Labour law in Hungary

1.1. The Employment Contract

The main statute governing Hungarian labour law is Act I of 2012 on the Labour Code (“Labour Code”) as amended. 

An employment relationship is created by entering into an employment contract, which must be concluded in writing between the employer and the employee. However, failure to confirm the contract in writing will only invalidate the contract if the employee raises this as an objection within a period of thirty days from the first day of the commencement of work. 

The employment contract must specify at least the following details: 

• the names and particulars of those engaged in the employment; 
• the employee’s basic salary; and 
• the employee’s position (role). 

In addition to the statutory minimum contents of the employment agreement, in practice, it is important to incorporate certain additional terms. It is advisable to incorporate the place of work, which can be determined as one or more places or by way of reference to a bigger geographical area (like Hungary, for example). If there is a fixed place of work provided in the employment agreement, the employer can only transfer the employee to another place of work for a limited amount of time (44 working days) in a calendar year. 

Furthermore, for the sake of clarity, it is good practice if the individuals who may instruct and exercise employer’s rights (rights granted to the employer by contract, statute or by an internal policy) over the employee are named in the contract. Any action exercising such rights (for example, termination or amendments to the contract, or work appraisal) will be valid only if it is done by a person authorised to exercise employer's rights. Delegating the power to exercise employer’s rights is possible as well as an ex- post approval.  

The Labour Code does not require the employee’s job description to be included in the employment contract; it is enough to specify the main duties of the employee. Since the employment contract cannot be unilaterally amended, it is preferable not to incorporate the employee’s job description into the contract, but to prepare a separate document containing the descriptions of the jobs of the employees existing at the employer. As a result, the job descriptions of the employees may be amended unilaterally within reason by the employer. The employment contract should refer to this document, with the relevant part being handed over to the employee simultaneously upon the signing of the contract but no later than seven days from the commencement of work. 

In addition to the job description, the following information must be communicated to the employee within the same time limit: 

• holder of the employer’s rights; 
• the beginning and duration of the employment relationship; 
• the place of work; 
• the duration of the daily working time, the days of the week on which working time may be allocated, the possible starting and finishing times of the scheduled daily working time, the possible duration of the extraordinary working time, the specific nature of the employer’s activities; 
• the method of accounting for wages, the frequency of payment of wages and the date of payment; 
• remuneration and other allowances in excess of the basic salary; 
• the number of days of leave, the method of calculating them and the rules for taking them; 
• the rules relating to the termination of employment, in particular the rules for determining the period of notice; 
• the employer’s training policy and the length of the period of training that the employee may receive; 
• the name of the authority to which the employer will pay the public charges relating to the employment relationship; and 
• whether the employer is covered by a collective agreement.

Unless otherwise provided for the contract, the employee is employed for an indefinite period of time. A fixed-term employment contract is legal, but the parties must expressly state in their written contract that their agreement is concluded only for a fixed period of time. 

The same parties may establish repeated fixed-terms of employment or extend the fixed-term stipulated in the contract. This extension is only justified if it is in the employer's bona fide business/operational interests and if it is not aimed to impair the employee’s rights. Any employment established or extended in violation of this rule shall be considered to be employment for an indefinite period of time with all of its consequences. In practical terms, the employer must have an acceptable economic justification for extending a fixed term contract.   

The term of a fixed-term of employment must not exceed five years –- and this includes the cumulative term of numerous fixed-terms of employment when the latter term is established within six months of the termination of the previous fixed-term. The only exception to this five-year rule is that, if the employee is a  senior executive (i.e. managing director), the parties may conclude fixed-term employment contracts without restrictions.  

When employment is subject to a license or permit, the employment contract may only be concluded if such authorisation has been received from the relevant authority.

The Labour Code applies to all employment where work is carried out on a regular basis within the territory of Hungary and also to those cases when an employee of a Hungarian employer is assigned to temporarily work abroad (“Hungarian Employment”).  

In Hungary, the Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I) are directly applicable and therefore the parties can choose the law applicable to their contract. However, this choice cannot lead to a result that the employee is deprived from the mandatory protection provided by Hungarian law, if, in absence of the choice, Hungarian law would govern the relationship. 

Mandatory rules of Domestic Labour Law

By virtue of these rules, if an employee habitually carries out work in Hungary (or, in absence of a habitual place of work, the employer is located in Hungary) due to the contract’s provisions, certain mandatory rules of the Labour Code must be applied to the contract. 

Limits on the freedom to contract

In case of Hungarian Employment, the provisions of the Labour Code are binding. An agreement between the parties or a collective bargaining agreement may  deviate from these provisions but only where such deviation provides more favourable terms for the employee. In some parts, the Labour Code expressively allows a deviation in both ways – in this case the, parties are free to agree on the terms they want within the limits provided in the Labour Code. This limit, in general does not apply to a collective bargaining agreement or a contract concluded with an employee who is classified as a senior executive (see below)

Employee of a foreign employer 

An employee working for a foreign employer in Hungary through assignment, temporary transfer or temporary employment is not regarded as a Hungarian employee. However, the mandatory provisions of the Labour Code will apply in relation to such foreign employees, unless more favourable rules are applicable to the foreign employee by virtue of the law applicable to the employment contract. These mandatory rules are: 

• the maximum working hours and minimum breaks; 
• the minimum period of paid holidays; 
• the minimum wage; 
• conditions of temporary agency work; 
• conditions for safety at work; 
• employment and working conditions for young employees - or women who are pregnant  or who have a small child; and 
• rules regarding the equal treatment. 

