CMS Expert Guide to employment termination law and legislation

Global comparison

1. Dismissal of employees

1.1 Reasons for dismissal

The employer must establish a real and serious reason to dismiss an employee.

It may be:

  • a personal reason, notably a fault (disciplinary ground), poor performance, disablement of the employee when the employer is unable to relocate / redeploy him to another position or make reasonable adjustments to his post; or
  • an economic reason, such as economic difficulties, technological changes or the absolute necessity of restructuring to safeguard competitiveness. The economic reason is analysed at the level of the group’s companies established in France operating in the same business sector. The redeployment obligation for economic dismissal is limited to jobs available “in French territory in the company or in other companies of the group, the organisation, activities, and operating location of which allows mobility of some or all of the personnel“;
  • the refusal to amend the employment contract following a collective performance agreement

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 employee may be dismissed:

  1. with just cause: when the employment relationship cannot be continued, even temporarily, either because of a material breach of contract or another reason causing a deterioration of the relationship between the parties; or
  2. for a justified subjective reason: in case of a material breach of the employment contract (less serious than the case of justified cause); or
  3. for a justified objective reason: where the company is either closing, is being restructured, or there is no longer a need for the individual’s position or division. Notice served at the end of a disciplinary procedure (a ‘disciplinary dismissal’) is classified either as a dismissal with just cause or for a justified subjective reason.

1.2 Form

The stages in the individual dismissal procedure are as follows:

  • The employee is formally invited to a preliminary meeting.
  • At least five business days after the formal invitation, a preliminary meeting is held during which the employer explains the reasons for the contemplated dismissal and listens to the employee’s explanation.
  • The employee may be assisted by a third party (an employee of the company or an adviser of the employee mentioned on an official list prepared by the Prefect, depending on the existence of employee representative bodies in the company).
  • The dismissal letter must be sent to the employee at least two (or seven for a dismissal due to economic reasons) business days after the meeting (and within a month for a disciplinary dismissal).

The dismissal letter must be a registered letter whose receipt must be acknowledged by the employee, signed by either a legal representative of the firm or a person duly empowered by a legal representative, and who must belong to the company.

Applicable collective bargaining agreements can provide for a more favourable timeframe and / or procedure.

The letter must explicitly mention the grounds for dismissal. There are other mandatory provisions such as the possibility of choosing to benefit temporarily the supplementary health care scheme in force in the company, etc.

The grounds set out in the dismissal letter may be specified by the employer or at the employee’s request after the letter has been sent. If the employee does not make such a request, the letter’s lack of an adequate explanation will not in itself support a finding that the dismissal lacks real and serious cause, but will merely entitle the employee to compensation of no more than one month’s salary.

A special procedure (possible involvement of the works council, see below,
meeting and notification of the dismissal) applies in the case of a dismissal for economic reasons or when the dismissal concerns a ‘protected employee’ (e.g. members of the social and economic council, and trade union delegates notably).

A specific procedure prior to the dismissal exists for employees who have been recognised as physically incapable of performing their work by a labour doctor (redeployment obligation, possible involvement of the social and economic council, etc.).

For a dismissal based on a disciplinary reason, the employer should move rapidly as the procedure must begin within a few weeks of the employer becoming aware of the reason for dismissal and no more than two months after the discovery of the facts.

An employment relationship can be terminated only in written form.

Must be in written form (with the exception of domestic help and employees subject to a probationary period), and signed by the employer’s legal representative. Notice may be served by telegram.

1.3 Notice period

The notice period is set by the applicable collective bargaining agreement and the Labour Code, and generally lasts between one and three months. The contract may be terminated without notice in the event of gross misconduct or intentional misconduct.

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. 

Other than in fixed term contracts, the length of the notice period is set by national collective contracts and varies according to the length of service and the employee’s qualifications. No notice period is needed for dismissal with just cause. In dismissals for a justified objective reason and / or a justified subjective reason, the employer may renounce the notice period and pay the employee compensation in lieu of notice. Notice is not required for dismissals during fixed-term contracts or during probationary periods.

1.4 Involvement of works council

The social and economic council must be informed and consulted (with an advisory but formal vote of its members) when a mass redundancy is planned, or for the planned dismissal of a protected employee or physically disabled employee.

