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Judicial reform’s new developments affecting civil proceedings

Dispute resolution, representation, News / / , ,

The Hungarian Parliament adopted Act XLIX of 2025 on the amendment of certain acts relating to the judiciary (“Amendment“), which, among other things, creates the possibility of expediting civil proceedings and imposes sanctions on courts for exceeding deadlines. The amendment also provides for the possibility of following the proceedings online in the future. In this article, we summarize certain provisions of the Amendment relating to Act CXXX of 2016 on civil procedure (“Pp.“).

The new litigation model, the rules for simplified civil lawsuit, new forms of decisions containing abbreviated reasoning, and the applicability of legal consequences due to prolonged proceedings will enter into force on August 19, 2025. From January 1, 2026, it will also be possible to participate online in court hearings.

Simplified civil lawsuit

The Amendment introduces simplified civil lawsuits as a new type of lawsuit, which can only be used in civil litigation arising from contractual relationships. The parties may stipulate in their written contract that any disputes shall be settled through simplified civil lawsuit, however, such a stipulation is excluded in disputes concerning personal status, labour law, and consumer rights.

Legal representation is mandatory in simplified civil lawsuits. The expeditiousness and efficiency of the procedure is ensured by its written nature and by the fact that the plaintiff must prepare the procedure in its entirety. The latter requirement means that the plaintiff initiating the lawsuit must attach all documentary evidence and expert opinions to the statement of claim, and no change of actions is permitted.

In simplified civil lawsuit, there is no separate case initiation or hearing as to merits stage; the proceedings are conducted exclusively with regard to the claim concerned by the action.

The courts shall act without delay and shall take their measures within a maximum of 8 days. The deadline to submit the defence statement is 15 days, which shall not be extended at any circumstances.

Furthermore, after the counterclaim  has been filed, the court shall – within a short period of time – call upon the parties to state whether they wish to proceed according to the general rules or whether they intend to reach an agreement. If the parties jointly declare that they wish to conduct the proceedings in accordance with the general rules, the court shall schedule a case initiation hearing and then must continue the proceeding in accordance with the general rules. In case the parties submit their settlement agreement to the court, the court shall approve it by its order, if the conditions for approval are fulfilled.

If the parties concerned do not request to conduct the proceeding in accordance with the general rules and do not reach an agreement, the court shall deliver its judgment within 30 days of the date on which on which the parties were called upon.

There are also short deadlines for legal remedies: the parties will have 8 days to submit an appeal, which may only be based on a substantial violation of the rules of the first instance proceedings or the incorrect application of the law on which the decision was based. Appeals against orders shall be decided by the court of second instance within 15 days and appeals against judgments within 30 days.

The Amendment introduces a reduced fee for this type of lawsuit, as the amount of the fee payable is 70% of the fee for proceedings conducted under the general rules.

Judgments with automatic abbreviated reasoning

In order to further reduce the administrative burden on courts and increase the time available for substantive work, the Amendment restructures the existing rules on abbreviated reasoning in the Pp. As a result, the parties will no longer be able to request a shortened reasoning of the judgment.

At the same time, the Amendment introduces two new cases in which a judgment may automatically contain abbreviated reasoning. The court that issued the judgment subject to appeal is only required to provide detailed reasoning for its judgment if the parties expressly request this. Therefore, if neither party appears at the pronouncement of the judgment, or if, despite the court’s request, none of the parties present requests a detailed statement of reasons, the court will automatically deliver a judgment containing a abbreviated reasoning.

Legal consequences of protracted hearings

If they fail to meet the statutory deadline for taking action, the courts shall, ex officio, grant the parties financial compensation equal to 1.5% of the minimum wage per day from the day following the deadline. With this step, the legislator’s declared aim is to persuade the courts to comply strictly with the time limits laid down in the Pp. in all cases. The Amendment also provides for legal remedies for the parties in the event that the defaulting court fails to order payment of compensation. In such cases, the party concerned may raise an objection.

