Navigating employment termination in Hungary requires a thorough understanding of the local labor code, which provides specific regulations governing the process. Both employers and employees must adhere to these rules to ensure compliance and avoid potential legal disputes. The termination process varies depending on the grounds for dismissal, the type of employment contract, and the employee's tenure with the company.
Understanding the nuances of Hungarian labor law regarding termination is crucial for employers operating in the country. This includes adhering to strict notice period requirements, correctly calculating severance pay entitlements, identifying valid grounds for dismissal, and following prescribed procedural steps. Failure to comply with these regulations can lead to significant legal challenges and financial penalties.
Notice Period Requirements
The length of the notice period in Hungary is primarily determined by the employee's duration of employment with the company. The minimum statutory notice period applies unless a longer period is stipulated in the employment contract or a collective agreement.
The minimum notice period for an employer-initiated termination is:
| Duration of Employment | Minimum Notice Period |
|---|---|
| Less than 3 years | 30 days |
| 3 to 5 years | 45 days |
| 5 to 8 years | 60 days |
| 8 to 10 years | 75 days |
| 10 to 15 years | 90 days |
| 15 to 18 years | 105 days |
| 18 years or more | 120 days |
The notice period begins on the day following the delivery of the written notice of termination. During the notice period, the employee is generally entitled to be released from work for at least half of the notice period to seek new employment, while still receiving their average salary.
Severance Pay
Severance pay is mandatory in Hungary for employer-initiated terminations under certain conditions. An employee is generally entitled to severance pay if their employment is terminated by the employer due to reasons related to the employer's operations (e.g., redundancy) or for reasons not attributable to the employee's conduct or ability, provided the employee has been employed for at least three years.
Severance pay is calculated based on the employee's average monthly salary and their length of service. The minimum statutory severance entitlement is:
| Duration of Employment | Minimum Severance Pay (Months of Average Salary) |
|---|---|
| 3 to 5 years | 1 month |
| 5 to 10 years | 2 months |
| 10 to 15 years | 3 months |
| 15 to 20 years | 4 months |
| 20 years or more | 5 months |
The severance pay entitlement increases by an additional three months' average salary if the employee is terminated within five years of reaching the standard retirement age. Severance pay is typically paid as a lump sum upon termination.
Grounds for Termination
Employment contracts in Hungary can be terminated on various grounds, broadly categorized as termination with cause and termination without cause (ordinary termination).
Termination with Cause (Extraordinary Termination): This type of termination can occur immediately without a notice period in specific, serious circumstances. Valid grounds include:
- The employee's serious breach of a material obligation arising from the employment relationship.
- Conduct by the employee that makes the continuation of the employment relationship impossible.
- The employer's serious breach of a material obligation or conduct that makes the continuation of the employment relationship impossible (allowing the employee to terminate with cause).
The reason for extraordinary termination must be clearly stated, specific, and proven.
Termination without Cause (Ordinary Termination): This is the standard form of employer-initiated termination and requires a valid reason. Valid grounds for ordinary termination by the employer include:
- Reasons related to the employee's conduct (e.g., repeated minor breaches, poor performance, provided the employee has been given warnings and opportunity to improve).
- Reasons related to the employee's ability (e.g., inability to perform the job requirements due to health issues or lack of necessary skills, provided reasonable adjustments have been considered).
- Reasons related to the employer's operations (e.g., redundancy, restructuring, closure of a business unit).
When terminating for reasons related to the employee's conduct or ability, the employer must demonstrate that the employee was given a reasonable opportunity to rectify the issue.
Procedural Requirements
Lawful termination in Hungary requires strict adherence to procedural steps. Key requirements include:
- Written Notice: The termination notice must be in writing and delivered to the other party.
- Statement of Reasons: The notice must clearly state the specific, factual reasons for termination, especially in cases of termination with cause or ordinary termination by the employer. The reasons must be real and justifiable.
- Delivery: The notice must be properly delivered to the employee (e.g., hand-delivered with acknowledgment of receipt, registered mail).
- Consultation (in certain cases): In some situations, particularly collective redundancies, consultation with employee representatives or the works council is required before implementing terminations.
- Timing: The notice period must be observed, and termination with cause must be initiated within a specific timeframe (usually 15 days from becoming aware of the reason, but no later than one year from the occurrence of the reason).
- Final Settlement: Upon termination, the employer must provide the employee with all outstanding payments, including salary for the notice period (or payment in lieu), accrued but untaken annual leave, and severance pay (if applicable). Necessary documents, such as a certificate of employment, must also be provided.
Failure to follow these procedural requirements can render a termination unlawful, even if the grounds for termination were valid.
Employee Protections Against Wrongful Dismissal
Hungarian labor law provides significant protections to employees against wrongful dismissal. An employee who believes their termination was unlawful can challenge it in court.
Grounds for challenging a termination include:
- Lack of a valid reason for ordinary termination.
- Insufficiently specific or unsubstantiated reasons provided in the termination notice.
- Failure to follow the correct procedural requirements (e.g., incorrect notice period, improper delivery, lack of consultation where required).
- Termination based on discriminatory grounds (e.g., age, gender, religion, trade union membership).
- Termination during protected periods (e.g., during pregnancy, maternity leave, sick leave, subject to specific exceptions).
If a court finds a termination to be unlawful, it can order the employer to reinstate the employee, pay compensation for lost wages, and potentially pay damages. The burden of proof for the validity and procedural correctness of the termination generally rests with the employer. Employers must therefore ensure they have clear, documented reasons and follow all legal procedures meticulously when terminating employment in Hungary.
