Employment relationships in Hungary are primarily governed by the Labour Code (Mt.). This legislation sets out the fundamental rights and obligations of both employers and employees, ensuring a framework for fair and compliant working arrangements. A written employment agreement is mandatory and serves as the cornerstone of the employment relationship, detailing the specific terms and conditions agreed upon by both parties within the bounds of the law.
Understanding the requirements for employment agreements is crucial for companies hiring in Hungary. These contracts must adhere to strict legal standards regarding their form, content, and the processes for modification and termination. Compliance ensures legal certainty and helps prevent potential disputes between employers and employees.
Types of Employment Agreements
The Labour Code primarily distinguishes between two main types of employment agreements based on their duration:
- Indefinite-term employment: This is the standard type of employment relationship in Hungary. It continues until terminated by either party in accordance with the legal provisions.
- Fixed-term employment: This type of agreement is established for a specific period or until the completion of a defined task. Hungarian law places restrictions on the use and duration of fixed-term contracts to prevent their misuse. A fixed-term employment relationship generally cannot exceed five years, including any extensions. There are also rules regarding consecutive fixed-term contracts.
While these are the primary types, the Labour Code also addresses specific situations like part-time employment, teleworking, and agency work, which are structured using either indefinite or fixed-term agreements but with specific provisions related to the nature of the work.
Essential Clauses
Hungarian employment agreements must contain certain mandatory elements to be legally valid. Beyond these minimum requirements, parties can agree on additional terms, provided they do not violate the Labour Code or other relevant legislation.
Mandatory clauses typically include:
- Identification of Parties: Full legal names and details of both the employer and the employee.
- Basic Salary: The amount of the employee's base wage.
- Job Title/Position: A clear description of the employee's role.
- Place of Work: The location where the employee will primarily perform their duties.
- Start Date: The date the employment relationship begins.
Other important terms often included, though not always strictly mandatory for initial validity (but required by law to be communicated), cover aspects like working hours, leave entitlements, notice periods, and collective bargaining agreements if applicable.
Probationary Period
Hungarian law permits the inclusion of a probationary period in employment agreements. This period allows both the employer and the employee to assess the suitability of the employment relationship.
Key regulations regarding probationary periods:
- Maximum Duration: The probationary period cannot exceed three months. However, a collective agreement or the parties themselves can agree on a shorter period.
- Extension: The probationary period can be extended once, but the total duration, including the extension, cannot exceed six months. This extension must be agreed upon in writing.
- Termination during Probation: During the probationary period, either party may terminate the employment relationship immediately, without justification, and without a notice period. This termination must be communicated in writing.
It is common practice to include a probationary period, often set at three months, especially for new hires.
Confidentiality and Non-Compete Clauses
Confidentiality and non-compete clauses are permissible in Hungarian employment agreements or separate agreements, but their enforceability is subject to specific legal requirements and limitations.
- Confidentiality: Employers can require employees to maintain the confidentiality of trade secrets and business information. This obligation typically continues even after the termination of employment. The scope of confidential information should be clearly defined.
- Non-Compete: A non-compete agreement (or restrictive covenant) can be agreed upon to restrict an employee from working for a competitor or starting a competing business after leaving the company. For a non-compete clause to be valid and enforceable, several conditions must be met:
- It must be in writing.
- It must specify the scope of the restricted activity, geographical area, and duration.
- The duration cannot exceed two years.
- The employer must pay the employee adequate compensation for the duration of the restriction. The Labour Code specifies that this compensation must be at least one-third of the employee's average monthly salary for the period of restriction.
- The restriction must be necessary to protect the employer's legitimate business interests (e.g., trade secrets, client base).
Hungarian courts scrutinize non-compete clauses and may deem them unenforceable if they are overly broad, lack adequate compensation, or are not necessary to protect a legitimate interest.
Contract Modification and Termination
Modifying an existing employment agreement in Hungary requires the mutual written consent of both the employer and the employee. Unilateral changes to essential terms by either party are generally not permitted, except in specific circumstances defined by law (e.g., temporary reassignment).
Termination of the employment relationship can occur through several means:
- Mutual Agreement: The employer and employee agree in writing to terminate the contract on a specified date.
- Ordinary Termination (Notice): Either the employer or the employee can terminate an indefinite-term contract by giving written notice. The Labour Code specifies minimum notice periods, which vary depending on the length of service and whether the termination is initiated by the employer or employee. Employer-initiated termination requires justification based on specific legal grounds (e.g., employee's conduct, capability, or the employer's operational reasons).
- Extraordinary Termination (Immediate): Either party can terminate the contract with immediate effect if the other party has committed a serious breach of their obligations or engaged in conduct that makes the continuation of the employment relationship impossible. This requires written justification.
- Termination of Fixed-Term Contracts: Fixed-term contracts automatically terminate upon the expiry of the agreed term or completion of the task. They can also be terminated early by mutual agreement, extraordinary termination, or under specific conditions allowing for ordinary termination (e.g., during probation, or by the employer in certain cases with compensation).
Specific rules apply to collective redundancies and the termination of employees in protected categories (e.g., pregnant employees, employees on parental leave). Employers must adhere strictly to the procedural requirements for termination to avoid legal challenges.