Jurisdiction clause 

In line with the  Council Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (Brussels I) Hungarian courts shall have jurisdiction in employment-related lawsuits filed by employees against employers if (i) the habitual place of work is or was in Hungary; and/or (ii) the place where work was actually performed is in Hungary, provided that the habitual place of work neither is nor was in the same country. 

These rules do not preclude the possibility of initiating an employment-related lawsuit against the employer in the country of its domicile – the above mentioned rules just create a concurring and not an exclusive jurisdiction. 

Remote work 

Remote work in Hungary is divided into two categories: telework and home- office work. 

Telework is defined in the Hungarian Labour Code, but home office work is not regulated by the Code. In addition, there are other differences between these two models of remote work, such as the following: 

• Telework is carried out outside of the employer’s premises on a “regular basis” whereby home office takes place on an “ad hoc basis”. (This is not reflected in the Labour Code. Practice, however, follows this approach while home-office work is subject to disputes). 
• Telework can only occur if employee and employer expressly agree on this arrangement while home-office work does not require an agreement between the parties. 
• Telework is typically conducted at a specific address agreed upon by the parties while an employee can choose the location of home-office work. 

The differences between telework and home-office work are outlined in detail below. 

For further information about remote work in Hungary check out our chapter in the CMS Expert Guide to remote work.  

1.2. Contracts for services

An agency agreement (or services agreement) as set out in the Civil Code provides a wide discretion to the parties, since they may vary the conditions provided for in the Civil Code (as opposed to employment law, where the freedom of choice is limited). 

The agent is obliged to carry out the matters entrusted to him, in accordance with the principal's instructions and in a manner representing the principal's interests.

Compensation

Principals usually pay a service fee. Agents are entitled to demand remuneration even if their actions did not bring about the desired results. However, a principal is entitled to reduce the remuneration or refuse to pay it if he/she is able to prove that the failure to gain the results was partially or completely due to the fault of the agent. Fees become payable upon completion of the contract, unless the parties agree otherwise.

Costs that arise in connection with the handling of a matter shall be borne by the principal and the agent is not obliged to pay these on behalf of the principal until the principal has provided the agent with the money to do so.

Personal service

An agent is entitled to employ other persons to assist in the performance of the agent's function if the principal has  agreed thereto or if it is implied by the nature of the agency (this is not permitted under a contract of employment). 

Duty to cooperate

The Civil Code imposes a duty on both parties to notify the other of certain situations arising and to cooperate in good faith during the services.

Termination of contract

A contract may be terminated in various situations, for instance: if the agency has been fulfilled; if either party cancels the contract by notice; if either party dies or is dissolved without legal succession; if the principal becomes partially or fully incompetent or if the agent becomes incompetent; or if the objective of the agency relationship becomes moot. 

If the contract is cancelled by the agent, the principal dies or loses legal capacity to contract, the agent must take any urgent action required to protect the interests of the principal if the principal or its legal successor is unable to tend to the business at hand. A principal is entitled to rescind the agency agreement with immediate effect at any time, but is however, obliged to uphold any obligations already entered into by the agent. An agent is also entitled to rescind the agency agreement at any time but must give a period of notice sufficient to allow the principal to take over the running of the matter. If the principal is guilty of a serious breach of the contract, the agent is entitled to rescind the agreement with immediate effect. If the agent cancels the agreement without the principal being guilty of a serious breach of the contract, any losses incurred by the principal must be indemnified by the agent. Any limitation or exclusion of the right of cancellation is null and void; however, with regard to long-term or open-ended contracts, the parties are entitled to agree limitations on the right of cancellation.

Characteristics of the employment relationship

An employment relationship is distinguished from an agency relationship by the presence of the following characteristics:  

• systematic and regular work and the obligation to be available to carry out the instructions of the employer; 
• the work is performed at the employer's place, in the time determined by the employer and by using the employer’s tools; 
• the employer has an extensive right to give detailed instructions (i.e. a lack of independence of the employee); 
• the extent of control and supervision over the employee; 
• the employee has to perform without a right to delegate (engage subcontractors); and  
• the nature of the work is typical of an employment relationship. 

Relevant content 

If the above characteristics are there in the relationship, the provisions of the Labour Code govern the relationship accordingly. Considering the fact that all agreements have to be evaluated and qualified according to their content and not their appearance, the courts, the labour authorities (the Labour Inspectorate) and the tax authority (NAV) are entitled to re-classify a service agreement into an employment contract.  

In the course of a potential review, the authority scrutinises the contents of the various contracts concluded with employees and if they find that in reality, the legal relationship concluded between the parties is an employment relationship, they will qualify it as such - this is often referred to as “reclassification”. 

Reclassification of "hidden employment contracts"

As a legal consequence of such reclassification, the relevant authority can order the employer to pay all the social security contributions, employer’s contributions and similar public duties that would have been due had the relationship been treated as an employment relationship from the beginning. In addition, the relevant authority might impose penalty payments for non-compliance or delay. Based on a reclassified contract the agent will have the same rights as an employee. 

1.3. Employment of foreigners

The employment of foreign citizens is generally subject to conditions: in Hungary usually both a work permit and a residence permit or a special visa is required for foreigners in order to comply with employment legislation. 

Chief executives
supervisory board members

A work permit is not required for – amongst others – the chief executives and supervisory board members of business associations with majority foreign ownership.

Issue of a work permit

Work permits are issued without application and investigation into the demand for an employment provided the following conditions are satisfied: the business association in which the employees will be employed is majority foreign-owned; and the number of foreign nationals employed does not exceed 5 % of labour force of the business association registered on 31 December of the previous calendar year. 

