Blog » LAWFUL DISMISSAL IN HUNGARY - PART IV: TERMIANTION BASED ON EMPLOYER’S OPERATIONS
LAWFUL DISMISSAL IN HUNGARY - PART IV: TERMIANTION BASED ON EMPLOYER’S OPERATIONS
11 December 2019
In the previous articles on the lawful dismissal, we explained dismissal for employee-related reasons. However, that is only half of the whole picture, because in many cases the employer dismisses employees for reasons of reorganization or redundancy. Justification must meet strict rules to be lawful in this case as well, the details of which we explore in this article based on case law of Hungarian labour courts.
The first part of the article is available here:
The second part of the article is available here:
The third part of the artice is available here:
1. Reasons of termination related to the employer
Similarly to dismissal for employee-related reasons, the Labor Code does not include specific grounds for dismissal based on employer-related reasons. We therefore need to turn to judicial practice again to determine when dismissal can be justified by changes in the employer's organizational structure.
In most cases, the employer refers to reorganization if the dismissal is in connection with employer’s operations. Within reorganisation, a distinction shall be made between job elimination and redundancies as the table shows below:
If the above classification is invoked incorrectly in the justification of the dsimissal, that can easily lead to wrongful termination. Before examining the two categories, let's review the common rules:
In case the dismissal is based on reorganisation, the employer’s decision on whose employment will be terminated cannot be challenged as it is at the discretion of the employer. However, ff the employee considers that the selection was not made in accordance with the requirements of equal treatment, the court is bound to examine it.
It is important that the business rationale of the reorganization cannot to be examined in a lawsuit, only the fact whether the reorganisation has been implemented. In this context, the court examines whether the employer has hired new workers in the position concerned, despite the decision.
Reorganisation resulting the elimination of a position
Within reorganisation, the termination of a job/position can be a valid reason for dismissal. The reason can only by relied upon if the position is actually and completely eliminated.
It is important that the position is not judged by its title, but by the activities actually performed. Where there is a significant overlap between the activities of the dismissed worker and the activities belonging to the position created in the framework of the restructuring, we cannot talk about elimination of the position.
Examining the case law of the recent years, the elimination of the position was found lawful in the following cases:
- In case of outsourcing, i.e. if the employer wishes the task previously performed by the employee to be carried out through an external service provider or outside the employment relationship (eg.: agency contract)
- Termination of management level: reorganization is lawful, when the employer terminates a management level and terminates the employment of the employees holding positions on that level.
- Close of workplace: the employee’s position can be considered terminated if the unit where the employee worked (eg.: shop, factory) is being closed down.
- Job merger: Restructuring can also be accomplished by job merging.
The sometimes blurred boundary between elimination of the position and redundancy is reflected in the decision of the Curia, according to which, it shall not be considered as job elimination if there are fewer tasks, and after the reorganisation the remaining employees do not perform more or other tasks than the dismissed employee. If in such a case, the employer does not refer to redundancy in the justification, the termination is unlawful, according to the Curia.
Reorganisation involving redundancies
In the event of redundancies, the employer wishes to continue to operate with less labour force, either in whole or in part of its organization. The reason behind can be the downsizing of certain activities or technological changes as well. The justification, necessity and expediency of the staff cut cannot be examined by the labour courts, only whether the employer hired new staff in the job affected by the redundancy.
In this regard, we would like to highlight two aspects considering the judicial practice:
If the redundancy concerns a particular organizational unit, the employment of the new workforce may be examined only in respect of that unit. Thus, it is legitimate for an employer to decide upon the expansion of another unit and to hire new staff at the same time as the redundancy.
When examining the employment of new employees, the court takes into account not only the period after the restructuring but also the period before that. This prevents the potential for a misuse, that the employer purposely hires new staff before the dismissal, then terminates the undesirable employees’ employment based on redundancy. A dismissal based on redundancy is therefore unlawful if the employer has recruited a new employee before the notice was given.
3. Requiring higher qualification
According to Hungarian practice, the employee can be dismissed if the employer requires higher qualification for the job which the employee currently holding the position does not have. This qualification-based change may take place if the employer wishes to employ a higher or more qualified, experienced employee.
A typical example is when, after an ownership change, the staff will need to know a foreign language to communicate with the new management. The above reason can be distinguished from dismissal based on the employee's ability by the fact that the former is always generated by a reason or change related to the employer's operation.
It is also a quality-based exchange where the employer terminates the employee because it wishes to employ another employee whose workforce and working hours can be used better demonstrably, due to his/her higher qualification or experience.
Conversely, according to judicial practice, dismissal based on a quality-based exchange is unlawful if the employer has set a higher qualification requirement for the given job, but the job duties and the circumstances of their performance have not changed.
In legal practice, the issue of negative quality-based exchange is not yet mature, i.e., when, mainly due to technological advances, a lower skilled worker can perform a given job.
In this article, we explained the rules of termination based on reasons related to the employer.
It can be concluded that the labour court does not examine the business rationale of the reorganisation, but it is important that
- the employer must choose the appropriate ground for dismissal (i.e. job elimination or redundancy),
- in case of job elimination, the employer should actually and fully eliminate the position of the dismissed worker,
- in case of redundancy, the employer must not hire new employees either before and after the dismissal,
- finally, in case of quality-based exchange, the higher qualification shall be indeed necessary for the job.
The drafting of a notice of termination is a task requiring expertise in labour law, thus it shall always be done by an expert.
 2012. évi I. tv.
 (Mfv. I. 10.875/2008.)
 (Mfv. I. 10.057/2016.)
 (BH 2008.28.)
 (BH 2002.113.)
 (Mfv. I. 10.827/2003.)
 (Mfv. I. 10.556/2000.)
 (Mfv. I. 10.875/2008.)
 (Mfv. I. 10.034/2012.)
 (Mfv. 10.474/2006.) és (Mfv. I. 10.329/2015.)
 (BH 1980.404.)
 (Mfv. I. 10.449/2000.)
CAN A 20-YEAR-OLD CHOICE OF COURT AGREEMENT BE ENFORCED IN HUNGARY?
In business, it often happens that the parties enter into a contract with a choice of court agreement for eventual legal disputes and then, years or even decades later, the legal dispute occurs. What is the effect of changes that have occurred in legislation on the choice of court agreement? Will the applicability of the choice of court agreement be decided according to the rules in force at the time of the conclusion of the contract or those applicable when the lawsuit was initiated? A recent decision of the Hungarian Supreme Court allows for an analysis of these questions.(1)Read more »
HUNGARIAN COMPANIES ACT CHANGED – ONLINE LLC FORMATION FROM AUGUST 2022
Due to the recent amendment of the Companies Act with effect from 1 August 2022, EU citizens and companies can form a limited liability company or a branch office in Hungary fully online, in a fast-track registration procedure. The new provisions make it easier and faster to start a business in Hungary, even if there is minor restriction in relation with capital contributions. In this article we sum up the most important new rules.Read more »
WHO PAYS THE PRICE OF A CLERICAL MISTAKE UNDER HUNGARIAN LABOUR LAW?
As the well-known proverb says humans make mistakes. Thus, it can happen that a contract prepared by the employer contains clauses that do not represent his real will. What measures can the employer take in such cases under Hungarian labour law? Is the employee expected to point out the error? The recent judgement of the Hungarian Supreme Court answers these questions.Read more »