestions that may lead to avoidance of terminations. Also, the Croatian Employment Agency needs to be informed about the previously mentioned points and consultations with the works council / union commissioner.

When collective dismissals (“csoportos létszámcsökkentés”) are imminent, employers are required to notify the Hungarian Labour Authority 30 days in advance. For the sake of this notification procedure, collective dismissals are defined as employment terminations affecting:

  • at least ten workers in an establishment of 21 − 99 employees; or
  • 10% or more of the workforce at an establishment of 100 − 299 employees; or
  • at least 30 workers at an establishment of 300 or more employees.

The requirements of the notification procedure are met, if the employer informs the competent Labour Authority in writing and waits 30 days before carrying out the intended dismissals. Any failure to observe these rules will render all pertinent dismissals void.

Collective redundancies are dismissals within 30 days performed at the sole discretion of the employer, for reasons not related to the dismissed employees, of the following numbers of people:

  1. at least ten employees in establishments of more than 20 and less than 100 employees; or
  2. 10% of the employees in establishments of 100 to 300 employees; or
  3. at least 30 employees in establishments of more than 300 employees.

If at least five dismissals have taken place within a period of 30 days, every new dismissal at the sole discretion of the employer for reasons not related to the dismissed employee shall be added up to the total number of dismissals for the purposes of evaluating whether a collective redundancy has taken place or not.

Certain reporting and consultancy obligations exist for employers in the event of collective redundancies. Consultations with the union representatives and the employees shall start at least 45 days before the collective redundancies. Thirty days before the collective redundancies, employers shall notify the Employment Agency.

1.8 Summary dismissals

Summary termination (summary dismissal) is defined as termination without notice, and is only lawful where there has been: 

  1. a serious breach of employment obligations, or
  2. the employment relationship between the parties is no longer possible for another important reason (there are, therefore, two possible reasons: (i) breach of employment obligations; or (ii) another important fact; in either case, the employment relationship must not be possible any longer).

The employee is to be dismissed within 15 days of the day of becoming aware of the fact / reason for dismissal.

A summary dismissal (“azonnali hatályú felmondás”) does not require observance of any particular notice periods, but must be issued within 15 days from the perception of the occurrence of the cause of the summary dismissal, but no later than one year after that occurrence of cause. Summary dismissals are possible for good reasons only, as regulated by law. Disloyalty, behaviour, untrustworthiness or persistent refusal to carry out one’s contractually agreed duties are typical reasons for a summary dismissal.

Summary dismissals are effective, even if they do not meet the abovementioned requirements. However, the summary dismissal may then be challenged by the other party before the relevant court.

Dismissal without notice is possible in the event of a serious breach of duty or for reasons related to the individual (e.g. deprivation of the right to exercise the job based on a court sentence or an administrative act).

1.9 Consequences if requirements are not met

If it is decided the dismissal is illegal, the employee is to be reinstated. Reinstatement is possible even before the end of the court procedure to determine the legality of the dismissal if the employee so requests. If the parties do not wish to continue with their employment relationship, the court shall at the employee‘s request determine:

  1. the date of termination of the employment contract; and
  2. compensation for damages, which ranges from three to eight times the employee’s average monthly salary over the previous three months (depending on the employee’s age, length of contract and obligations in relation to supporting family members or other dependants as defined by family law).

Non-compliance by the terminating party with the prescribed or agreed periods or dates of notice qualifies as unlawful termination. In that case, the consequences of the unlawful termination, prescribed by the Hungarian Labour Code, can be enforced by the other party before the relevant court. As to the legal consequences of unfair termination, in case the employee is successful in claiming unfair termination, the employer is under an obligation to pay compensation for lost earnings. The Labour Code caps these damages at 12 months of absence pay. If the contract is terminated for personal reasons by regular notice, the employee could also claim a severance payment from the employer. Outside of this, the employee must prove any further damages (e.g. non-pecuniary damages) during the course of the litigation. The employee may claim reinstatement, but this is permitted only in cases such as discrimination or if the employer terminated the contract of an employee protected from dismissal. In case of reinstatement, the employee can claim lost wages for the period of litigation, which is not subject to the 12-month cap since the employment is treated as continuous.

If such a dismissal is challenged in court, it may be declared wrongful and repealed on these grounds, an employee may be reinstated to his previous job, and a court may award compensation (equivalent to no more than six monthly salaries for the period of unemployment resulting from the dismissal).

1.10 Severance pay

An employee with an open-ended contract who has two years’ continuous service with the same employer (and is not being dismissed due to an intentional breach of contractual obligation) is entitled to a severance payment. The statutory minimum severance payment is calculated by multiplying one-third of the average monthly salary in the preceding three months by the number of years’ continuous service with that employer. The severance payment is capped at six times the average monthly salary, unless otherwise provided for by law, by-law, collective agreement or work contract

An employee shall be entitled to severance pay if his/her employment relationship is terminated (i) by the employer; (ii) upon the dissolution of the employer without succession; or (iii) in case of the transfer of a business undertaking, if the transferee employer does not fall under the scope of the Hungarian Labour Code. 

