What do you have to pay to your ex-employee in Hungary?

Similarly to the laws of the countries within the European Union, the Hungarian labour law imposes sanctions for the unlawful termination of the employment by the employer, however - despite all of its similarities - this differs from the solutions in the European Union at several points. Hereby we summarize the main differences in brief, particularly with regard to cost effects concerning international companies carrying out business activity or intending to invest in Hungary.

1. One of the fundamental differences in the solution applied by the Hungarian law is that while the member states of the European Union usually differentiate between the cases from the point of view whether the termination by the employer is unlawful because of breaching some rules of procedural law or because of falsehood of the indicated reasons for termination, the Hungarian law does not know such a differentiation. This is of importance since while the member states of the European Union usually judge the former case significantly softer; the Hungarian law adjudges the compensatory consequences of this case under the same severity as those of a termination based on false reasons. Accordingly, this fact itself already justifies the treatment of terminations by special care in Hungary, and eventually the involvement of an outside legal expert, since a termination which is otherwise lawful upon consideration of the reasons for termination indicated therein, however, is not worded precisely enough, may have serious financial impacts (see below).

2. A further significant difference in the Hungarian solution is that while within the EU an employee may usually only claim the arrears of his/her salary, and in some member states he/she may claim a severance pay in case the employment is not restituted, in Hungary in such a case of omitting the restitution of the employment the employee may claim not only a compensation for the arrears of his/her salary and other damages incurred, furthermore the payment of the severance pay due to him/her, but in addition he/she may also claim the payment of an amount of penalty character, equivalent to his/her 2-12 months average salary, depending on the court's decision.

3. In relation to the employee's obligation to reduce damages we would like to draw attention to the fact that in practice Hungarian labour courts do not oblige the employee to prove, whether he/she tried at all to find another employment in order to reduce his/her damages incurred. However, this would be of high importance – in cases where the employee does not claim the restitution of the employment, since several employees ab ovo do not try to find employment, knowing that they may claim anyhow the total arrears of their salary, even upon failure to make efforts to reduce damages.

Finally, casting an account of the financial consequences of an unlawful termination by the employer in the Hungarian court practice, for employees not placed back into their employment and not finding new employment (other source of income) after their dismissal, the payment of their 14-24 months average salary is usually adjudged by courts (already including the above mentioned amount of penalty character). Nevertheless, in some cases the amount adjudged may run up to 50-60 months average salary of the employee.

Considering the above, at the beginning of a labour litigation it is extraordinarily hard to assess the actual financial risks of losing the lawsuit, which is often more problematic than the apparently high amounts adjudged as compensation.

This situation calls for change by all means, either by prescribing the above-mentioned obligation to reduce damages or by reforming the respective legal institution. The new Hungarian Labour Code being already under codification and serving the purposes of legal harmonization with the EU, too, will hopefully provide more exact and clearer provision as to the compensation to be paid for unlawful dismissal.

Dr. Tamás Gödölle
Attorney at Law

Dr. Arnold Hovánszki
Attorney at Law

Bogsch & Partners