CJEU DECISION ON THE TERMINATION OF FIXED-TERM EMPLOYMENT - DOES IT AFFECT HUNGARIAN LABOR LAW?

18 March 2024

In its recent judgment, the CJEU found that national legislation which allows an employer not to state the reasons for the termination of a fixed-term employment contract with a notice period although it is required to do so when it terminates an employment contract of indefinite duration is against EU law. In our article we examine whether Hungarian labour law is affected by the decision.

1. Facts

In the underlying labour lawsuit, the claimant was employed by the defendant, a company governed by Polish law. The parties entered into a fixed-term employment. The employer terminated the employment relationship 2 years before the end of the fixed period, without stating the reasons for that termination.

The claimant sought compensation on account of the unlawful nature of his dismissal.

It was not a matter of debate that under Polish labour law[1], an employer is required to state the reason for termination only in the case of termination of contracts of indefinite duration with a notice period.

However, the claimant alleged infringement of the principle of non-discrimination of fixed-term workers, laid down in the EU Directive concerning the framework agreement on fixed-term work[2].

The referring court asked the CJEU whether EU law precludes national legislation which allows an employer not to state the reasons for the termination of a fixed-term employment contract with a notice period although it is required to do so when it terminates an employment contract of indefinite duration.

2. Findings of the CJEU

The CJEU found that under EU law, a fixed-term worker must be informed of the reasons for the termination of his or her employment contract with a notice period where the provision of such information is required for a permanent worker.

Otherwise, a worker employed for a fixed term would be deprived of important information for assessing whether his or her dismissal is unjustified and, where appropriate, whether to bring legal proceedings. Such difference in treatment –unless it is justified on objective grounds, which was not the case in the examined lawsuit– infringes the worker’s fundamental right to an effective remedy enshrined in Article 47 of the Charter of Fundamental Rights of the European Union.

As the latter provision has direct effect, in a dispute between individuals, the national court is required, where it is not possible for it to interpret the applicable national law in a way which is consistent with clause 4 of the framework agreement, to guarantee the full effectiveness of Article 47 of the Charter of Fundamental Rights by disapplying, in so far as necessary, any contrary provision of national law.

3. Examination of the decision in relation to Hungarian labour law

Relevant Hungarian law

In Hungarian labour law, special rules apply to the termination of a fixed-term employment relationship by the employer.

a. Termination with a notice period

In the case of terminating a fixed-term employment relationship by giving notice, the employer is obliged to give reasons for the termination in writing, the absence of which results in wrongful termination.

The Hungarian Labor Code contains special grounds for termination of fixed-term employment relationship by notice: the employer may terminate a fixed-term employment relationship by notice:

a) if undergoing liquidation or bankruptcy proceedings; or

b) for reasons related to the employee’s ability; or

c) if maintaining the employment relationship is no longer possible due to unavoidable external reasons.[3]

b. Termination without a notice period

Under the Hungarian Labour Code, in case of fixed-term employment relationships, the right of termination without notice may be exercised by the employer, without giving reasons.[4]

However, in such cases, the employee shall be entitled to absentee pay due for twelve months, or if the time remaining from the fixed period is less than one year, for the remaining time period.[5] In practice, the payment received by the employee is approximately the same amount as the basic salary.

Comment

The Hungarian labour law rules largely meet the findings set out in the examined CJEU decision.

When terminating the employment relationship by ordinary notice, the employer is obliged to inform the employee of the reasons for the termination regardless of whether the employment was concluded for indefinite of fixed term.

Although there is a possibility for the employer to terminate the fixed-term employment without notice and justification, the employee does not suffer disadvantage, due to the fact that, in such cases, the employer must pay the employee monetary compensation up to 12 month’s absentee fee.

If there is 1 year or less left in the fixed employment relationship at the time of termination, the employee will be compensated for the remaining period, so there is very little chance of any claim by the employee.

If there are more than one year left of the fixed-term employment relationship at the time of the termination, claims by the employee could be theoretically possible.

However, in a labour lawsuit in connection with wrongful termination by the employer, the amount of the compensation for lost income, which is the main remedy available to the employees, is limited at 12 months absentee fee. This means that the employee could not claim higher compensation in a labour lawsuit than the compensation received from the employer.

Therefore, in relation to the fixed-term employee's rights, the question is not whether the employee can learn the reasons for the termination, but rather whether the compensation equal to the maximum 12 months' absence pay, which corresponds to the maximum amount that the employees can claim in an employment lawsuit in most cases, is sufficient or not.