Foreign key personnel

The same applies to – amongst others – “employment of a foreign national in a key position”. An employee in a key position is a natural person in the employment of a foreign-controlled company established in Hungary, who:  

• directs or supervises the company as a whole, or one or more of its organisational units which are under the control or supervision of the owner or the central management; or 
• possesses a high level of knowledge or special education necessary for the job, or otherwise holds such unique knowledge which is essential for the activities, research base, application of technology and administration of the organisation. 

Visa and residence permit

Foreign citizens can work in the territory of Hungary, if they possess a so-called “D” visa or a residence permit. This rule is applicable irrespective of whether the employee has already a work permit or is exempted from acquiring one. 

There are two different types of “D” visa depending on whether the obligation to applicant will be self-employed or employed by a third party. The authorities (an embassy or a consulate) have sixty (60) days for making a decision to grant a visa or to refuse the application. The visa can only be issued outside of Hungary, therefore the employee must obtain it before actually coming to Hungary.  

At latest fifteen (15) days before the expiration of the visa, the employee may apply for a residence permit from the Ministry of Home Affairs. This permit, in contrast to the visa, can be issued only in Hungary and it allows its holder to carry out work according to the immigration regulations.  

Citizens of countries that are not neighbours of Hungary and are outside the European Economic Area can apply for a guest worker residence permit. 

Guest workers can be employed by preferential employers, such as:  

• employers with a strategic partnership agreement with the Government; 
• employers undertaking an investment of major importance for the national economy; 
• employers with a partnership agreement under the Priority Exporter Partnership Programme; 

Guest workers can also be employed by registered and qualified temporary employment agencies. 

The permit is valid for a maximum of two years. It may be renewed for a maximum of three years from the date of the first issue. During its validity, no other residence permit may be applied for. The guest worker must leave the territory of the European Union at the end of the period of validity.

1.4. Special rules for senior executives

Under Hungarian law there are special regulations covering executive-level employees. These cover all executive employees who are classified as such by the Labour Code, and those who are classified as such according to their employment contract. 

Statutory and designated senior executives

The manager of the work organisation and the employees under his/her direct supervision – who are entitled to at least partially substitute for the senior executive – are considered to be statutory senior executives. Also, the parties can agree in a contract of employment that an employee is designated as a senior executive, provided that the level of salary reaches or exceeds a sum equivalent to seven times of the then-current minimum wage (In 2023, this means a monthly base salary of HUF 1,624,000 gross per month – approx. EUR 4,222). The special rules provided below are the same for both classes of executives.  

The general rules outlined above apply to senior executives subject to the following differences:  

• collective agreements do not apply to the senior executive; 
• the parties are free to deviate from the rules of the Labour Code in their contract of employment regarding the executive’s working conditions; 
• the employer is not obliged to provide a reason for the ordinary termination of the senior executive’s employment; 
• the limitation against terminating the employment during sick leave do not apply; 
• the right of termination with notice with immediate effect of a senior executive’s employment contract can be exercised within the normal periods (see point 6.2.), but not later than 3 years (rather than 1 year) after the occurrence of the reason (or in the case of a crime, until the expiry of the statute of limitation); 
• the senior executive determines his/her working hours at his/her own discretion subject to the terms of the employment contract; 
• the senior executive is not entitled to overtime payment; 
• the senior executive has unlimited liability for damages resulting from negligence; 
• if the senior executive is dismissed during liquidation or insolvent winding up proceedings of the employer, then the rules relating to redundancy payments are applied in such a way that the maximum amount payable to the senior executive at the time of termination is six months’ absence fee; the rest is payable only upon conclusion of the liquidation or insolvent winding up proceedings.

Restraints on Competition  

In addition, the Labour Code imposes the following special restrictions on senior executives (the “Non-Competition Rules”). The senior executive:  

• cannot acquire an equity interest in any company which carries out activities identical or similar to the employer or which has regular business dealings with the employer (subject to exceptions relating to public companies by shares); 
• is prohibited from concluding transactions in his own name which compete with the employer; 
• must notify the employer if a relative of his has acquired a share in a company which carries out an activity identical or similar to the employer or which has regular business dealings with the employer or if such relative has become an executive of such other undertaking. 

2.1. Minimum wage

Determination by the government in cooperation with the National Economic and Social Council 

The mandatory minimum wage is determined by the government in cooperation with the National Economic and Social Council each year. The mandatory minimum wage for 2023 is HUF 232,000 gross (app. EUR 603) for employees employed full time, and it is HUF 296,400 (app. EUR 770) for employees employed full time in positions requiring a secondary school diploma or an advanced vocational training or college qualification.

Special cases

An employer is not allowed to pay less than this mandatory minimum wage. The normative performance requirement for full-time employees shall be established so that the wages payable upon the fulfillment of such performance requirements shall amount to at least the mandatory minimum wage.

Collective bargaining agreements

Minimum wages agreed in collective bargaining agreements may not be reduced in an individual employment contract. 

2.2. Pay increases

(Sectoral) Collective agreement

The salary is amended automatically in respect of the mandatory minimum wage. Sectorial collective agreements regulate the proceedings in relation to salary raises. Collective agreements applicable to a single employer also contain provisions about the duties of the parties concerning such negotiations.

Employment Contract

Salaries are usually increased by an amendment to the employment contract as agreed by both sides. Individual contracts normally only provide for a (non-binding) possibility of a regular salary revision. 

2.3. Reduction of wages

A permanent salary decrease is only legally possible by amending the contract of employment by the two parties. 

