The new Labour Code – Part II
In this second article examining the new Labour Code entering into force on 1 July, we present the rules of termination of employment relationships and the lawsuits that often follow termination when employees challenge their dismissal. Although the new Labour Code does not particularly weaken the protection of employees, certain “phenomena” of Hungarian employment law that seemed quite unusual from a foreign employer’s point of view have been corrected.
Terms of termination
The Labour Code modifies certain legal terms. For example, what used to be called “ordinary termination” will be a “termination”, and an “extraordinary termination” will be called “termination with immediate effect”. However, both the notice period and the obligation of the employer to provide the reasons of termination in writing remain unchanged.
Such reasons continue to be the employee’s personal capability or conduct relating to the employment relationship or the operation of the employer. At the same time, a termination with immediate effect by the employer still has to be justified by a material breach of an obligation or intolerable conduct. It is worth mentioning that the parties became allowed to exclude the right of termination in the employment contract for a maximum period of one year.
Employees on sick leave no longer have protection against dismissal
One substantial modification of the currently effective regulations, however, is that employees on sick leave will not enjoy protection against dismissal. Until now a termination could not be communicated during sick leave, which led to the common phenomenon of employees escaping into sick leave as soon as they anticipated the intention of the employer to terminate them. However, since the notice period may only commence at the end of the absence, the bottom line is that the legal consequences do not differ from the present situation.
The major difference is only that, contrary to the current regulations, the notice of termination may be served on the employee even during the sick leave. Another new rule provides that no temporary protection delaying the commencement of the notice period is granted at the end of the sick leave (previously, such temporary protection lasted up to 30 days, depending on the length of the sick leave).
The Labour Code also rules that pregnancy now precludes termination only from the time when this fact was communicated to the employer. Furthermore, an employer may terminate the employment relationship of a mother or a single father having a child aged less than three for operational reasons, although only if the employer has no vacant positions which are suitable for the employee according to the employee’s qualifications and/or the employee has declined the employer’s offer of such position.
Notice periods of note
The employee need not be heard before the communication of a unilateral termination. The new legislation has also acknowledged the common practice that the commencement of the notice period may be set forth in the termination notice as a lawful possibility; so the notice period does not necessarily need to commence on the date following the day when the termination notice is handed over.
Employers may also appreciate that they may now terminate fixed-term employment relationships unilaterally upon serving notice, although grounds for such termination are limited to bankruptcy or insolvency of the employer, acts of God and grounds of the employee’s personal capability. In addition, the ability of the employer to terminate such fixed-term employment relationships with immediate effect by way of a “redemption” will be upheld (i.e. paying the employee the salary due until the end of the fixed term, up to the amount of the employee’s average annual salary).
The amount of statutory severance payments will remain the same. However, severance payment will only be due in case of terminations for operational reasons or if the termination on grounds of personal capability is based on a medical condition.
Objective: to reduce the number of labour lawsuits
A reduction in the number of proceedings before the labour courts is an admitted objective of the new regulation. Whether these efforts of the legislator will be a success of course has yet to be seen. Anyhow, in case of unlawful dismissal employees will not be automatically entitled to reinstatement; instead, the main legal consequence is a claim for damages. Thus, employees may only claim reinstatement of their former position in the cases regulated conclusively by the LC (e.g. violation of a prohibition of dismissal).
From an employer’s point of view it is crucial that in case of termination by the employer, the employment relationship terminates at the end of the notice period and not on the date of the final and binding judgment of the labour court. Previously a lawsuit regarding unlawful dismissal often entailed incalculable risks for an employer because of the statutory claim of employees for loss of salary (offsetting salaries earned elsewhere), as such lawsuits often took several years until a final and binding judgment was delivered and employers were frequently confronted with claims in the amount of several years’ salaries. According to the new regulations an employee may only claim an amount of up to 12 months’ average salary as compensation on grounds of loss of salary. Although this regulation may not necessarily lead to a substantial reduction of the number of claims lodged before labour courts; however, the interests of employees and their legal counsels in prolonging such proceedings over several years are more likely to fall away.
Andreas Köhler, Dr. Gábor Jagicza
K?vári Tercsák Salans Attorneys