| 1.1. The Employment Contract |
Written form required | 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. |
Issues to be specified in the contract | 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. |
Notification | 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.
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Term of employment | 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. |
Choice of law | 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.
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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 |
| In Hungarian law, besides an employment contract, a service agreement under Act V of 2013 on the Civil Code (“Civil Code”) may exist as a form to carry out work for and on behalf of a third party. |
Agency agreement | 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.
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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 |
Work and residence permit | 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.
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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. |
No need for Visa or Work Permit for EU citizens | 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 |
Special regulations | 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.
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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.
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