Live-streamed hearings

The Amendment makes it possible for the audience to participate in civil proceedings via an online platform. However, this also requires that the necessary technological conditions be in place in the courts. According to the reasoning of the Amendment, this will allow for even broader social control over the courts. On the other hand, it also ensures that students studying law or state administration, as well as teachers and researchers, can directly participate in the hearings.

A maximum of the first 100 adult natural persons who successfully register may participate in the hearing as an online audience. Registration will be possible on a newly created interface, provided that the person wishing to register identifies themselves using the eAzonosítás service of the DÁP application.

Summary

With this Amendment, the legislator is attempting to ease the burden on the courts by making abbreviated reasoning the default option, a goal that is also served by the simplified civil lawsuit. In view of the introduction of simplified civil lawsuit, it is advisable to review existing and future contracts, as the provisions governing simplified proceedings allow for relatively rapid enforcement of claims.

The prompt handling of proceedings is to be facilitated by the introduction of a system of “penalty payments” for courts. Of course, the question arises as to whether the administration of financial compensation payments will require additional capacity from the courts.

As a result of the digital revolution of recent years, there has been an increased demand for court proceedings to be followed online using telecommunications tools. However, in practice, prior verification of persons registering as online spectators will place an additional burden on the courts and also increase the risk of misuse.

In connection with the Amendment, it is worth mentioning that on June 26, 2025, the National Judicial Council (“OBT“) filed a constitutional complaint (“Complaint“) to the Constitutional Court (“AB“). In its Complaint, the OBT requested, among other things, that the provision of the Amendment relating to financial compensation and simplified civil lawsuit be declared unconstitutional and be annulled with retroactive effect. The AB must decide on the complaint by September at the latest. If the AB annuls the provisions in question, we will provide information about the decision in a separate article.

Image source: Sora Shimazaki, pexels.com

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New provisions on foreign direct investment

Corporate law, News / / , ,

In 2022 the Government issued the Government Decree 561/2022 (XII. 23.) on the different application of certain provisions necessary for the economic protection of business companies in Hungary during the state of emergency („Decree”) under which it imposed restrictions on foreign investors acquiring ownership in strategically important companies owned by domestic investors, citing the crisis caused by the Covid pandemic. At the end of June, Government Decree 163/2025 (VI. 23) (“Amendment“) was published in the Hungarian Gazette No. 75, further tightening the rules on foreign direct investments.

A significant change in the regulations will be brought about by Act L of 2025 on the elevation to the status of acts of the emergency decrees issued in view of the armed conflict in Ukraine (“Act“), which will repeal the Decree with effect from August 19, 2025. It’s worth noting that at the same time, the general parts of the current regulations will be regulated at a statutory level, with some changes and additions. In addition to the currently effective Decree, our article summarizes the most important provisions of the Act applicable from mid-August and the related changes.

Scope of the regulation

In accordance with the regulations, all transactions involving limited liability companies, private share companies and public limited companies registered in Hungary and operating in strategic sectors must be reported to the Minister of National Economy, as the minister responsible for the domestic economy (“Minister”) if it would result in the acquisition of ownership or a certain degree of influence by third-country nationals or, in certain cases, by nationals of other Member States of the European Union, other states party to the EEA Agreement or the Swiss Confederation, where the value of the legal transaction reaches or exceeds HUF 350 million.

In addition, notification to the Minister and acknowledgement thereof are also required for foreign investors or companies over which foreign investors have direct or indirect majority influence to acquire operational rights necessary for the continuation of activities in strategic sectors. Strategic companies include, among others, pharmaceutical manufacturing, retail and wholesale trade, motion picture production, tobacco product manufacturing, temporary employment agencies, construction of residential and non-residential buildings within the construction industry, manufacturing of machinery and equipment, computer programming, consultancy and related activities.

The notification must be submitted to the Minister within 10 days of the conclusion of the legal transaction concerned.