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

Works council members may not be dismissed within a year of the termination of their appointment. The union need not be notified prior to the dismissal of an employee. The employer must notify the works council (‘Rappresentanze Sindacali Unitarie’ and ‘Rappresentanze Sindacali Aziendali’) of any intention to make collective redundancies.

1.5 Involvement of a union

When a company employs more than 50 workers, trade unions may be involved in a mass redundancy procedure to negotiate an ‘employment saving plan’.

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

If there is no relevant works council, the employer must notify the most representative unions of its intention to make collective redundancies.

1.6 Approval of state authorities necessary

This is required when dismissing ‘protected employees’ and now the validation or homologation of the employment saving plan is also required for mass redundancy procedures.

No involvement. 

Not required.

1.7 Collective redundancies

Different procedures apply according to the company’s workforce and the number of employees concerned (the procedures are ‘lighter’ in small companies that dismiss fewer than ten employees).

The main principles are the same:

  • The employer has a duty to inform and consult the staff representative bodies;
  • All documentation related to the collective redundancy must be sent to the state authorities

In case of mass redundancies (more than ten employees in a company employing at least 50 employees):

  • The employer has a duty to inform and consult the social and economic council, involving at least two meetings (the social and economic council may be assisted by an accountant in some cases). Please note that, with the new law, the duration of the consultation has been regulated.
  • An ‘employment saving plan’ (a social plan providing real alternatives and social measures accompanying the redundancy, such as redeployment, redeployment leave, training, etc.) should be drafted. There are two options for drafting it: either through a collective agreement negotiated with trade unions or unilaterally by the employer (only in the absence of trade unions in the company or if no agreement is found and then only after consultation with the social and economic council).
  • This employment saving plan should then be sent to the state authorities that will either validate it (if agreed with trade unions) or homologate it (if unilaterally drafted by the employer). If the state authorities do not agree with the plan, the employer may present another draft after consulting the social and economic council.

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 redundancy is the dismissal by an employer employing more than 15 workers of five or more employees in the same establishment, or at different establishments located in the same province within a period of 120 days. The employer must notify the works council and the Employment Office of its intention to make collective redundancies. Unions may ask for a joint examination in order to reach an agreement; failing this, the employer may notify the affected employees of their dismissal one by one with notice. To initiate redundancy, the employer must inform the employee representatives and the appropriate industry union in writing of its intention. Where there are no local representatives, the company must notify the full-time officials in the relevant union(s). The company must also notify the labour authorities. Within seven days of union representatives being informed, the parties must conduct a joint examination of the reason for the surplus labour and the proposed dismissal, of the possibility of redeployment, and of the use of solidarity contracts or the introduction of flexible working time to forestall dismissals. Should the union not ask for a joint examination, the employer must notify the competent local job office to continue the procedure.

The consequences of unlawful dismissal are different for employee hired before 7 March 2015 and those hired after.

For employees hired before 7 March 2015, the consequence of unlawful collective dismissal when there is a violation of the criteria for the selection of employees to be dismissed is the reinstatement of the employee and the payment of a ‘reinstatement indemnification’ (a maximum of 12 months’ salary).

For other cases of unlawful dismissal, the only consequence is the payment of a ‘reinstatement indemnification’ (set between a minimum of six and a maximum of 24 months’ salary). The dismissal is then effective.

For employee hired after 7 March 2015, reinstatement and payment of a ‘reinstatement indemnification’ (a maximum of 12 months’ salary) can only be ordered following an oral dismissal or a discriminatory dismissal.

In other cases of unlawful dismissal, the employer only has to pay a ‘reinstatement indemnification’ (between a minimum of six and a maximum of 36 months’ salary, depending on the length of service with the employer, the lack of reasons behind the dismissal, and the damages suffered by the employee). The dismissal is then effective.

1.8 Summary dismissals

The term ‘summary dismissals’ has no real meaning in France. Dismissal without a notice period is only possible where there has been a serious breach, but even in that case, the form described above for dismissal procedure, including the preliminary meeting and registered letter, must still be applied. In case of dismissal without notice, the employee has no dismissal indemnity or notice period indemnity, because there is no notice period. Such dismissed employees are still entitled to unemployment insurance benefits, however. The dismissal procedure must begin within a few weeks of the employer becoming aware of the reason for dismissal and no more than two months after the discovering of the facts.

