Most important changes of the Labour Code
In this newsletter, we summarize the most important information regarding the amendment of the Labour Code.
1. Entry into force, transitional provisions
At the moment, there are two Labour Codes in force at the same time with partial effect. The "old" one, i.e. Act XXII of 1992 on the Labour Code (hereinafter: the "old Labour Code") certain provisions of which - for example, the ones regulating holidays and absence fee - are effective and applicable until the end of 2012. However, Act I of 2012 on the "new" Labour Code (hereinafter: the "new Labour Code") entered into force on 1 July 2012 certain provisions of which - for instance, the ones pertaining to holidays - will only enter into force on 1 January 2013. The transitional provisions relating to the entry into force of the new Labour Code are laid down in Act LXXXVI of 2012.
The most important information as to the application of the above mentioned regulations is as follows:
The new Labour Code is applicable to the employment relationships already existing at the time of its entry into force also.
Termination is regulated by the provisions of the Labour Code in force at the time of communication of the termination.
The trial period may only be extended in the case of employment contracts concluded after the entry into force of the new Labour Code.
In the case of studies commenced before the entry into force of the new Labour Code, Article 115 of the old Labour Code effective on 30 June 2012 is applicable until the completion of the studies.
The provisions in force at the time of the action causing the damage apply regarding indemnification obligation or, if the time of such action cannot be determined, the provisions in force at the time of occurrence of the damage are applicable.
The provisions in force at the time of conclusion of the relevant agreement will apply to non-competition agreements and study contracts.
2. Modification of existing employment contracts
The new Labour Code does not prescribe a compulsory modification of employment contracts. However, after 1 July 2012, any provisions of existing employment contracts which do not comply with the new Labour Code are invalid and therefore, these will have to be regarded non-existent. The modification of existing employment contracts may be justified and reasonable in many cases based on special consideration despite there being no obligation in this regard.
The new Labour Code does not prescribe a compulsory modification of employment contracts. However, after 1 July 2012, any provisions of existing employment contracts which do not comply with the new Labour Code are invalid and therefore, these will have to be regarded non-existent. The modification of existing employment contracts may be justified and reasonable in many cases based on special consideration despite there being no obligation in this regard.
The provisions of the old Labour Code will apply to assignment, secondment and transfer until the end of the year. According to the rules of the old Labour Code currently in force the aggregate term of these forms of employment, which are not based on employment contracts may not exceed 110 working days in a calendar year. The most important change from 1 January 2013 in this regard is that the new Labour Code maximizes the aggregate term of these in 44 scheduled working days or 352 hours per calendar year.
3. Change of employer
The definition of the term "change of employer" is clear in the new Labour Code and it is in line with the relevant EU directives. An important change is that the employer is only obliged to notify the employee of a change of the employer subsequently. A change in this regard still does not qualify as a reason for termination by the employer but it may serve as reason for termination by the employee within a period of 30 days but the employee must justify termination for this reason. In the case of termination by the employee, the rules of term of notice and severance pay shall be applied accordingly.
4. Compulsory elements of the employment contract, start of employment
Pursuant to the effective regulations, from the former compulsory elements of the employment contract, the wage and the position still have to be specified for the contract to be valid but, as of 1 July 2012, the place of work is not a compulsory element any more. The employment contract may be concluded validly even if does not specify the place of work. In this case, the place where the employee habitually performs his work is considered the place of work. The legal regulation of the start of employment changed also; if it is not regulated in the employment contract, employment starts on the day following the date of conclusion of the employment contract.
5. Employer's orientation obligation
The obligation of the employer to provide information at the beginning of the employment relationship was modified and includes new elements. In the future, the written orientation will not have to include the applicable work schedule, the starting date of work and the name of the trade union and the works council. However, as a new element, information must be provided to the employee of the daily work-time, the tasks in the given position and of the person exercising the employer's rights.
6. Termination of employment
The cases of termination of employment were given new names. In the future, the parties will not apply ordinary and extraordinary termination; instead, the employment relationship will either be terminated or terminated with immediate effect. Most of the circumstances of termination - obligation of giving reasons, written termination etc. - remained unchanged. Significant new elements include the following:
Objective protection is eliminated in the case of pregnancy. The employer must be informed in advance of the termination protection situation; otherwise the termination will be legitimate despite the employee's pregnancy.
In the case of a human reproduction procedure, termination protection is limited to 6 months.