Entitlement to severance pay shall only apply upon the existence of an employment relationship with the employer during the period of at least three years at the time when the notice of dismissal is delivered or when the employer is terminated without succession.

The amount of severance pay increases according to the length of the employment relationship: up to a six-month absence fee (i.e. in practical terms, the base salary).

The employee shall not be entitled to receive severance pay if (i) he/she is recognised as a pensioner at the time when the notice of dismissal is delivered or when the employer is terminated without succession; or (ii) he/she is dismissed for reasons in connection with his/her behaviour in relation to the employment relationship or on grounds other than health reasons.

Statutory maximum severance payment of one month’s salary for dismissals on specific grounds (e.g. closure of the establishment, partial closure of the establishment, staff cuts, etc.).

Two months’ salary for dismissal due to disability or hazard to the health of an employee, if the employee has worked for at least five years and has not received such severance pay in the last five years.

Two months’ salary for termination of the employment contract of an employee, whatever the grounds, who has reached the required retirement age and length of service.If the employee has worked for the last ten years with the same employer, the severance pay amounts to six months’ salary. Such severance payment shall be due only once.
Compensation for the non-used annual leave.

Where the employment contract is terminated against payment of compensation by mutual agreement on the initiative of the employer, the severance pay is in the amount of at least  four monthly salaries of the employee.

1.11 Non-competition clauses

Post-contractual non-competition clauses must last no longer than two years from the date of termination of the contract. The employer is obliged to pay compensation (at least one-half of the average monthly salary paid in the last three months of employment). The covenant will not be valid if the employee is a minor or if the employee‘s salary amounts to less than the average national salary.

The non-competition clause does not apply if: (i) the employee terminates the contract without notice period (extraordinary termination) and does not state that he does agree that the clause applies; or (ii) if the employee is dismissed without a justified reason, unless the employer undertakes to pay the prescribed remuneration for the duration of the clause.

Non-competition clauses are only valid insofar as they last for no more than two years after the termination of employment. Also, contractual penalties are possible regarding non-compliance with non-competition clauses.

In case of a post-employment non-competition agreements, the employer shall be liable to pay adequate compensation. In determining the amount of compensation, the degree of the impediment that the agreement has on the employee’s ability to find employment elsewhere, in the light of his/her education and experience, shall be taken into consideration. The amount of such compensation, for the term of the agreement, may not be less than one-third of the base salary due for the same period.

Employees are entitled to work for other employers outside the working hours of their primary employment contract unless stipulated otherwise in the contract.

Post-contractual non-competition covenants are not regulated by statute. According to Bulgarian case law, such covenants are not considered valid.

1.12 Miscellaneous

Not applicable.

Not applicable.

Not applicable.

2. Dismissal of managing directors

It should be noted that the title ‘managing director’ is not recognised under the Croatian Companies Act or other relevant applicable legislation. The Croatian Companies Act recognises only a ‘director’, who is authorised to represent the company and obliged to be registered as a member of the management board with the respective commercial court.

A managing director need not to have an employment agreement with the company, or any other type of agreement, in order to be able to represent the company.

Where a managing director has a  managing / service agreement  which falls under the regulation of Croatian obligatory law, only the provisions of the managing / service agreement apply. If aspects of the relationship are not dealt with in the managing / service agreement, the relevant provisions of the Croatian Obligations Act will apply.

Where a managing director does not have any employment or managing / service agreement with the company, he shall be treated as a member of the management board only.

The table below sets out the position under Croatian law with respect to the managing directors of a limited liability company, with and without service agreements.

2.1 Reasons for dismissal

No special reasons required (unless otherwise specified within the statute of the company or the contract itself).

Where the managing director has a service agreement, the provisions of that service agreement (and consequently the Croatian Obligations Act) will apply.

If the managing director is a member of the management board according to the statute of the company (and not only appointed by resolution of the shareholders), the company statute may set out that revocation is only possible for special reasons.

Company may revoke the appointment/terminate the service contract without cause, but in compliance with applicable notice periods and termination dates.

A company may revoke the appointment of a managing director and terminate his service contract without cause at any time. Managing directors are hired under service contracts (called management and representation contracts), and not employment contracts.

2.2 Form

Valid shareholders’ resolution on revocation of appointment as member  of the management board. Registration of this revocation with the court registry. Termination of the service agreement in the same form in which the agreement has been signed (Obligations Act provisions shall apply).

Valid shareholder’s resolution on revocation of appointment as managing director and on termination of the service or employment contract is required. 