3.1. Standard working hours and breaks

Daily and weekly standard working hours

Exceptions

The working time of full-time employment may be increased to not more than 12 hours daily for employees:

• working in stand-by duty (work of an on-call nature- means part-time work or work which does not require permanent attendance at a job, work of such minor involvement which enables the employee to partially or wholly relax, e.g. doctors) or
• who are relatives of the employer or its owner.

Lunch break

If the scheduled daily working time exceeds 6 hours the employee shall be entitled to a minimum 20-minute break from work. Furthermore, if the scheduled daily working time exceeds 9 hours the employee shall be entitled to an additional minimum of 25-minute break from work. The parties may increase the length of the break in their contract of employment or in a collective bargaining agreement, up to 60 minutes. 

3.2. Minimum rest periods

Minimum daily rest period

A period of at least 11 hours should be provided to employees between leaving work and starting again on the following day. However, a period of at least 8 hours rest should be provided for employees:

• whose working time consists of more than one shift in the same day (split working time);
• working pursuant to a continuous work order;
• working in several shifts; or
• doing seasonal work.

Minimum weekly rest period

All employees are entitled to two days per week as a weekly rest period, one of which must be a Sunday at least once a month. Instead of two rest days per week, employers may give the employees an uninterrupted rest period of at least 48 hours, which has to include a full calendar day. 

Scheduling of the rest period

The Labour Code provides that in case of unequal worktime – with the exception of those working pursuant to a continuous work order; working in several shifts, or doing seasonal work – at least one day for rest should be given to the employee after 6 consecutive days of work.

3.3. Maximum allowed working hours

Daily limit on working hours

The maximum working time per day cannot exceed 12 hours, and, in case of employees undertaking work which requires them to be on call or in the case of employees, who are relatives of the employer or its owner, 24 hours. However, this latter case requires the agreement of the employee and employer. 

Weekly limit on working hours

The weekly working hours cannot exceed 48 hours including overtime, and, in case of employees undertaking work which requires them to be on call, or in the case of employees, who are relatives of the employer or its owner, 72 hours. The latter case requires the agreement of the parties here as well.

3.4. Overtime

Annual limit on overtime work

Notwithstanding the restrictions provided above and in the case of full time employment, the maximum limit on overtime is 250 hours per calendar year. This can be increased to 300 hours if stipulated in a collective bargaining agreement. The employer and the employee may agree that the employee voluntarily undertakes on a yearly basis 150 hours additional overtime. 

The employee is entitled to terminate the agreement with the end of the calendar year. 

Prohibition of overtime work

No overtime can be required from:

• a woman from the commencement of her pregnancy until her child is three years old;
• a male employee bringing up his child alone until his child is three years old; and
• an employee if the work places his/her health at risk.

An employee bringing up his/her child alone may only be required to perform overtime work, where such employee consents or agrees to do so, during the period from when his/her child is three years old until his/her child reaches the age of four.

Compensation for overtime work

In general, employees are entitled to a 50% wage allowance for work performed in excess of the daily working time (100%, if the work is performed on a rest day). An agreement between the parties may stipulate the provision of time off in lieu of a wage allowance (together with a 50% wage supplement in case of a rest day). The employees who may decide upon their own working hours at their discretion (this is referred to as “flexible working schedule” under the Labour Code) are not entitled to receive overtime pay. Furthermore, individuals who are classifed as “senior executives” do not need to be paid for overtime work as they work under a flexible working schedule by virtue of the Labour Code. 

Fixed allowance for all overtime work

It is permitted to state in the employment agreement that the employee receives a fixed, lump sum instead of the wage allowance. In this case, the employee can only demand the same hourly payment for overtime as in case of his/her normal working hours.

Penalties

If the employer does not comply with the maximum working hour requirements, the labour authorities (Labour Inspectorate) may impose sanctions on the employer, which can include an administrative fine.

3.5. Working during the weekend and on public holidays

Sundays are work-free days

There is no such category like “week-end work” in Hungarian labour law. Accordingly, employees are entitled to two days of rest a week and one of the days of rest must fall on a Sunday. Therefore, working on a Sunday is subject to certain restrictions and only the following categories of employees may be required to work on Sundays in their regular working hours: 

Exceptions 

• employees of employers operating on Sundays due to their nature of work or in case the position of the employee requires that he/she works on Sundays;
• employees who work pursuant to a continuous work order; 
• employees who perform seasonal work; 
• employees whose scope of work is of an on-call nature;
• employees who are employed in two or more shifts; or
• employees who work abroad;
• part time workers working only on Saturdays and Sundays;
• employees working in connection with the provision of basic public services or cross-border services (like a shared service centre), where it is necessary on that day stemming from the nature of the service;
• employees engaged in commercial activities covered by the Hungarian Trade Act, and providers of services related to commercial activities and providers of tourism services.

If an employee whose scope of work is of an on-call nature works on a Sunday, such employee may not be required to work on the preceding Saturday in regular working hours.  

Working on public holidays

The employees may be required to work in normal working hours on a public holiday:

• by employers operating on public holidays days due to the nature of their business or in case the position of the employee requires that he/she work on a public holiday;
• if the employees work pursuant to a non-stop work order; 
• if  the employees do seasonal work; 
• if the employees work in basic public services or cross-border services, where work is necessary on that day stemming from the nature of the service;
• if the employees work is performed abroad.

On public holidays overtime work can only be required:

• from employees who can work on such days in normal working hours; 
• in order to prevent accidents, in case of accidents or catastrophes or in order to prevent direct or serious damage, threatening life, health or physical safety. 

