TERMINATION OF EMPLOYMENT BY EMPLOYER IN HUNGARY -PART1/2

15 December 2023

Termination of employment is a sensitive issue and can be the source of a labour law litigation, if done unlawfully. Unfortunately, there are many misunderstandings and myths in the common knowledge, such as the “three warnings”, which can mislead employers as well. In our two-part article we summarize what should the employer look out for, to execute the dismissal lawfully and thus avoid the unwanted legal consequences. In the first part we summarize the types of termination and the basic principles of the justification of dismissal by the employer. In the second article we summarize the cases which can serve as grounds for dismissal.

1. Types of termination

According to the Labour Code, the employment can be terminated by mutual agreement and by dismissal.

1.1. Termination by mutual agreement

The mutual agreement is a bilateral agreement, therefore it is only possible if both the employer and the employee are willing to agree on the termination of the relationship. Since it is an agreement, in which the parties accepts the terms, it is much safer from legal point of view compared to the dismissal, which is an unilateral statement binding on the other party even if it does not have the same intention.

It is also important that in the mutual agreement, the parties can decide the date of termination, and whether the employee receives any “exit bonus”, therefore, the parties can create a different scenario than what would be applicable in case of dismissal or resignation.

1.2. Termination by dismissal/resignation

Both the employer and the employee are entitled to unilaterally terminate the employment, if the circumstances set forth in the Labour Code and other sources (e.g. labour contract, company policies) are met.

Since dismissal/resignation is a unilateral legal statement, it does not require the acceptance of the other party, if executed correctly, it is effective upon communication to the addressee.

The most important difference is that while the employee generally does not have to justify his or her resignation, the employer, in most cases, is obliged to state the reasons for dismissing the employee, although there are exceptions in both cases.

2. Justification of the dismissal by the employer

From legal point of view, the most important part of the dismissal is the justification part, since missing, erroneous, or inadequate justification may easily result in wrongful termination.

First of all, there are four basic principles related to the justification, which are less known, but shall be carefully observed in all cases. Whatever the reason for the termination, the justification shall be:

Truthful	justification must refer to existing reasons that can be evidenced by facts.  the reason must be true at the time of the notice of termination, not only later[1]. in a litigation, the employer may not refer to breaches that happened after the notice of termination or were not otherwise included in the statement of reasons.
Clear	the employer must state the reasons and also the facts and evidence on which the dismissal is based in a clear and comprehensible way. the purpose of this is to give the employee the opportunity to get to know the grounds immediately, to check them and, if necessary, to present their defence and disagreement as soon as possible. general or vague reasons may not meet the requirement of clarity.
Relevant (reasonable)	the justification must be serious and convincing[2]. Minor, eventual breaches may not justify the dismissal[3]. the breach must be so serious as to mean that the employment relationship can no longer be maintained, and that termination is an appropriate consequence. It is against the principle of relevance if the employer tolerated the problematic behaviour for the dismissed employees or other employees in the past.
Timely	termination shall be exercised within a reasonable period after the event giving rise to the termination has occurred. reference to an event which happened years ago is inappropriate[4], the court may also find the termination belated after half a year.

In case the termination is based on multiple grounds considered together as a whole, each ground shall be valid and the inaccuracy of a single ground will lead to the unlawfulness of the termination.

Conversely, if it can be assumed from the justification that a single ground therein might serve as the basis for the termination, the termination will already be lawful if the court establishes the lawfulness of one ground.[5]

3. Formalities

It is also important that the employer shall execute the dismissal in a written statement (preferably in a printed document with wet signature). The legal consequence of the lack of written statement is special in labour law: the employment will be terminated anyway, however, the termination will be considered as wrongful, i.e the employee can claim compensation and other remedies stipulated in the Labour Code.

In the first part of our article, we have explained the mutual agreement, which shall reflect the free will of the parties to terminate the relationship. The dismissal/resignation is a unilateral agreement, which shall be executed in written form. In case the employer dismisses an employee, it shall state the reasons in most cases, which is the most important part of the notice of dismissal. Whatever is the ground, the justification shall be true, clear, relevant, and timely in all cases. If it is not the case, the dismissal is usually considered unlawful in labour lawsuits.

In the next part, we will examine what cases may serve as grounds for dismissal by the employer.

As you can see, the employer shall meet many legal criteria in connection with a dismissal, therefore, we always recommend the involvement of a legal expert with experience in labour law to avoid wrongful termination.