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.

Only for just cause.

1.9 Consequences if requirements are not met

The amount of damages depends on the actual loss suffered by the employee. For dismissals notified on or after 24 September 2017, the ordonnance n° 2017-1387 provides that the damages have a preset minimum and a maximum amount depending on the employee’s length of service. The ordonnance also stipulates specific lower minimum amounts for companies that usually employ fewer than 11 employees, but the maximum remains identical.

In some circumstances, the dismissal will be void, allowing the employee to request reinstatement. (These circumstances may include collective redundancies without a social plan, dismissal after an occupational injury or in discriminatory dismissals, or dismissal of a protected employee without state authority authorisation). In such a case, the compensation cannot be less than six months’ salary.

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.

Employers with more than 15 employees

The reform implemented by Law 92 / 2012 and Legislative Decree 23 / 2015 amended by Law 96 / 2018 have introduced different systems for the protection of workers, which are applicable dependent upon the type of dismissal imposed and the reason for its unlawfulness:

Disciplinary dismissal

  • Unlawful because the act does not exist or is one of the acts for which the national collective bargaining agreement or disciplinary codes provide a conservative sanction:
    • reinstatement of the employee and payment of a ‘reinstatement indemnification’ (a maximum of 12 months’ salary). For employees hired after 7 March 2015 such sanctions are applicable only if the material fact behind the dismissal does not exist.
  • Unlawful in all other cases:
    • no reinstatement, but only payment of a ‘reinstatement indemnification’ (set at between a minimum of 12 and a maximum of 24 months’ salary). The dismissal is then effective. For employees hired after 7 March 2015, there is no reinstatement, but only payment of a ‘reinstatement indemnification’ (set between a minimum of six and a maximum of 36 months’ salary, depending on the length of service with the employer, the lack of reasons behind the dismissal, and the damages suffered by the employee). The dismissal is then effective.
  • Unlawful because of the lack of required motivation or failure of the disciplinary procedure:
    • no reinstatement, but only payment of a ‘reinstatement indemnification’ (set between a minimum of six and a maximum of 12 months’ salary). The dismissal is then effective. For employees hired after 7 March 2015, there is no reinstatement, but only payment of a ‘reinstatement indemnification’ (set between a minimum of two and a maximum of 12 months’ salary, depending on the length of service with the employer). The dismissal is then effective.

Dismissal for a justified objective reason

  • Unlawful (i) because of a lack of justification consisting of the physical or mental unfitness of the employee; or (ii) because it is ascertained that the dismissal was ordered before the retention period of the job had passed; or (iii) because the productive or organisational fact used as the basis for the dismissal does not exist:
    • reinstatement of the employee and payment of ‘reinstatement indemnification’ (a maximum of 12 months’ salary).
  • Unlawful for any other reason: no reinstatement, only payment of a ‘reinstatement indemnification’ (set at between a minimum of six and a maximum of 12 months’ salary). The dismissal is then effective.
  • Unlawful because the dismissal has actually been ordered for discriminatory or disciplinary reasons:
    • reinstatement of the employee (also if a manager) and payment of a ‘reinstatement indemnification’ (of at least five months’ salary). Alternatively, the employee may opt to receive an indemnification equal to 15 months’ salary (‘alternative indemnification’).
  • Unlawful because of a lack of the required justification or, if dictated by economic reasons, without having first complied with the required conciliation procedure:
    • no reinstatement, merely payment of a ‘reinstatement indemnification’ (set at between a minimum of six and a maximum of 12 months’ salary). The dismissal is then effective.

Employees hired after 7 March 2015 are not reinstated, but instead paid a ‘reinstatement indemnification’ (set between a minimum of six and a maximum of 36 months’ salary, depending on the length of service with the employer, the lack of reasons behind the dismissal, and the damages suffered by the employee). The dismissal is then effective.

Employers with 15 or fewer employees

Re-employment of the employee or payment of an indemnification of between two-and-a-half and six months’ salary (indemnification can be increased to up to 12 months’ salary in the case of an employee with long service).

For employees hired after 7 March 2015, re-employment or payment of an indemnification between one and six months’ salary, depending on the length of service with the employer, the lack of reasons grounding the dismissal, and the damages suffered by the employee.