Non-stop work

Work may be organised in continuous shifts (non-stop work order):

• if the employer's operation is suspended for less then 6 hours a day or for technological reasons; and
  • the employer provides basic public services; or
  • if economic or feasible operation cannot be ensured otherwise for objective and technical reasons; or
• if continous work is justified by the nature of work itself.

Shared Service Center exception

Since January 2009, employees serving foreign clients via IT infrastructure (typically in SSC’s) or posted abroad on days not qualifying as public holidays in the recipient country, may be instructed to work on Hungarian public holidays provided that the relevant service shall be provided on the given day.

Shift work

The Labour Code qualifies the operation as “shift work” if the employer’s operation reaches 80 hours a week. In addition of the wage allowances mentioned above, if the employee’s scheduled daily working time changes regularly, the employee is entitled to a shift supplement of 30% for working from 6 PM - 6 AM. Under the Labour Code, the schedule changes regularly if in a given month, the employee is assigned to a different schedule at least one-third of his/her working days and there is a 4-hour difference between the start of the different shifts.  

3.6. Allowances for work during public holidays and night work

Night work

In case the employees work during the night (between 10 PM and 6 AM) for more than an hour, the employee is entitled to a 15% wage allowance.  

Public holidays

An employee who has to work during a public holiday has the right to receive a 100% wage allowance in addition to his/her basic salary for that day.  

4.1. Minimum holiday entitlement

Minimum holiday entitlement

The basic holiday entitlement is 20 working days. The holiday entitlement of employees is increased with additional days depending on the age (and not the seniority!) of the employee with up to 10 days. Employees shall be entitled to receive the extra annual leave in the year when they reach the specified age:

Additional leave entitlement

The employee – both the mother and the father – is also entitled to extra leave in special events, e.g. during pregnancy or when raising a child (maternity leave, paternity leave or parental leave). 

In some cases, the employee shall also be entitled to vacation time for the period of time during which the employment relationship is suspended, for example for the duration of time spent off work due to illness, for the duration of maternity leave or for the duration of leave without pay for less than 30 days. 

An employee, whose employment relationship commenced during the year, is entitled to receive annual leave on a pro rata basis. 

4.2. Scheduling of the annual leave

Scheduling of the leave

An employee's annual leave entitlement can be used upon the permission of the employer, however, 7 days has to be allocated in accordance with the request of the employee. Unless the parties agree otherwise in their contract of employment, the employer must allocate the leave in a way to provide a continous 14 days leave in a calendar year. 

Vacation time will generally be taken in the year in which it is due. However, if the employee’s employment commenced on 1 October or later the employer may allocate vacation time until 31 March of the following year. It is also possible to agree in a contract of employment to permit the scheduling of the additional holidays depending on the age of the employee up and until the end of the following calendar year. 

Compensation

Upon the termination of the employment relationship, the employee must be paid financial compensation for any unused and accrued annual leave. It is not permitted to pay compensation in lieu of unused annaul leave under any other circumstances.

If more vacation time has been taken up to the date of termination of employment relationship than should have been taken for the period worked, employees do not have to reimburse the employer for the wages received in excess of their actual leave entitlement.

Penalties 

If the employer fails to allocate the employee's annual leave entitlement, it may be fined by the National Labour Inspectorate. The limitation period for claims related to vacation time or their financial compensation is three years following the end of the employment relationship.

Sick pay 

Employers are obliged to pay to the employees 70% of the absence pay (an amount calculated on the basis of the basic salary and regular allowances) during the first 15 days of sick leave per annum. After 15 days sick leave entitlement is exhausted, sick pay is paid by the social security system, but only for a period of up to 1 year. After this date, invalidity benefits may be granted. 

Health examination

The incapacity to work has to be certified by a physician, even in the case of one day’s leave. The only medical examination that an employee is obliged to take is one which assesses whether he/she is fit enough to carry out the job. 

Employers must provide health examination to the employees working during the night. If the result of this examination shows that night work may be detrimental to the health of an employee or that an illness that an employee already has is directly related to night work, such an employee must be transferred to day work.

General background

As a general rule, an employment relationship may only be terminated under the circumstances and in such manner as provided for in the Labour Code. The relationship is terminated by virtue of the Labour Code upon the employee's death, upon the dissolution of the employer without legal successor or upon the expiration of the fixed term. Therefore it is not possible to provide for situations when the employee will automatically be dismissed in the employment contract. 

Termination with immediate effect during the trial period

The employment contract may be terminated with immediate effect during the trial period, either by the employee or by the employer. In this case, there is no need of giving reasons at all. 

Mutual consent (mutually agreed separation)

Any employment may be terminated by an agreement based on the mutual consent of the employer and the employee, i.e. by entering into a contract in relation to a mutually agreed separation.

Different treatment of contracts

Employment contracts for indefinite and fixed terms are treated differently. 

Contracts for an indefinite term

An employment contract for an indefinite term may be terminated by giving a regular notice or notice with immediate effect. The notice must be in writing.

Dismissal

The employer must provide a cause justifying the dismissal by a regular notice unless 

• the employee is an executive employee (the executive of the employer or its deputy or such right is prescribed by the employment agreement); or
• has reached retirement age or is deemed to be retired in accordance with the rules of the Labour Code.

If the employer does have to justify a termination of an employment contract and it terminates it without lawful reasons, it will be considered as an unlawful termination and the employer will have to pay damages.

