Each country in the EU has its own rules on how employment relationships can be terminated in accordance with the law. In Hungary, the rules of the 2012 Labor Law apply. According to the new rules, the parties are allowed to make more specific agreements on the termination conditions, for example regarding the notice period or the amount of severance pay. Agreements in union contracts or company agreements regarding termination are still the exception in Hungary.
In the first part of our series, we looked at how the termination/cancellation of an employment relationship works and what types of termination of an employment relationship exist, and in the second part we gave an overview of the benefits at the end of an employment relationship.
Now, in our third and final part, we come to the consequences and legal consequences of termination.
I. Non-competition clause
During the employment relationship, the employee may not display any behavior that would endanger the legitimate economic interests of his employer.
After the employment relationship has ended, the employee can only assume this obligation to protect his interests on the basis of an agreement of this kind concluded for an appropriate fee.
The institution of the non-competition clause in Hungarian labor law is based on the above regulation. A non-competition agreement can be concluded for a maximum of 3 years, 1-2 years is usual. It may be that the maximum period is initially agreed in the employment contract, but in the end the employer only invokes the non-competition clause for a shorter period – and pays.
Payment under the non-competition clause depends on circumstances such as the length of the period, how broad the geographical scope of the non-competition clause is, and what specific jobs the employee cannot perform.
Employees who have been employed for longer may also have a lot more information that should not be made public, and therefore the activities that they are not allowed to perform during the validity of the agreement must be defined more broadly – the fewer the employee’s work opportunities are for the period, the higher the amount.
Hungarian law contains a guideline amount of 1/3 of the basic salary per month, and it must also be reasonable as a basic principle. Some advice can be taken from practice. In case of doubt, the amount should not be set too low, although very often the statutory minimum requirements are already used.
If the employee is practically unable to find a job because of the non-competition clause, then 100% compensation is also justified. Higher amounts are more common in managerial positions.
II. Unlawful termination
The employee can file a lawsuit against termination by the employer.
1.1. Deadlines
The deadline for filing a lawsuit against unlawful termination is 30 days from the employer taking over the measure (termination). If a lawsuit is filed late, a justified objection can be raised – the court will decide on a case-by-case basis whether it will be accepted.
1.2. Legal consequences
a) Ordinary termination
If the ordinary termination is found to be unlawful, the employer is threatened with the following payment obligations
1) unpaid wages or salaries – up to a maximum of 12 months
This cap was introduced into the law because previously the proceedings lasted several years – even the employees who were suing deliberately delayed the proceedings – and the unpaid wages had to be paid for the entire duration, which meant an unreasonable financial burden, if not ruin, for the employer.
The regulation stops this trend extremely successfully.
In addition, this total amount must be reduced by the amount
- what the employee earned or could probably have earned in the given situation,
This means that if, for example, the employee starts a new job during the proceedings, the wages received must be taken into account so that the amount to be awarded to the employee who wins the case is reduced by this amount.
- the severance payment paid when the employment relationship was terminated
- other remuneration of the employee, e.g. remuneration from the state for employees
- damages incurred, e.g. if health insurance benefits are not paid out due to lack of an employment relationship
At the employee’s request and under certain – proven – circumstances, the employment relationship will be restored by the court if, for example, the termination of the employment relationship violated the requirement of equal treatment.
b) Extraordinary termination
In the case of extraordinary termination, the employee must be put in the same position as if he had been terminated with ordinary notice, i.e. he will be paid the salary for the period of notice and, if justified, the severance payment retroactively.
III. Contesting a mutual agreement to terminate the employment relationship
In Hungary, special rules apply for contesting a mutual agreement to terminate the employment relationship.
In order to file a lawsuit, preparatory measures are first required, which may be related to clarifying the situation underlying the termination.
The employer is first obliged to contest the agreement to terminate the employment relationship directly with the employer.
The only reason for contesting the agreement is that at the time of signing the agreement, the employer was essentially mistaken about the circumstances, or was exposed to unlawful threats or deception.
If an agreement to terminate an employment relationship is contested, the statement of claim can be submitted to the employer within thirty days of determining that the challenge was unsuccessful.
If the employer fails to contest the agreement and the employer turns to the employer directly with the claim, the court will dismiss the claim without examining it.
Please also read our previous parts of the series to get an overall picture of the system for terminating employment relationships in Hungary!