Employment issues in M&A transactions in Hungary

1. Check whether:

• a European works council (EWC) exists.

2. Prepare the following in draft form:

• Not applicable.

3. Inform / Notify

• If an EWC exists at the Community-scale undertaking or the Community- scale group of undertakings to which the seller, purchaser or the target belongs, then it should be considered whether the consequences of the share deal in question qualify it as a transnational matter triggering an obligation to notify/consult the EWC over the transfer.

4. Consult

• Please see explanation above.

5. Implement

• Not applicable.

1. Check whether:

• As a share deal does not result in the change of the employer in connection with employees of the target, there is no notification or consultation obligation vis-à-vis employees’ representative bodies operating at the target under Hungarian corporate or labour rules.
• If any changes or measures are planned relating to or following completion of the transaction, which may affect a large number of employees, or new internal regulations are intended to be introduced, this could trigger an obligation to engage in consultation under the general employment law rules.

2. Prepare the following in draft form:

• a written notification to employees in the case under section 3.

3. Inform / Notify

• If the information subject to the obligation to notify changes (e.g. the person exercising the employer's rights, the beginning and duration of the employment relationship, the place of work, the duties of the job, etc.), the employer shall notify the employees of the change no later than the date on which the change takes effect.

4. Consult

• If any changes or measures are planned relating to or following completion of the transaction, which may affect a large number of employees, or new internal regulations are intended to be introduced, this could trigger an obligation to engage in consultation.

5. Implement

• Not applicable.

1. Check whether:

• a works council operates; or
• a European works council (EWC) exists; or
• any non-competition agreement exists; or
• any study contract exists.

2. Prepare the following in draft form:

• written notification for the attention of the purchaser regarding the employment relationships concerned and any rights and obligations arising out of non-competition agreements and study contracts (if such rights and obligations exist);
• written notification for the attention of the employees (if applicable; please see section 3. below, for whether this is the case);
• written notification for the attention of the works council/appointed representative (‘üzemi megbízott’) (see section 3).

3. Inform / Notify:

• the purchaser about the employment relationships concerned and any rights and obligations arising out of non-competition agreements and study contracts concluded prior to the date of the transfer.
• If no works council/appointed representative (‘üzemi megbízott’) operates at the seller, and unless otherwise agreed with the purchaser, the seller shall inform the employees involved of the following matters in writing and at least 15 days before the date of transfer:

1. the (planned) date of transfer;
2. the reason for the transfer;
3. the legal, economic and social impact of the transfer on the employees;
4. any measures being planned in relation to the employees.

• If an EWC exists at the Community-scale undertaking or the Community-scale group of undertakings to which the seller belongs, it should be considered whether the impact of the asset sale in question qualifies as a transnational matter, which triggers an obligation to notify/consult the EWC regarding the transfer.
• If there is a works council/ appointed representative (‘üzemi megbízott’) operating, the seller and the purchaser shall inform the body at least 15 days before the date of transfer of the following matters in writing:

1. the (planned) date of transfer;
2. the reason for the transfer;
3. the legal, economic and social impact of the transfer on the employees.

4. Consult

• If there is a works council/ appointed representative (‘üzemi megbízott’) operating, the seller and the purchaser shall initiate consultation parallel with providing the notification under section 3 above. Consultation is to cover any measures being planned in relation to the employees.
• It should be taken into account that the trade union (if one is in place) is entitled to initiate a consultation concerning work-related matters affecting the employees’ economic or social circumstances. If the trade union initiates such a consultation, the employer (whether this is the seller or the purchaser) has an obligation to consult for a period of seven days, during which time the planned transfer may not be implemented.

5. Implement

• There is no obligation to reach an agreement with the works council or trade union. If a written agreement is reached, the terms of the agreement must be complied with and implemented.

1. Check whether:

• a works council exists;
• there is an agreement between the seller and purchaser governing the notification of employees regarding the transfer;
• an EWC exists.

2. Prepare the following in draft form:

• written notification for the attention of employees prior to the date of the transfer. (Please see the first paragraph of section 3, below, for whether this is applicable);
• written notification for the attention of the works council/ appointed representative (‘üzemi megbízott’) (please see the second paragraph of section 3);
• written notification for the attention of employees following the transfer. (Please see the third paragraph of section 3, below, for whether this is applicable).