Temporary employment contracts

In the case of a termination notice, the grounds on which a temporary (fixed term) contract of employment can be terminated is more limited compared to an employee with a permanent contract and both parties have to provide justification. 

A fixed-term employment contract may be terminated by the employer with immediate effect at its convenience, but the employee must be paid an amount equal to 12 months' absence fee or, if the outstanding term of the employment is less than 12 months, then for such outstanding period.

6.1. Formal requirements to be observed by the employer

Written form and information regarding legal remedies required

An employment contract for an indefinite term may be terminated by providing a regular notice. The notice letter must be put in writing and must provide the employee with information regarding the manner and deadline by which he/she can seek a legal remedy against unlawful termination (a statement of claim concerning unfair dismissal must be filed within 30 days with the relevant employment tribunal).

Any employment contract can be terminated in writing with immediate effect if the other party acts in a manner which wilfully or gross negligently breaches his/her main employment obligations, or otherwise demonstrates behaviour which makes the retention of the employment impossible. This summary notice filed by the employer also has to contain information regarding the possibility to seek remedy before a court.

No required approval by a governmental body

It is not needed for the dismissal to be approved by a governmental body. 

Consent of the trade union body

The dismissal of an employee holding a position within a trade union by ordinary notice, or the transfer of such official to another working place, requires the consent of the trade union body. The number of protected trade union officials depends on the number of employees at the employer.

Consent of the works council

The dismissal of the chairman of the works council, or the transfer of the chairman official to another working place, requires the consent of the works council.

6.2. Period of notice

Regular notice

The period of notice must be at least thirty (30) days, subject to longer periods stipulated in the contract of employment, however, the lenght of the contractual notice cannot exceed 6 months, unless the employee is a senior executive. 

In case of a termination with regular notice by the employer the thirty (30) days notice period may be prolonged depending on the duration of employment by the employer in question.  It will be extended by five (5) days after three (3) years in service, fifteen (15) days after five (5) years, twenty (20) days after eight (8) years, twenty-five (25) days after ten (10) years, thirty (30) days after fifteen (15) years, forty (40) days after eighteen (18) years and sixty (60) days after twenty (20) years of service. 

If an employee is dismissed by regular notice, the employee must be exempted from performing work for at least half of the notice period (“Garden Leave”). 

Summary notice

The right to terminate with notice with immediate effect (summary dismissal) must be exercised within 15 days of the day on which the employer becomes aware of the reason for the termination and within one year of the actual occurrence of such reason. If a crime was committed by the employee, the above date coincides with the expiry of the statute of limitation concerning such crime. If the employment rights over the employee are exercised by a body (e.g. the Board of Directors or a Supervisory Board), then the 15-day deadline starts running on the date on which such body is expressly informed of the reason for the termination.

An employee may only terminate his/her employment contract with notice with immediate effect if the employer commits a fundamental breach of the employment contract, such as not paying the salary or engaging in discrimination. If an employee terminates the contract by notice with immediate effect, the employee will have to justify the extraordinary termination, and he/she will have the burden of proof that the reasons for the notice with immediate effect were real and valid.

6.3. Limited reasons to terminate the employment

The reason for the dismissal by notice for a permanent employee must relate to the employee's inability to carry out his/her job (personal reasons) or in relation to the behaviour of the employee concerning the employment or the employer's operation (operational reasons).

Operational reasons

• reorganisation 
• restructuring 
• reduction of headcount 

Personal reasons

• disciplinary issues  
• bad workmanship 
• breach of policies 

Fixed-term  employment - different rules apply

• An employment relationship for a fixed term may only be terminated with notice by the employer during liquidation or bankruptcy proceedings; a reason related to the employee’s abilities to perform the role or if any other reason (unavoidable external cause), which makes the continuation of the employment relationship impossible. The grounds for termination are therefore much more limited in case of a fixed-term employment contract.

6.4. Severance payment

Employees who are dismissed by way of notice after service of more than 3 years, must be paid a one month's absence fee as severance pay. The severance payment increases according to the number of years in employment, up to a maximum of 6 month's absence fee after 25 years of work. However, severance payment is only due if the reason for the termination is related to operational grounds or due to medical reasons. Therefore, in case of a dismissal for non-performance or for a disciplinary reason, the employee is not entitled to receive a severance payment.

6.5. Mass redundancy

Mass Redundancy

The dismissal of a certain number of employees due to a change in the circumstances at the employer’s operation is subject to special rules. The number of dismissed employees which trigger the application of such rules for group dismissals are: 

• for an employer with between 21 and 99 employees, the dismissal of at least 10 employees; 
• for an employer with between 100 and 299 employees, the dismissal of at least 10 per cent of the employees; and 
• for an employer with at least 300 employees, the dismissal of at least 30 employees. 

This is subject to the provision that the employer terminates the employment contracts of such numbers of employees within 30 days. All methods of termination initiated by the employer, including termination by compromise agreement, are within the scope of mass redundancy.   

It should be noted that if these thresholds are reached at individual sites rather than across the employer’s entire operation, this will also trigger a mass redundancy. 

Consultation with the works’ council

Before making the decision relating to the mass redundancy, the employer must initiate consultation with the works' council. The consultation obligation of the employer subsists for at least 15 days. The consultation must cover the principles of the group dismissal, any methods which could be employed to prevent the dismissal and any means of mitigating the consequences and reducing the number of employees affected. 

At least seven days before holding the consultation the employer must inform the works’ council in writing of,  amongst others:

• the reasons for the planned group dismissal;
• the number of employees affected, broken down according to their position; and
• the average number of employees the employer has had in its employment over the past six months; 
• the duration and step-plan of the redundancy;
• the aspects of selection;
• the conditions and extent of remuneration concerning the termination of employment (which deviates from the remuneration prescribed by employment rules).