Legal transactions include not only the sale of shares or stocks, but also any acquisition of ownership rights by way of transfer, including contributions in kind, transfer of ownership without any consideration, capital increase, transformation, merger, division and even the establishment of rights (e.g. convertible bonds, beneficial interest).

Natural person or companies that fail to comply with their reporting obligation may be subject to an administrative fine of up to twice the value of the transaction, provided that they are not subject to criminal liability.

After examining the notification, the Minister shall prohibit or acknowledge the legal transaction concerned. A prohibitive decision may be taken in the following cases:

  • if the acquisition of ownership, the acquisition of the bond, the acquisition of the right to usufruct, or the acquisition of the right to operate by the notifying party would harm or endanger the national interests, public security, or public order of Hungary, or if there is a possibility that this could occur;
  • the notifying party is directly or indirectly not controlled by the government of a Member State of the European Union, including state bodies or armed forces, either through its ownership structure or through significant financing;
  • the reporting entity has been involved in activities threatening security or public order in any Member State of the European Union,
  • or there is a serious risk that the reporting entity will engage in activities constituting a criminal offense.

Any legal transaction or corporate resolution that is contrary to a prohibitive decision shall be deemed null and void. The party affected by the prohibition decision may not be listed in the company register or share register, nor may it exercise any rights based on the legal transaction.

Rules applicable from 24 June 2025

  • Longer administrative time limits

As a result of the Amendment, the Minister must decide within 45 working days of the notification whether the circumstances for the prohibition continue to exist. In order to clarify the circumstances, the Minister may extend the period available for the investigation by a further three occasions, each time by 30 working days, thus extending the total period by up to four to five months.

  • Extension of the State’s right of pre-emption

With this amendment, the Government has significantly expanded its preemptive rights. The State may exercise its right of pre-emption through MNV Zrt. or another organization designated by it, under the same conditions as those specified in the relevant legal transaction, within 90 days of the date of the prohibitive decision. This right applies not only to strategic companies engaged in solar power generation activities, but to all companies in sectors of strategic importance.

Rules applicable from 19 August 2025

As mentioned in the introduction, pursuant to the decision of the legislator, the Decree will cease to be effective on August 18, 2025, and certain provisions will be regulated at the statutory level. The differences between the Decree and the Act are summarized below.

  • Shorter administrative time limits

Under the Act, the Minister must decide within 30 working days of the notification whether the circumstances for prohibition exist. An important element of statutory regulation is that the Minister has no opportunity to extend the deadline for investigation. With these changes, the legislator returns to the regulation that was in force prior to the June amendment.

  • Restriction of the state’s right of pre-emption

The extension of the right of pre-emption is also excluded from the provisions of the Act, meaning that, going forward, the State will not have a right of pre-emption, except in the case of strategic companies engaged in activities related to solar power plants.

  • Extended deadline for pre-emptive rights in the qualified sector

Under the Act, in the qualified energy sector, the time limit related to the State’s pre-emption right exercised through MNV Zrt. is increased – in deviation from the regulatory provisions – from 60 working days to 90 working days, counted from the date of receipt of the notification sent to the notifying party. At the same time, the response period of the minister responsible for energy policy in this matter is also doubled, i.e., increased from 15 working days to 30 working days.

  • Possibility of contesting the decision

From August 19, 2025, prohibitive decisions may be challenged in administrative court proceedings in numerous cases. For example, the prohibitive decision concerned may be contested if the Minister assessed incorrectly that the conditions establishing the notification obligation specified in the Act were fulfilled.  This right can still only be exercised at the Budapest-Capital Regional Court. Another new feature is that immediate legal protection is now also available in the event of an appeal. However, it is questionable whether the provision of further legal remedies in itself influences foreign investors during the stage of considering the structure of their investments.