Regardless of the number of employees, in case of a discriminatory dismissal or oral dismissal

Reinstatement of the employee (including a manager) and payment of a ‘reinstatement indemnification’ (of at least five months’ salary).

Alternatively, the employee may opt to receive an indemnification equal to 15 months’ salary (‘alternative indemnification’).

1.10 Severance pay

Dismissal indemnity is payable unless the dismissal is due to gross misconduct or intentional misconduct. The amount payable is mainly set by the collective bargaining agreement but must not be less than 1 / 4 of the monthly salary per year of service for the first ten years of service, plus 1 / 3 of the monthly salary for each year of service after ten years. Indemnity is also payable for unused accrued holiday entitlement and for the notice period if the employer chooses to release the employee from performing it.

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.

In any termination of an employment contract, the employee is entitled to a severance payment (‘trattamento di fine rapporto’). This is a deferred salary payment calculated as a percentage of the annual salary (including any amounts paid by the employer as fringe benefits and other special indemnifications).

The amount of the severance payment therefore increases yearly: when the employment terminates (whether on a voluntarily or due to dismissal), the employee has the right to receive the total relevant amount.

The employee is also entitled to an indemnity for unused holiday time, compensation in lieu of notice, and other accrued and pro rata payments.

1.11 Non-competition clauses

A non-competition clause is only valid if provided in the work contract, and if:

  • The employer demonstrates that this clause is necessary to safeguard his interests and proportionate (e.g. the lower is the position the less the clause is justified);
  • Its scope is limited to a reasonable area, a reasonable period of time, and precise activities; and
  • The employee receives a monthly indemnity during the term of the clause (the indemnity amount is set by the work contract or collective bargaining agreement, but is generally between 20% and 50% of the employee’s monthly salary).

This clause can be waived by the employer in the letter of dismissal or according to the provision of the applicable collective bargaining agreement and / or employment contract.

The examination of the terms of the applicable collective bargaining agreement is key on this matter.

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.

A post-contractual non-competition clause is valid if it has been agreed between the parties and:

  1. it is in writing; and
  2. the restriction imposed on the employee refers to a specific object, within a specific area and for a limited period (maximum of three years); and
  3. an indemnity is paid to the employee while the clause is in force. The indemnity may be paid during, at the end of, or after termination of the employment contract.

1.12 Miscellaneous

Specific and restrictive rules and procedures apply in the case of pregnant women, women on and returning from maternity leave, young fathers, and employees recovering after a work-related accident or suffering from a work-related illness. Women on maternity leave cannot be dismissed during this period.

Since 2008, a new means of termination has been introduced, namely “by mutual agreement”. This new possibility is called ‘rupture conventionnelle’ (mutual termination of the employment contract). The termination is agreed by both employer and employee and there is no cause or reason to demonstrate.

The employee is entitled to unemployment insurance benefits and dismissal indemnity provided by law or the applicable collective bargaining agreement (or more if agreed).

A strict procedure including preliminary meetings and consideration periods should be followed (both parties have the benefit of 15 calendar days to retract, from the date on which the form is signed); a specific form must be filled in and signed by both parties.

The specific form must be sent to the state authorities for agreement. The state authorities have a 15-open day period to review the form. Within these 15 days, the state authorities can agree to the termination, disagree or stay silent (silence amounts to agreement). However, the state authorities must expressly agree for protected employees. Otherwise the termination is void.

Since September 2017 it has been possible for the employer to negotiate a collective agreement through a ‘rupture conventionnelle collective’ (mass mutual termination of the employment contract) with trade unions. Such an agreement can only implement voluntary departures and thus excludes any dismissals designed to eliminate jobs. This new method of terminating contracts is entirely excluded from the rules governing economic dismissals. The labour administration is informed as soon as negotiations to conclude such an agreement start and reviews the agreement’s contents before validating it.

Not applicable.

Due to the Covid–19 medical emergency, employers in Italy are currently prohibited from dismissing an employee for economic reasons, unless the appropriate social safety programmes have been completely exhausted by the employer.

It is prohibited to dismiss certain categories of employees considered particularly vulnerable. note that the ban on dismissal remains in place for up to one year after an employee's marriage, pregnancy, sickness, injury, military service, trade union appointment, public appointment, participation in a strike, etc.