Valid shareholders’ resolution on revocation of appointment as managing director. Termination of the contract must be in writing.

2.3 Notice period

According to the Croatian Companies Act, the appointment of a director of the company can be revoked at any time without notice (for no special reason). Some restrictions (not strictly defined) can be set out within the statute of the company.

If the director has a service agreement, the notice period will be as set out in the service agreement.

Revocation of appointment: possible without notice.

Termination of the service or employment contract: Hungarian law does provide statutory minimum notice periods from which the parties can deviate in the contract of employment in case of Managing Directors. 

Revocation of appointment by the company: possible without notice.

A managing director can request that the company release him from office. If the company fails to do so within one month (for limited liability companies) or six months (for joint stock companies), the managing director is entitled to deregister himself as a managing director from the Bulgarian Commercial Register, regardless of the lack of revocation of appointment.

2.4 Involvement of works council

No involvement.

No involvement.

Termination of the service contract: no statutory regulation of the notice period; depends on the agreement between the parties.

2.5 Involvement of a union

No involvement.

No involvement.

Not applicable.

2.6 Approval of state authorities necessary

Respective commercial court brings a resolution on registration of the resolution in the court registry. The court’s resolution and registration are declaratory.

Not required.

Not applicable.

2.7 Collective redundancies

Not applicable.

Not applicable.

Not applicable.

2.8 Summary dismissals

Not applicable.

A summary dismissal (azonnali hatályú felmondás) does not require observance of any particular notice periods, but must be issued within fifteen days from the perception of the occurrence of the cause of the summary dismissal, but no later than one year after that occurrence of cause. Summary dismissals are possible for good reasons only, as regulated by law. Disloyalty, behaviour, untrustworthiness or persistent refusal to carry out one’s contractually agreed duties are typical reasons for a summary dismissal.

Summary dismissals are effective, even if they do not meet the abovementioned requirements. However, the other party may challenge the summary dismissal before the relevant court. 

Not applicable.

2.9 Consequences if requirements are not met

If there is no valid shareholder resolution, the revocation will be invalid and the court will refuse to register it in the court registry. Where the managing director has a service agreement, he could claim:

  1. compensation for damages; or
  2. fulfilment of contractual obligations in accordance with the provisions of the Croatian Obligations Act.

If there is no valid shareholder resolution, the revocation of appointment as managing director will be invalid.

It is possible for the revocation to be valid, but for the termination of the service or employment contract to be invalid. If this is the case, the managing director is entitled to continued payment of salary and adequate employment.

Not applicable.

The revocation of an appointment as managing director is invalid without a valid shareholder resolution.

2.10 Severance pay

Severance pay may be specified in the managing director’s service agreement (this is usually a large sum).

An employee shall be entitled to severance pay if his/her employment relationship is terminated (i) by the employer; (ii) upon the dissolution of the employer without succession; or (iii) in case of a transfer of the business undertaking, if the transferee employer does not fall under the scope of the Hungarian Labour Code.  

Entitlement to severance pay shall only apply upon the existence of an employment relationship with the employer during a period of at least three years at the time when the notice of dismissal is delivered or when the employer is terminated without succession. 

The amount of severance pay increases according to the length of the employment relationship up to a six-month absence fee (i.e. in practical terms, the base salary). 

The employee shall not be entitled to receive severance pay if (i) he/she is recognised as a pensioner at the time when the notice of dismissal is delivered or when the employer is terminated without succession; or (ii) he/she is dismissed for reasons in connection with his/her behaviour in relation to the employment relationship or on grounds other than health reasons.

No statutory severance pay. Severance pay is subject to negotiation.

2.11 Non-competition clauses

The managing director, as a member of the management board, is prohibited from doing the following without the approval of the supervisory board (or the shareholders, if the company does not have a supervisory board):

  1. being a member of the supervisory board or management board of another company with the same business activities; or
  2. performing business activities equal to those of the company for his or somebody else’s account; or
  3. using the company’s premises for performing business for his own or somebody else’s profit. The company is entitled to compensation for any damage caused.

Non-competition clauses are only valid insofar as they last for no more than two year after the termination of employment. Also, contractual penalties are possible regarding non-compliance with non-competition clauses. 

In case of post-employment non-competition agreements, the employer shall be liable to pay adequate compensation. In determining the amount of compensation, the degree of the impediment that the agreement has on the employee’s ability to find employment elsewhere, in the light of his/her education and experience, shall be taken into consideration. The amount of such compensation, for the term of the agreement, may not be less than one-third of the base salary due for the same period.

Unless explicitly waived by the company, non-competition restrictions apply to managing directors for the period of their mandate.

Post-contractual non-competition clauses are not explicitly regulated by statute. Such covenants may be agreed upon in a service contract but their enforceability may be arguable.

2.12 Miscellaneous

Not applicable.

Not applicable.

Not applicable.