Hungary

    1.1 In what circumstances does the employee transfer law apply?

    The employee transfer law applies when a structured economic unit (i.e. an organised group of tangible and intangible sources) with identifiable function or operation (e.g. a strategic business unit, plant, shop, division, workplace, or any part of these), or the tangible or intangible assets of the employer are transferred by agreement to an organisation or person.

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    Author: CLV Partners

    Date: July 2016

    1.2 Does the employee transfer law apply to (a) a sale of a business or (b) outsourcing?

    (a) Sale of a business

    In the case of a sale of business, the employee transfer rules generally apply. The sale purely of premises or other assets may result in transfer only if the asset is operated by the new owner without any change after sale (e.g. building management of an office building).

    A gift generally qualifies as a transfer, but in practice, this form of transaction is rare.

    The employee transfer rules do not apply to mergers and acquisitions, as the new entity will be the legal successor by operation of law.  

    (b) Outsourcing

    Whether the employee transfer rules apply to outsourcing depends on the particular circumstances. If the entire activity or business unit is outsourced, then the rules will apply. If the outsourcing includes assets, this is likely to qualify as an employee transfer, but if no assets are transferred, this is less likely.

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    Author: CLV Partners

    Date: July 2016

    1.3 In outline, what are the implications of the employee transfer law?

    If the employee transfer law applies:

    • employees transfer from the transferor to the transferee on their existing (pre-transfer) terms of employment;
    • the employment conditions set out in an existing collective bargaining agreement must be maintained by the transferee for one year from the transfer, provided that the term of the collective agreement does not expire earlier or that there is a collective bargaining agreement that applies to the employees of the transferee;
    • the transferor and transferee are required to provide information on the transfer to works council or employees concerned and initiate a consultation with it;
    • if employees have claims relating to employment with the transferor (e.g. for pay, for personal injury or for discrimination) the transferee and transferor will bear joint and several liability, provided that the employee enforces the claim within one year of the transfer;
    • the transfer alone does not provide grounds for termination of employment.
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    Author: CLV Partners

    Date: July 2016

    2.1 Who transfers?

    As a general rule, all employees employed at the time of the transfer will automatically transfer to the transferee. Claims by former employees arising from terminated employment may be enforced against both the transferor and transferee within the statue of limitations but within one year of the date of transfer. Inactive employees, for example, those on sick leave or on maternity leave also transfer to the new employer.

    If employees work within more than one business unit, the job description and the work actually done by the employee will determine whether he or she transfers. Cost allocation is not a determining factor, but could be one of the evaluation criteria.

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    Author: CLV Partners

    Date: July 2016

    2.2 Can employees object to transferring?

    Affected employees are not entitled to object to their transfer since it is a business decision of the employer. Objecting to work for a new employer may even qualify as a material breach of the employment contract and result in termination for cause.

    Employees may serve notice at any time and so the transferor should not guarantee the number of employees who will transfer.

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    Author: CLV Partners

    Date: July 2016

    2.3 What happens to terms of employment contracts?

    All rights and obligations of the transferor concerning employment relations transfer to the transferee at the date of the transfer. All existing employment contracts remain in force, under their original terms and conditions.

    In some cases the parties will amend the employment agreements, in particular if the original agreement stipulated a particular workplace.

    Employees may terminate the employment within 30 days of transfer if it results in material or adverse changes to working conditions or causes them undue harm.

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    Author: CLV Partners

    Date: July 2016

    2.4 What about other employee benefits?

    Collective bargaining agreements and all employment benefits remain in force for at least one year after the transfer. If the new employer is not able to provide the same benefits (e.g. for health insurance or pension funds) the employment agreements will need to be amended to reflect the change.

    Past employment with the transferor is deemed as continuous employment with the transferee.

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    Author: CLV Partners

    Date: July 2016

    2.5 What happens to pension rights?

    Mandatory pension entitlement rights will remain unaffected, meaning that service spent with the transferor will be added to service with the transferee.

    The same terms of each benefit must, in principle, be maintained, but if the transferee cannot achieve this, despite best efforts, it must offer compensation or other benefits to the affected employees.

    The pension plan forms part of the collective agreement that vests in the transferee, but if the transferee wishes to offer its own pension plan to the employees, it should ensure the benefits are equal to those under the previous pension plan. It is advisable for transfer agreement to cover how pensions should be handled to avoid losses.

    If different work conditions apply at the same employer, these will normally be harmonized within a short period after the transfer.

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    Author: CLV Partners

    Date: July 2016

    2.6 What liabilities transfer?

    Generally, all rights and obligations arising from the employment relationship in force on the transfer date will be transferred to the transferee. The transferor and transferee are jointly and severally liable for claims arising prior to the transfer, provided those claims are enforced within one year of the transfer.

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    Author: CLV Partners

    Date: July 2016

    2.7 Do collective agreements transfer?

    The working conditions (with the exception of the work schedule), prescribed in any collective agreement that applies to the transferor at the time of transfer must be maintained by the transferee for one year, unless the collective bargaining agreement expires in less than one year.

    Changes can be made to indefinite-term collective agreements in accordance with the terms set out in them. If the parties cannot agree on changes, the collective agreement may be terminated with ordinary notice according to the rules of the agreement. Fixed term collective agreements may also be changed by the parties or retained until their expiry, at which time a new one can be concluded.

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    Author: CLV Partners

    Date: July 2016

    2.8 How does the transferee obtain information on transferring employees?

    Within a reasonable time before the transfer, the transferor must inform the transferee of the rights and obligations arising from all employment relationships, all apprenticeship and trainee agreements and any restrictive covenants affected by the transfer. Generally, this will form part of the due diligence exercise carried out before transfer. Personal data may be provided, but this must be done in line with data protection rules. Failure to obtain the information does not affect the liability of the transferee.