In the case of employees retiring within 5 years and employees having children under the age of 3 (i.e. mothers or single fathers), cases of termination by the employer allowed by the new Labour Code can be summarized as follows: employment of the employee may be terminated with immediate effect for a reason relating to the employee's behaviour or by "ordinary" termination with reference to the employee's abilities or for reasons relating to the operation of the employer if there is no other position suitable for the employee or if the employee does not accept the other position offered to him or her.
An important change is that since 1 July 2012, incapacity for work no longer means protection from termination; it may merely delay it as termination may now also be communicated during a period of incapacity for work. However, the term of notice only starts when the employee's incapacity for work ends.
According to the new Labour Code, an employment for a definite period may also be terminated.
7. Term of notice and severance pay
The most important change regarding the term of notice is that if the employment is terminated by the employee, the term of notice is not extended.
The rules of term of notice were transformed from many aspects. The most significant change is probably the new rule prescribing that in the future no severance pay will be payable to the employee who was discharged by the employer due to his abilities (not related to his health) or his behaviour and the severance pay payable to the employees retiring shortly is determined on a progressive basis - i.e. it is partially reduced. The method of calculation of the period creating eligibility for severance pay was altered also: the employment entitling the employee to severance pay must be effective at the time of communication of the termination and the period in question does not include any periods of more than 30 successive days during which the employee was not entitled to wage. Pursuant to the new Labour Code, the basis of the calculation of severance pay is no longer the average income but the absence fee.
8. Work and rest time
The definition of a number of terms relating to work and rest time were altered as of 1 July 2012. Multi-shift and uninterrupted work are no longer related to the work schedule of the employee but to the activity of the employer. The definition of multi-shift activity was modified, too: we can talk about multi-shift work schedule if the operation of the employer reaches 80 hours a week.
The new Labour Code also gives an accurate definition of flexible working hours which is subject to the condition of the employer assigning in writing to the employee the right of scheduling at least half of the daily working hours on a weekly average. The so-called general work schedule is a new term and means a Monday to Friday work time. The cap on extraordinary work time increased to 225 hours in 2012 and to 250 hours from 1 January 2013.
9. Cumulative working hours, settlement period
The new Labour Code defines rules of settlement for the cases when employment is terminated before the completion of the allocated cumulative working hours. The rather lengthy rules could be summarized saying that it is always the party accountable for the termination of the employment who is disadvantaged. In addition to keeping the concept of allocated cumulative working hours, the new Labour Code also introduces the option of applying a settlement period, which, as a sort of rolled forward work time frame is a cost-efficient solution for the allocation of working hours and is more flexible than the allocation of cumulative working hours.
10. Holidays
First, we have to point out that the rules of the new Labour Code pertaining to holidays will only enter into force on 1 January 2013 and the holiday regulation of the old Labour Code applies until 31 December 2012. The most important novelty among the effective rules of holidays is perhaps the extra holidays granted based on children to which both parents are entitled but this rule has already been in force since 1 January 2012.
A rather formal than substantial change is that, while the basic number of holidays remains 20 and will not increase with age, holidays based on age will still be available but will be provided in the form of extra holidays. An important piece of information is that no holidays will be granted for the period of incapacity for work exceeding a total of 30 days per calendar year. In such cases, holidays will have to be proportioned similarly as in the case of employment relationships started during the year.
The provisions regulating the granting of holidays will change also. According to the new Labour Code, the employee has the right to dispose of 7 working days and, in the case of holidays set by the employer - unless agreed otherwise between the parties - the duration of the holidays must reach 14 successive days. Before granting and taking holidays, both parties will have 15 days to notify the other party of the dates of the holidays. By the main rule, holidays are still to be provided in the given calendar day. However, in the case of employment relationships commenced on 1 October, the annual holidays may be provided until the end of March of the following year. Based on the agreement of the parties, the base holidays and 1/3 of the extra holidays based on age may be provided until the end of the following year.
There was also a change concerning employers in the registration of holidays. In the case of an uneven work-time schedule, the holidays have to be provided and registered in hours.
11. Wage supplement
The changes based on the rules of the new Labour Code effective from 1 July 2012 regarding the eligibility of employees to wage supplement could be summed up saying that eligibility is not determined primarily by whether the employee works based on a multi-shift, uninterrupted or in a general work schedule but whether he worked normal or extraordinary hours and whether the duration and the scheduling of his work met the other conditions of eligibility for wage supplement prescribed in the act.
