14 September 2017

In Hungary, executives are a special group among the employees with a special labour-law regime. In this article we summarise the must-knows before hiring an executive officer under the Hungarian labour law regime as an employee.

1. Who is an executive employee?

The manager of the employer and the employee who is directly under the instruction of the manager and is entitled to replace the manager shall be regarded as an executive employee.

Furthermore, the parties can agree in the employment contract that the employee shall be regarded as an executive employee if the he has a significant or highly confidential job in connection with the employer’s operation and his salary is at least as much as seven times the statutory minimum wage.

To summarize the above, your general manager and his deputy shall be regarded as executive employees based on the Labour Code. In case you want your CFO or other prominent employee to be considered as executive, you shall agree in the labour contract.

2. More option to deviate from Labour Code

In case of an ‘ordinary’ employee the freedom of contract is restricted since there are several provisions of the Labour Code from which the labour contract cannot differ to the detriment of the employee.

The above restriction is not applicable in case of executive employees, as it is expressly allowed to conclude a labour contract that differs from the Labour Code to the detriment of the employee. Only a few provisions of the Labour Code (typically the ones that protect pregnant employees) cannot be excluded by the labour contract.

Moreover, collective agreements shall not apply to executive employees, thus many benefits provided for ordinary employees are not available for executive employees.

3. Flexible working time – no paid overtime

It is reasonable to adjust the working time to the actual tasks instead of having a fix working period so that the work can be more efficient. That is why the executive employers have flexible working time.

This way the executive employees can plan their working schedule and their free time in a way it is the most useful. On the other hand, the flexible working time excludes the opportunity to get paid for the overtime.

4. Non-compete

Each employee is limited at a certain level to enter an additional employment contract in order to protect the rightful economic interests of the employer.

The executives have more concretized non-compete obligation according to the Labour Code. They are not allowed to enter any additional employment-related relationships at all – including personal service contracts. It is also forbidden to conclude any transactions falling within the scope of the employer’s activities in their own name or on their own behalf.

The executive employee shall not acquire shares – with the exception of the acquisition of stocks in a public limited company – in a business association which is engaged in the same or similar activities.

Yet, it is advised to enter into a strong and detailed non-compete agreement with the executives

5. Lower protection against termination

The executive employees are granted a lower protection against dismissal compared to other employees.

The most important relief for employers is that the ordinary dismissal shall not be justified like in case of other employees. Thus, the risk of a wrongful-termination and a costly litigation is lower.

Furthermore, an executive employee may be fired during a leave of absence for caring for his child and the employer is not limited in terminating the contract even if the executive employee belongs to a protected group (employees reaching the old age pension in five years, or employees raising a child under 3 years old).

6. Higher labour law liability

Considering that the work of the executive employee has a higher importance, it involves stricter labour law liability towards the employer

As a common rule, employees shall be subject to liability for damages caused willfully or by gross negligence. However, an executive employee shall bear liability also in cases when the damage was caused by recklessness (i.e. a simple inattention or negligence

There are also strict rules in case when the executive employee terminates the employment unlawfully. While ordinary employees shall pay compensation in the sum of 3 months’ salary, this ceiling increases to 12 months’ salary for executive employees.