Written information

If the employer and the works’ council conclude an agreement in the course of the consultation such agreement must be evidenced in writing and must be notified to the relevant Labour Centre. If the employer and the works’ council fail to conclude an agreement within the prescribed period, the employer may continue with the mass redundancy. 

Information of the Labour authorities

Once the employer has made its decision relating to the group dismissal, it must, at least 30 days prior to the handover of the notice letter of the employees affected by the group dismissal, inform:

• the works’ council; 
• the relevant employees affected by the process; and
• the Labour Authorities.

Breach of the formal requirements  

The termination is considered to be unfair if the employer does not comply with these notification rules. 

6.6. Employees with special protection against termination of employment

Prohibition of Redundancy

Notwithstanding the provisions mentioned in 6.1. and 8.5., it is unlawful for any employer to dismiss an employee on ordinary notice during and for a period after the following: 

• pregnancy;  
• maternity leave; 
• paternity leave 
• parental leave 
• unpaid childcare leave until the child reaches the age of 3; 
• during voluntary reserve military service;  
• fertility treatment, but the protection only applies for 6 months from the commencement of the treatment 
• personal care for a relative who needs care for serious health reasons or for a person living in the same household as the employee 

Notice period - Limited protection

In case of:

• incapacity due to sickness (not to exceed one year following expiration of the sick leave);
• sick leave taken for the purpose of caring a sick child;
• unpaid leave for the purpose of nursing a relative at home

a limited protection applies, as the notice period commences only after the end of the relevant period provided above, but it is possible to hand over the notice letter itself.

Protection due to age or parenthood

On the other hand, the employment of an individual who will reach his/her official retirement age within 5 years can only be terminated in an especially justified case. This means that in case of a redundancy, the employer has to offer an alternative position, if any; in case of inadequate performance, the employee can only be dismissed for a serious misconduct. The same protection applies for a young mother with a child under the age of 3 or a father who is a single parent with a child under the age of 3. 

6.7. Reassignment

Temporary reassignment of personnel

It is possible to require the employee to temporarily carry out certain duties that do not form part of his/her original scope of work. It is also possible to post the employee to a different place of work or to order the employee to go on a secondment. However, this requirement must not be prejudicial to the employee and must not be for a period of more than 44 working days in a given calendar year.

6.8. 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 amount of damages is capped by the Labour Code at 12 months of absence pay. If the contract is terminated for performance reasons by notice, the employee could also claim severance payment from the employer. 

The employee may claim additional damages (like non-pecunary damages) but in this case he/she has to prove the damages  during the course of the litigation.

Reinstatement

The employee may claim reinstatement, but this is permitted only in cases like discrimination or if the employer terminated an employee protected from dismissal.

Unfair termination by the employee

If the employee terminates his/her contract in breach of the rules of the Labour Code, the employee has to pay a compensation to the employer equal to the employee's absence pay due to the notice period for regular notice. In case the damages suffered by the employer are higher, it is possible to claim damages from the employee before a court.

EU Directive 2001/23

The Directive of the Council of the European Communities 2001/23/EC of 12 March 2001 on the safeguarding of employees' rights in the event of a transfer of undertakings, business or parts of an undertaking or business was implemented into Hungarian labour law.

"Transfer" for labour law purposes means, broadly, a transfer of an undertaking or a business, together with its employees. The main provisions in respect of legal succession include the following:

Automatic transfer of contracts of employment

The Labour Code provides that the obligation of continuing to employ employees is one of the legal consequences of and not a condition for legal succession.

Transfer means the transfer of the employer's separate and organised group of material and non-material resources (e.g. a business or part of a business) under an agreement.

Transfer with the same terms and conditions

Upon the Transfer, the rights and obligations arising from the employment pass from the transferor to the transferee. The transferor is obliged to inform the transferee about these rights and obligations.  

The employees’ employment is deemed to be continuous, in particular with regard to the length of the notice period and the amount of severance payment to which they are entitled.

Information and consultation

If there is no works council operating at the transferor the  employees must be informed about the date or planned date of the Transfer, the reason for the Transfer and its legal, economic and social consequences, and planned measures in relation to affected employees at least 15 days prior to the Transfer. 

If the former employer had a collective bargaining agreement, the transferee is bound by working conditions as prescribed in the collective bargaining agreement. This obligation applies however, for a period of 1 year following the effective date of the Transfer. 

8.1. Trade unions and management

Right of information

Trade unions have the right to certain information (e.g. request information on any issues having an impact on the economic and social interest of the employees in connection with their employment ), a right to articulate their opinions.

Prior consent

The dismissal of an employee appointed as protected holding a position within a trade union by ordinary notice, or the employment of the employee under conditions differring from his/her employment agreement requires the consent of the trade union. 

8.2. Influence of Labour unions

Consultation forums

Consultation forums also exist on a regional and sectorial basis. 

Traditionally trade unions are strong in the sectors of production and energy, their influence is much less in the finance and services sector. 

8.3. Creation of a works council or staff representatives 

Works’ council

Under the Labour Code a works’ council must be elected at the place of business of all and at all employers' independent divisions which have more than 50 employees. 

Workers’ representative

If the number of employees exceeds 15, then a staff representative must be elected. However, this rule essentially grants a right to employees to form such works councils and an obligation upon the employer to assist them in doing so.