An especially important wage supplement is shift supplement the conditions of which were entirely transformed. The afternoon shift supplement payable for the period between 2:00 and 6:00 PM was eliminated as in most European countries. The employee is eligible for the 30 percent shift supplement if he works between 6:00 PM and 6:00 AM and the starting time of his daily scheduled work changes regularly, i.e. if the starting time of his scheduled daily work is different in the case of at least one third of the working days in a month and there is at least a four hour difference between the earliest and the latest starting time.
In the case of night shifts, i.e. work between 10:00 PM and 6:00 AM, the rate of the wage supplement is 15 percent and it is payable if the employee is not entitled to the 30 percent shift supplement and the duration of the work performed at night exceeds one hour.
Finally, we have to point out that in respect of the shift supplement the new Labour Code allows the parties to integrate it in the base salary of the employee. This was specifically prohibited in the former Labour Code. According to the new Labour Code, the parties may agree in a collective agreement or in their employment contract that the shift supplement is already included in the employee's base salary.
12. Average income, absence fee
The new Labour Code does not apply the concept of average income; instead it uses the absence fee as the basis of calculation to determine, for instance, the amount of severance pay, the rate of liability for damage caused or the amount of the lump sum indemnification payable in the case of illegitimate termination of employment. In respect of the absence fee rules we have to keep in mind that this year the absence fee is to be calculated based on the rules of the old Labour Code; the new rules will only apply from 1 January 2013.
13. Leased labour
The new Labour Code also brought changes concerning staff leasing. In general, we can say that the rules were simplified and became more transparent and better adjusted to the practical characteristics of labour leasing. An outstanding change is a new rule favouring lessors by exempting them from the regulations pertaining to collective redundancy in the future. This is in line with the industry characteristics which come with the flexibility of labour leasing as otherwise the majority of the companies leasing workforce would take collective redundancy measures almost permanently. They would obviously not be in the position to announce 30 days in advance the leasing of which employees will end, i.e. whose employment will have to be terminated.
Another important change concerns severance pay as a result of which a compromise solution was achieved between the old Labour Code and the first draft of the new one. The rules of the new Labour Code regarding the severance pay of leased employees takes into account the interests of both the leased employees and the employer when it provides that in the case of an employment aimed at the leasing of the employee, the duration of the last leasing under the employment has to be considered for determining eligibility for severance pay. With this rule situations can be avoided in which the severance pay relating to the work period of a leased employee with a lessee company has to be paid by another lessee company.
14. Indemnification obligation
According to the old Labour Code, in the case of damage caused negligently by an employee, the cap on the employee's liability is one and a half months' of the employee's average income based on the parties' agreement. The new Labour Code maximizes the liability of the employee in the amount of four months' absence fee and differentiates between the negligent cause of gross and minor damage. In respect of indemnification liability, the new regulation introduces the criterion of foreseeability the absence of which may exempt the employee from liability. According to the new rule, the employee may be exempt from liability if the damage occurred in connection with a reason that is beyond the employee's scope of control. In relation to indemnification the new Labour Code introduces the concept of employee assurance, which basically creates the legal background for the court practice already applied.
15. Atypical forms of employment
The new Labour Code collectively regulates in a separate chapter atypical forms of employment such as the formerly also regulated teleworking or fixed-term work but also new forms such as on-call work, shared positions, employment relationships established with more than one employer, outwork, simplified employment or temporary work. A new form of employment is employment by a publicly-owned employer to which mostly binding and more stringent rules apply than to the employment relationships with non-publicly-owned employers.
16. Works council
In respect of the rules pertaining to works councils, we have to point out the changes concerning the termination of the employment of a works council member. While according to the old Labour Code, the prior consent of the works council was to be obtained for the termination of the employment any member of the works council, the new Labour Code does not prescribe such prior consent for all works council members, merely for the president of the works council. The former protection still applies to the works council members elected until the end of this year before the entry into force of the new Labour Code.
17. Trade union, collective agreements
The rules regulating the conclusion of collective agreements were tightened also. Pursuant to the new Labour Code, the trade union has the right to conclude a collective agreement if the number of trade union member employed by the employer reaches ten percent of the total number of employees of the employer. For the purposes of this rule, the average statistical headcount of the employees employed in the six months preceding the conclusion of the collective agreement is considered.
Source: RSM DTM Hungary
