In Hungary, employment agreements are typically categorized into three main types: Indefinite-Term Employment Contracts, Fixed-Term Employment Contracts, and Assignment Contracts.

Indefinite-Term Employment Contracts

This is the most common type of employment contract in Hungary. It offers greater job security to employees as there's no specified end date. Termination of this contract requires a proper notice period by either party, with the length of the notice period determined by the employee's seniority.

Fixed-Term Employment Contracts

Fixed-Term Employment Contracts are used for temporary work or specific projects. These contracts must have a predetermined start and end date explicitly mentioned. They cannot exceed a maximum duration of five years and automatically terminate upon reaching the end date.

Assignment Contracts

Assignment Contracts represent an atypical employment arrangement where the individual works as a sole trader. In this setup, the individual invoices the company for their services. This arrangement is considered cost-saving for employers due to lower tax and social security contributions. However, it is subject to stricter regulations by the Hungarian Tax Office to prevent misuse.

Employment agreements in Hungary formalize the working relationship between employers and employees. To ensure a clear and legally sound agreement, several essential clauses must be included.

Core Employment Details

The agreement should identify the employer and employee with their full legal names and addresses. It should clearly define the employee's role, responsibilities, and any specific qualifications required. The term of employment should be specified, whether it's for a fixed term (not exceeding 5 years) or indefinite.

Compensation and Benefits

The agreement should outline the gross salary amount, payment frequency, and any allowances or bonuses. It should define the regular working hours per week/day, including breaks and overtime regulations. Details about vacation days, sick leave entitlements, and public holiday arrangements should be included.

Termination Clauses

The agreement should outline the grounds for termination by both employer and employee, along with required notice periods. It should specify any severance pay or compensation due in case of termination.

Dispute Resolution

The agreement should establish procedures for resolving any disagreements arising during employment.

Probationary periods are a standard part of employment agreements in Hungary, providing a trial period for both the employer and the employee to evaluate suitability for the role.

Duration Limits

The Hungarian Labour Code stipulates that the maximum duration of a probationary period is three months from the commencement of employment. This rule applies to both fixed-term and indefinite employment contracts. However, a collective bargaining agreement between a trade union and an employer can extend the probationary period to a maximum of six months.

Flexibility within Limits

Employers and employees have the flexibility to agree on a shorter probationary period in the employment contract. If a shorter period is initially agreed upon, such as one month, it can be extended once to reach the three-month maximum, but it cannot exceed this limit.

Termination During Probation

During the probationary period, either the employer or the employee can terminate the employment contract with a shorter notice period than the standard notice period. The termination does not need to be justified as it's understood to be based on the assessment during the probationary period.

Important Considerations

Probationary periods are a legally mandated right, not an obligation. Employers are not required to include them in employment contracts. The probationary period serves as a protected period for the employee, during which they cannot be dismissed for reasons unrelated to their performance or suitability for the role. It's essential for both employers and employees to clearly understand their rights and obligations during the probationary period as outlined in the employment contract.

Confidentiality clauses are a standard feature in Hungarian employment contracts, designed to safeguard an employer's confidential information. This information can include trade secrets, customer lists, or proprietary data. While there's no statutory requirement for a confidentiality clause in Hungary, the Labour Code (Act XXII of 1992) imposes a general duty of loyalty on employees. This duty inherently obligates employees to protect their employer's confidential information during their employment and potentially afterward.

Non-Compete Clauses

Non-compete clauses limit an employee's ability to work for a competitor or engage in similar activities after their employment ends. Unlike confidentiality clauses, non-compete clauses necessitate a separate written agreement between the employer and the employee.

Regulations on Non-Compete Clauses

Hungarian law imposes strict regulations on non-compete clauses:

• Maximum Duration: A non-compete clause can only restrict an employee for a maximum of two years following termination.
• Compensation: The employer must provide "appropriate consideration" as compensation for the restriction. The minimum compensation is set at one-third of the employee's base salary for each month of the non-compete period.
• Reasonableness: Courts will closely scrutinize the reasonableness of non-compete clauses. The clause's scope (geographical area and activities restricted) should be narrowly tailored to protect the employer's legitimate business interests and not excessively restrict the employee's ability to find new work.