Term of office and number of members of the works’ council

The works' council is elected for a period of five years and the number of its members varies between 3 (where there are up to 100 employees altogether) and 13 (where there are above 2000 employees altogether) depending on the number of employees. There are detailed rules relating to the procedure for electing the members provided in the Labour Code. 

8.4. Rights of staff representatives

Opinion of the works' council

The employer is obliged to seek the opinion of the works' council before taking decisions that would affect a significant group of the employees, so especially the following: 

• reorganisation of the employer, its transformation, the transformation of an organisational unit into an independent organisation, privatisation and modernisation;
• decisions relating to changing the data recorded;
• decisions relating to the employees' training;
• decisions relating to the rehabilitation of disabled employees;
• decisions relating to the introduction of new work or organisational methods and performance requirements; and;
• introduction of employee subsidies;
• decision on work order or remuneration principles;
• decision on measures concerning equal treatment and opportunities;
• coordination of family life and work activity;
• decisions relating to internal regulations. 

No right of objection 

Right of consultation

It should be noted that the work's council does not have a right to veto any decisions, merely a right to be consulted. The works' council is obliged to inform the employer of its views in relation to these issues, within 15 days, failing which, its consent is deemed to have been given. 

Duty to inform

Furthermore, the employer must inform the works' council at least once every six months of:

• material issues regarding the employer's business position;
• any changes to salary levels, the employer's ability to pay the salaries, the special conditions of employment, the use of working time and the working conditions;
• the number of employees employed by the employer and of their positions. 

8.5. Staff representatives and the right of paid release

Working time allowance

Members of the works' council shall be entitled to a working time allowance of 10% (15% in case of the chairman of the works' council) of their monthly working time in which to carry out council work.

In respect of trade union officials, the total amount of working time allowance for all officials is one hour per month for every two trade union members employed by the employer. The time allowance may be used by the end of the given year and may not be redeemed in the form of financial remuneration). 

8.6. Staff representatives and material expenses

Justified and necessary costs

Employers shall cover the justified and necessary costs of election and operation of the works' council. 

8.7. Collective Bargaining Agreements

One union organisation

As a general rule, a representative trade union is entitled to conclude a collective agreement with the employer if has a membership of at least 10% of the workforce based on the average number of employees in the past six months at the employer. 

Several union organisations

Duty to bargain in good faith

If more than one trade union maintains a local branch at an employer, the collective agreement must be concluded jointly by all the trade unions. Please note that only one collective bargaining agreement may be concluded with an employer. If a trade union is entitled to conclude a collective agreement, the employer cannot refuse to bargain in good faith, but there is no legal obligation to conclude a collective agreement. 

Extension of the scope of the collective agreement

The Minister for Economic Development may extend the scope of the collective bargaining agreement to the entire sector (see point 2.2.). 

Executive employees

Collective agreements do not apply to executive employees. 

9.1. Individual employment disputes

Courts

In labour disputes arising from Hungarian employment, the Hungarian employment and administrative tribunal, that covers the registered office (or business premises) of the employer or the court at the place where the work has been carried out has exclusive jurisdiction.

Mediation

Legal disputes at the court usually start with an attempt to achieve a settlement. The use of a mediator may be stipulated in the employment contract. The law encourages the use of mediation but it is currently not considered to be common in Hungary. 

9.2. Collective employment disputes

Arbitration

Any dispute arising in connection with employment relationships between the employer and the works' council or the trade union, which does not qualify as an individual legal dispute, shall be settled by negotiations between the parties concerned. In the interest of settlement of such dispute, the parties may employ an arbitrator based on an agreement.

General background

The Hungarian compulsory social security system contains a (state-owned) health fund, and a state-owned pension fund. Due to the changes in legislation, most employees have been transferred back to the state system from the private pension funds. However, voluntary mutual pension funds are still popular and operate within Hungary. 

10.1. Contributions for social insurance

Contributions of the employee and the employer

The employer pays a 17,5% social tax, along with a 1.5% training fund contribution. Also, the employer deducts the following contributions from the gross salary:  

(i)   pension fund contribution: 10%; 
(ii)  health fund contribution: 7%;  
(iii) labour market contribution: 1.5%. 

In addition to these contributions, the employer must deduct and pay the personal income tax of 15% to the tax authorities for and on behalf of employees. 

These taxes should be taken into consideration in the cost of the termination as well. 

10.2. Retirement 

Gender free

In general the person who reached the retirement (that is 65 years) and has been in service for 20 years may qualify for the state pension.  

10.3. Calculation of the pension

Minimum pension

The official minimum pension is currently HUF 28,500 (approx. EUR 74) per month. The amount of pension is, notwithstanding the official minimum pension, calculated on the basis of the number of years in service and the average salary during that period.  The pension is a percentage of the average salary, with the relevant percentage decreasing as the salary increases.  

10.4. Unemployment benefits (job-seeker benefit, in Hungarian: álláskeresési járadék)

Funding of the unemployment scheme

Unemployed people are supported first by  the local government offices. 

Amount of the unemployment benefit

Unemployment benefit generally amounts to 60% of the average payment paid to the unemployed person within the 4 calendar quarters proceeding the loss of his/her job. The amount of such benefit cannot be higher than 100 % of the minimum wage [i.e. in 2023 HUF 232,000 gross (app. EUR 603)]. It is paid for a minimum period of 36 and a maximum period of 90 days, depending on the length of employment. After the expiry of the above period, unemployed people are entitled to a very low amount benefit only, being 80% of the official minimum pension (i.e. HUF 22,800 – approx. EUR 71,25 per month in 2023).