IS AN EXECUTIVE FIRED UNLAWFULLY ENTITLED TO DAMAGES WITHOUT EVIDENCE IN HUNGARY?

03 June 2020

According to the Labour Code, if the executive unlawfully terminates his employment, the employer is automatically entitled to damages equals to twelve months’ absentee fee without proving the actual damage. Can this rule be applied in an opposite situation? We explain the recent decision of the Curia which answers to this question.

1. Facts

The plaintiff (“Plaintiff”) has worked as an executive for the defendant (“Defendant”) since March 2015, they stipulated a base wage of 500.000 Forints and the application of the provisions on executive employees of the Act I. of 2012 on Labour Code (“Labour Code”) to his employment contract. The Defendant terminated the employment of the Plaintiff without reasoning after less than one year, in April 2016.

2. The Plaintiff’s Claim

Pursuant to the special provisions on executive employees of the Labour Code, if an executive terminates his employment relationship unlawfully, he shall be liable to pay compensation to the employer in the amount equal to twelve months' absence pay (approximately 12 months' salary).

The Plaintiff tried to extend this rule to the opposite situation by analogy, namely when the employer unlawfully terminates the executive employee’s employment.

The Plaintiff, on the basis of the principle of equal opportunities, argued that since an executive has to pay the twelve months’ absentee pay if he terminates his employment unlawfully, the Defendant should also pay the twelve months’ absentee pay if it terminates the employment of its executive employment unlawfully.

Based on the above reasoning, he claimed, primarily, the payment of twelve months’ absentee pay, that is 6 000 000 Forints from the Defendant, in the alternative, he claimed the compensatory lump sum provided by the Labour Code, corresponding to the one month’s absentee pay.

However, the Plaintiff did not provide information about where he worked after the termination of his employment and how much money he earned in that workplace.

3. First and second instance decision

The first and second instance court rejected the Plaintiff’s primary claim but they awarded the compensatory lump sum which was claimed as the secondary claim.

In its judgment, the second instance court stated that in case of the unlawful termination by the employer, the provisions on the unlawful termination by the executive employee could not be applied by analogy as the Labour Code provides provisions for both the termination by the employer and termination by the executive employee, therefore there is no legal loophole, which could be filled by legal analogy.

The Defendant did not contest the secondary claim, consequently both the first and second instance court awarded it.

4. Decision of the Curia

The Curia agreed with the lower courts that the Labour Code regulates the rules of the claimable damages asymmetrically, depending on whether the employment of the executive employee is terminated unlawfully by the employer or by himself.

While in the first case, the employer, without proving the actual damage, is entitled to twelve months’ absentee pay, in the second case, the executive employee, like the other employees, is entitled, , only to the sum equal to his absentee pay due for the notice period, as a lump sum, without further proving

If the executive employee would like to claim further damages, he must prove the extent of the damage, to which he should provide information about his income after the termination. However, even in the latter case the damage may not exceed twelve months’ absentee pay.

The Curia stated that the Labour Code regulates the above situation asymmetrically, because the executive employee has significant responsibility towards the employer in comparison with other employees.

On the basis of its previous opinion[1], the Curia noted that there cannot be the violation of equal opportunities as the executive employee can choose whether he seeks damages on the basis of the general rules or demands payment equal to the sum of absentee pay due for the notice period without proving the damage.

The twelve months’ absentee pay specified in the general compensation rules of the Labour Code is just a maximum limit, therefore it is necessary for the employee to prove his actual damage.

Consequently, the damage suffered by the Plaintiff cannot be established in this case, as the Plaintiff did not provide the amount of his income earned after the termination of his employment, which would have been necessary to establish his actual damage.

5. Assessment of the decision

The rule, under which, in case of the unlawful termination of the employment by the executive employee, the employer should not prove its actual damage, but it is automatically entitled to twelve months’ absentee pay, which functions as quasi penalty is an exception to the general employee protection approach of the Labour Code.

The reason behind the above rules is that it is difficult for the employer to prove its actual damage resulting from the executive’s departure, as in such cases, most damage develops indirectly and in the long term. For instance, conclusion of certain contracts will be cancelled, the growth of the company will slow down, the operating result of the company will decrease etc. The institution of the twelve months’ damages, which functions as penalty, is aimed to compensate this difficult proving.

However, in a situation where the employment of an executive employee is terminated unlawfully, the executive employee is not in a substantially different situation compared to other employees. Thus, there is no reason for him to be entitled to quasi penalty without proving the actual damage.

Based on the above, the Curia made a sound decision in the above case, when, with regard to the financial consequences of the unlawful termination, it considered the status of the executive employee similar to the status of other employees and not to the status of the employer, which did not justify the Plaintiff’s different treatment.