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    Author: CLV Partners

    Date: July 2016

    3.1 Can employers make changes to employment contracts?

    Generally, employers cannot unilaterally amend employment agreements, but those issues not regulated in the employment contracts may be amended by the employer. This includes policies and bye laws.

    Amendments to employment contracts may be made by mutual consent at any time after the transfer. If employees refuse to consent to any changes, this will not serve as lawful grounds for termination.

    The transferee has the right (as employer) to organise the work, including deciding on the tasks of employees and the work schedule. It may give detailed instructions to the employee. Therefore, any proposed changes that will not result in amendments to the employment agreement may be implemented unilaterally by the employer.

    The transferee may also decide on reorganisation after the transfer, which may result in termination of employment. This is not unlawful, as long as the transfer alone is not used as the basis for the termination. Terminations may occur if there are genuine organisational changes at the transferee.

    Employers often harmonize employment conditions in order to be able to comply with the equal treatment rules. In some cases this will require the consent of affected employees (e.g. if the terms to be changed are contained in the employment agreements). However, in Hungary very often the employment agreement will only state the amount of salary and benefits in kind, and much other information will be set out in company policies. In these policies, the employer will reserve the right to supervise employees and unilaterally review and amend them in accordance with the legal framework.

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    Author: CLV Partners

    Date: July 2016

    3.2 When can employers safely dismiss employees before or after a transfer?

    The transfer of a business ‘in and of itself’ may not be used as a reason for dismissal, but employees may be dismissed for economic, technical or organisational reasons relating to the operation of the employer, such as in the case of redundancies created by the transfer. Reasons for dismissal may include reorganisation of the operation, loss of business, cost savings. Each economic reason may result in termination of particular positions affected by the changes. The labour court will not rule on whether an economic reason was rational or reasonable and it will only investigate if the reorganisation affected particular jobs.

    Dismissals relating to effective work, or to the skills of employees can safely be made provided the employer has evidence to prove that the reasons for it are valid, true and rational. Dismissal for reasons other than the transfer may be made at any time after the transfer.

    Should termination of employment be ruled unlawful by the court, the employee will be entitled to all severance payments and other benefits payable by law plus damages arising from the unlawful dismissal. The employee may claim damages for loss of salary but this is limited to 12 months’ base salary.

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    Author: CLV Partners

    Date: July 2016

    4.1 Who must employers consult?

    Both the transferor and transferee must consult with the works council at least 15 days prior to the transfer. If there is no works council at the transferor, the transferor (or, if agreed, the transferee) will inform the employees directly about the transfer at least 15 days before it takes place.

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    Author: CLV Partners

    Date: July 2016

    4.2	What information must they provide?

    The following information must be disclosed to the works council or the affected employees:

    • the proposed date of the transfer;
    • the reasons for the transfer;
    • the legal, economic and social consequences which affect the employees; and
    • the planned measures affecting the employees.
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    Author: CLV Partners

    Date: July 2016

    4.3	What does consultation involve?

    The consultation with the works council (if one is in place) covers the principles of the planned actions and ways and means of avoiding or mitigating any detrimental consequences. If no agreement is reached, the transferor and transferee are entitled to carry out their decision to transfer the undertaking. If there is neither a works council nor a shop steward, there is no requirement for negotiations to be held. However, there is still a requirement to give notice to employees.

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    Author: CLV Partners

    Date: July 2016

    4.4	How long does consultation last?

    There are no statutory requirements as to the length of the consultation, therefore if the works council and employers hold only one consultation meeting, that will be considered sufficient to comply with the obligation to consult.

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    Author: CLV Partners

    Date: July 2016

    4.5	What happens if an employer fails properly to inform or consult?

    A claim may be filed with the competent court within five days of the breach of the consultation obligation. The court may declare that the consultation or information rights of the works council were breached by the employer. However, such a ruling will not serve to make the transfer ineffective or suspend the process. No compensation is available and there are no criminal sanctions against an employer for these failures.

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    Author: CLV Partners

    Date: July 2016

    5.1	Identify up to three issues in this country of which employers should be aware?

    If the employer intends to outsource a certain business activity, all the circumstances of the transaction must be thoroughly considered in order to assess whether the transaction should be considered a simple outsourcing or the transfer of an undertaking.

    It is unfortunately still common in Hungary for transferors to terminate the employment of affected employees prior to a transfer. In such cases, it is clear in law that the employees’ rights have been breached.

    Existing employment contracts may only be amended with the consent of the affected employees and the terms of any new code of conduct or by-laws must not be less favourable than the existing employment contracts or working conditions.

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    Author: CLV Partners

    Date: July 2016

    5.2	Would the employee transfer law apply on a cross-border transfer into or out of this country?

    The rules on transfers apply if the business unit affected by the transfer is located in Hungary. If this is the case with a cross-border transaction, the employee transfer rules will apply.

    If the transfer occurs within the EU the national laws of the Member State and EU law will apply.

    Cross-border transfers are uncommon in Hungary, but when they do occur, they can give rise to technical problems. For example, if employees have to change their workplace, once they have moved to the other country, Hungary law will cease to apply. If employees do not wish to move, they may be entitled to terminate their employment within 30 days of the transfer based on a significant change to their employment conditions to their disadvantage.

    In practice, employment with the transferor will often be terminated by mutual agreement and the employee will enter into a new agreement with the transferee. 

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    Author: CLV Partners

    Date: July 2016

    6.1	What are the main national laws protecting employees upon transfers of businesses?

    EU Acquired Rights legislation was implemented in Hungary by the Labour Code. The new Labour Code has been in effect since 1 July 2012, but this has not changed the rules relating to transfers in Hungarian law.

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    Author: CLV Partners

    Date: July 2016

     

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