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 employer may not dismiss an employee without a legally valid cause.

Dismissal may be based on personal grounds (e.g. disciplinary dismissal, dismissal due to professional inadequacy, dismissal due to incapacity) or economic grounds (e.g. economic difficulties, technological changes), or subject to specific conditions, without stating a specific motive.

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.

The employee must be notified of the dismissal in writing.

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. 

In the event of dismissal, the law provides that an employee is entitled to a notice of a duration which varies depending on his seniority as follows:

  • Length of service of less than six months: no notice period applicable;
  • Length of service between six months and less than two years: one month;
  • Length of service of at least two years: two months.

For any dismissal, the employer may choose whether the employee works during the notice period.

In either case, employee is entitled to receive the same salary, including any benefits.

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. 

Works councils do not exist in Monaco. A staff representative (if established) must be properly informed prior to a collective redundancies.

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. 

No involvement for dismissals.

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. 

Mandatory for employees with legal protection because of their private life or their mandate.

This protection applies to staff representatives, union delegates, pregnant women, employees taking maternity leave, paternity leave, adoption leave or family support leave, members of the Labour Court, harassment referents.

The relevant Labour Authority has to be informed of projected collective redundancies prior to their dismissal, and grant prior approval.

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.

The implementation of collective redundancies is mainly regulated by law and the National Collective Bargaining Agreement, which imposes some procedural steps prior to implementing any such decision.

Three main issues must be considered regarding the preparation and implementation of a collective social plan:

  • Drafting an information document containing all essential elements

regarding the decision to restructure, its motivation, its implementation and the measures taken by the employer to minimise any adverse impacts on employees;

  • Circulating the information to staff representatives, discussing it with them and collecting their comments and choices about measures taken to implement the restructuring (i.e., the measures adopted to minimise the number of dismissals); and
  • Implementing the restructuring plan, by obtaining the required authorisations as the case may be, notifying employees of their terminations and paying termination indemnities.

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 only possible in case of gross misconduct. In such a case, the employee receives no dismissal indemnity or notice period indemnity. The employee is still entitled to unemployment insurance benefits.

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.

Should the employer dismiss an employee on personal or economic grounds without a valid cause, the employer would have to pay a dismissal indemnity.

In addition, the employee could claim damages for injuries suffered due to his / her wrongful 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.

Dismissal indemnity is payable unless the dismissal is for gross misconduct. The amount payable is mainly set by the collective bargaining agreement, but must not be less than the French legal dismissal indemnity (since 27 September 2017: 25% of the monthly gross salary until ten years of seniority and one third of the monthly salary as of the tenth‘s year). A higher indemnity is payable in case of dismissal without a stated motive. Indemnity is also payable for unused accrued paid holidays and for the notice period if the employer chooses to release the employee from performing it.

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.

Non-competition clauses are enforceable in Monaco provided they are appropriately restricted.

A non-competition clause must comply with five cumulative conditions:

  • it must be essential to protect the employer’s legitimate interests;
  • it must be limited to a specific time period;
  • it must be limited to a geographical area;
  • it must take the characteristics of the employee’s job into account; and
  • most importantly, it must provide for a financial counterpart.

Independent consideration is required for a non-competition clause.

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 generally revoke the appointment of the managing director without cause, unless stated otherwise in the by-laws of the company or the resolution of appointment. This is particularly the case for limited companies (‘SA‘). However, a just cause is legally required in limited liability companies (‘SARL’) when revoking a managing director who is also a shareholder of the company. In any event, revocation must follow mandatory steps to be declared valid.

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. 

A resolution is taken by the shareholders and / or board of directors, depending on the form of the company and the internal organisation of the management. The managing director must be given the opportunity to explain himself or herself and the revocation must not be made vexatiously.

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. 

No notice period, except where one is provided by the by-laws of the company or in the resolution of appointment of the managing director.

2.4 Involvement of works council

No involvement.

No involvement.

No involvement.

2.5 Involvement of a union

No involvement.

No involvement.

No involvement.

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.

For limited liability companies (‘SARL’), appointment of a new director is subject to government approval. For all companies, the change of director must be registered in the Monaco Companies Register.

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.

Damages may be claimed, mainly:

  • for the lack of a just cause, in the event that such reason is legally required to revoke a legal representative; or
  • if the revocation is notified under hurtful circumstances (e.g. is very sudden and unexpected, or is publicly announced before the director is informed), or if the managing director has not been granted a reasonable opportunity to make his / her point before the board’s / shareholders’ decision to revoke him / her (absence of due process). However, the managing director cannot be reinstated.

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.

Not applicable.

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.

Non competition clauses are only valid insofar as they specify a restricted application in time and space. They also have to include financial compensation in order to compensate the director for the loss of revenue they cause him or her. If the clause does not include those elements, it is null and void. In that case, the director may still be held liable for unfair competition towards the company if it is demonstrated that the director resorted to fraudulent practices intended to disturb the company’s activity such as denigrating it or employing key members of its staff.

2.12 Miscellaneous

Not applicable.

Not applicable.

Not applicable.