Dismissal for an economic reason – conciliation procedure

To dismiss an employee for an economic reason, an employer with more than 15 employees must first make a statement to the local labour inspectorate (ITL) responsible for the area where the employee works. The statement must also be forwarded to the worker.

Within seven days of receiving the statement, the ITL will summon the employer and employee before the provincial commission of conciliation. The procedure must be completed within 20 days following the hearing, unless both parties declare their intention to extend it. If the mandatory conciliation attempt is unsuccessful or the labour inspectorate does not call the parties within the Seven-day deadline mentioned above, the employer may communicate the dismissal to the employee, but always observing the period of notice.

2. Dismissal of managing directors

2.1 Reasons for dismissal

The 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. However, a fair reason is legally required in certain forms of companies (e. g. the civil form or commercial forms such as certain limited companies (‘SA’) or limited liability companies (‘SARL’)).

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

At a limited liability company by shares (i.e. ‘Società per azioni’), or a limited liability company by quotas (i.e. ‘Società a responsabilità limitata’) where a managing director is appointed for a fixed period, a shareholders’ meeting may revoke the appointment of a managing director where there is just cause.

According to case law, this is generally the case where there has been a breach of legal or statutory obligations, or where the managing director has breached duties of loyalty, fairness, diligence and honesty. At a limited liability company by quotas where a managing director is appointed for an open-ended period, a quota holders’ meeting may revoke the appointment of the managing director without just cause at any time, even though the managing director will then be entitled to damages unless proper notice is given.

2.2 Form

A resolution taken by the shareholders or board of directors, depending on the form of the company and the internal organisation of the management. The managing director must be notified in writing of the revocation, and the change of managing director must be published in a public Corporate Register.

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

In the case of a liability company by shares, where the managing director does not have an employment contract, the managing director's appointment may be revoked by resolution at an ordinary shareholders’ meeting. The resolution must be signed by the chairman and secretary, and any required notice must be given.

2.3 Notice period

There is 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.

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. 

According to the Italian Civil Code, the company must give the managing director adequate notice of the revocation. If the annulment is with just cause, no notice is required. At a limited liability company by quotas where a managing director has been appointed for an open-ended period, the company may revoke his appointment at any time without just cause, but the company must give proper notice.

2.4 Involvement of works council

No.

No involvement.

No involvement.

2.5 Involvement of a union

Not applicable.

No involvement.

No involvement.

2.6 Approval of state authorities necessary

No.

Not required.

Not required.

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

Damages may mainly be claimed:

  • for lack of fair reason in companies where such a reason is legally required to revoke a 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 point before the decision to revoke him is made (absence of due process).

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.

If the appointment of the managing director is revoked without just cause, the revocation is valid, but the managing director is entitled to damages.

A decision to revoke the appointment of the managing director is invalid if it is made for a fraudulent purpose.

2.10 Severance pay

There is no mandatory severance pay for the capacity as director, unless stated otherwise in the by-laws of the company or in the resolution of appointment of the managing director.

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.

The managing director is only entitled to receive payment for the activities he has carried out, and reimbursement for any expenses incurred in relation to his office prior to revocation of his appointment as managing director.

2.11 Non-competition clauses

The terms of any non-competition clause must be agreed between the parties. If the scope of the clause is too wide (according to its geographic area, its length, or the activities it concerns), its validity may be challenged.

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.

A post-contractual non-competition clause is valid on the conditions that:

  1. it is set out in writing with the consent of both parties; and
  2. the restriction imposed refers to a specific object, within a specific area, and for a limited period (maximum five years); and an indemnity is paid by the company while the clause is enforced.

2.12 Miscellaneous

The director may also be an employee. In this case, a proper dismissal process will have to be implemented in addition to the revocation process and corresponding dismissal indemnities paid.

Not applicable.

According to the Italian Civil Code, if there is well-founded suspicion that the managing director has committed serious irregularities in the course of his management causing damage to the company, the court may annul the appointment of the managing director:

  1. in case of a limited liability company by shares, upon request of shareholders representing one-fifth of the company capital;
  2. in case of a limited liability company by quotas, upon request of every quota holder.