3. Inform / Notify

• If (i) no works council/appointed representative (‘üzemi megbízott’) operates at the seller; and (ii) the seller and purchaser agree to do so, the purchaser must notify the employees affected, in writing and at least 15 days prior to the date of transfer, of the following matters:

1. the (planned) date of transfer;
2. the reason for the transfer;
3. the legal, economic and social consequences of the transfer for employees;
4. any measures being planned in relation to the employees.

• If there is a works council/appointed representative (‘üzemi megbízott’) operating, the seller and the purchaser shall inform the body at least 15 days before the date of transfer on the following matters in writing:

1. the (planned) date of transfer;
2. the reason for the transfer;
3. the legal, economic and social impact of the transfer on the employees.

• The purchaser shall notify the employees affected regarding the information subject to the obligation to notify changes (e.g. the person exercising the employer's rights, the beginning and duration of the employment relationship, the place of work, the duties of the job, etc.). Notification shall be made in writing and no later than on the date of the transfer.
• If an EWC exists at the Community-scale undertaking or the Community-scale group of undertakings to which the purchaser belongs, it should be considered whether the impact of the asset sale in question qualifies it as a transnational matter, triggering an obligation to notify/consult the EWC regarding the transfer.

4. Consult

• If there is a works council/ appointed representative (‘üzemi megbízott’) operating, the seller and the purchaser shall initiate consultation parallel with providing the notification under section 3. above. Such consultation shall cover any measures being planned in relation to the employees.
• It should be taken into account that the trade union (if one is in place) is entitled to initiate a consultation concerning work-related matters affecting the employees’ economic or social circumstances. If the trade union initiates such a consultation, the employer (whether this is the seller or the purchaser) has an obligation to consult for a period of seven days, during which time the planned transfer may not be implemented.

5. Implement

• There is no obligation to reach an agreement with the works council or trade union. If a written agreement is reached, the terms of the agreement must be complied with and implemented.

1. Check whether:

• an employees’ representative body or works council/appointed representative (‘üzemi megbízott’) exists at the merging entities.

2. Prepare the following in draft form:

• a declaration by the executive officers of the merging entities that the employees’ representative body has been notified of the merger, that no employees’ representative body operates at the merging entities, or that the merging entities have no employees. This declaration must then be submitted to the Court of Registration;
• written notifications for the attention of the works council/appointed representative (‘üzemi megbízott’) of the merging entities (see Section 3);
• written notifications for the attention of the employees’ representative body of the merging entities section 3.

Note: since under Hungarian employment law the merger also constitutes a transfer of undertakings, the comments above relating to an asset deal shall also be considered.

3. Inform / Notify

• If there is a works council/ appointed representative (‘üzemi megbízott’) operating, the seller and the purchaser shall inform the body of the merging entities at least 15 days before the date of the merger of the following matters in writing:

1. the (planned) date of merger;
2. the reason for the merger;
3. the legal, economic and social impact of the merger on the employees.

• Notify the employees’ representative body of the merging entities of the merger within 15 days following the second members’ decision on the merger and the execution of the merger agreement. (This second decision relating to the merger may, under certain circumstances, be adopted simultaneously with the first decision.)

Note: since under Hungarian employment law the merger also constitutes succession in the employer, the comments above relating to asset deal shall also be considered.

4. Consult

• Request the operating work council’s/appointed representative’s (‘üzemi megbízott’) opinion of the merger at least 15 days prior to the first members/shareholders’ decision on the merger.
• If there is a works council/appointed representative (‘üzemi megbízott’) operating, the seller and the purchaser are to initiate consultation in parallel with providing the notification under section 3 above.

5. Implement

• The merger is, by default, effective from the date of its registration with the Court of Registration. The merging entities have the option to specify a different (pre-determined) effective date in the second members/shareholders’ resolution on the merger. This date may not be later than 90 days after the filing of the application for registration with the Court of Registration, and not be earlier than the date of registration. If the effective date determined by members’/shareholders’ resolution precedes the date of registration, then the effective date of the merger is the date of registration by virtue of law.