Summary

Given that, according to our current knowledge, the provisions of the Act – will be applicable until December 31, 2026, foreign investors and Hungarian companies should take into account that the State will continue to have very widespread rights during transactions related to company acquisitions (M&A). It can be considered a positive step forward that, on the one hand, the scope of the State’s right of pre-emption is being narrowed and, on the other hand, the possibility of legal remedy against prohibitive decisions is being introduced. However, in overall, Hungarian regulations remain strict compared to international standards. It is therefore advisable to carry out a classification at the planning stage of the transaction, and to consider the possibility of state intervention in the letter of intent and the contract.

Image source: Andrea Piacquadio, pexels.com

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Cybersecurity – new regulations, new tasks

News, Commercial Law / / , ,

On January 1 this year, Act LXIX of 2024 on cybersecurity in Hungary (the “Cybersecurity Act“) came into force, which was adopted in accordance with Directive (EU) 2022/2555 of the European Parliament and of the Council of 14 December 2022 on measures for a high common level of cybersecurity across the Union, amending Regulation (EU) No 910/2014 and Directive (EU) 2018/1972, and repealing Directive (EU) 2016/1148 (“NIS2 Directive”) which aims to mitigate threats to electronic information systems due to threats to the information society and to ensure the continuity of services in key sectors. The Cybersecurity Act and related legislation impose strict requirements and provide for serious legal consequences in the event of non-compliance.

As we support many companies in preparing for compliance with the NIS2 Directive and the Cybersecurity Act, the purpose of this article is to draw the attention of all potentially affected companies to the provisions of the Cybersecurity Act that will become relevant in the near future, namely the obligations and deadlines related to contracting and conducting cybersecurity audits.

Scope of affected organizations

The Cybersecurity Act broadly defines the organizations that are required to monitor the security of their electronic systems and audit them. Private sector companies that reach a certain size and engage in activities classified as high-risk or risky fall into this category, as follows:

  • In terms of size, the companies concerned are those that qualify as medium-sized enterprises or exceed the thresholds set for medium-sized enterprises, i.e. those with a total workforce of more than 50 and an annual net turnover or balance sheet total exceeding the equivalent of EUR 10 million in Hungarian forints.
  • The condition relating to the scope of activity is that the enterprises operate in (highly) risky sectors, such as healthcare, telecommunications services, digital infrastructure (cloud service providers, data center service providers), food production, processing and distribution, computers, electronics, optical product manufacturing, or machinery and equipment manufacturing.

If it is unclear whether the obligations under the regulation apply to a given company, it is recommended to clarify this as soon as possible by reviewing the legislation.

Cybersecurity obligations

  • Audit contract:

The current obligation of the enterprises concerned is to enter into a contract with an independent economic operator authorized to perform cybersecurity audits registered by the Supervisory Authority for Regulatory Affairs of Hungary (SZTFH) in order to verify the cybersecurity of their electronic systems. The SZTFH is already sending out notifications to potentially affected parties, requiring them to provide proof of the conclusion of such a contract by September 15, 2025. Failure to comply with this obligation may result in a fine of between HUF 1 million and HUF 15 million being imposed on the company.

  • Cybersecurity audit:

Following the conclusion of the contract with the auditor, a cybersecurity audit must be carried out by June 30, 2026, during which the security classification of electronic information systems and the adequacy of protective measures according to the security classification will be checked. Failure to perform the audit may result in severe penalties, including fines of up to 2% of the previous year’s turnover, but at least HUF 1 million and up to HUF 150 million.

A cybersecurity audit may take longer depending on the size of the business and the technological and organizational complexity of its activities. For this reason, it is advisable to plan the timing and schedule of the review in advance so that the process not only serves the purpose of compliance, but also actually identifies areas where further action or deficiencies may exist. Examples include reviewing data protection compliance, updating information security policies, or fine-tuning risk management procedures.

The importance of compliance

Due to stricter cybersecurity regulations and the risk of high fines, compliance is not only a legal obligation but also a key business interest. Available benefits:

  • Reduced financial and reputational risk;
  • Strengthened cybersecurity protection and digital stability for the business;
  • With the right contract, the content, schedule, and definition of tasks and responsibilities of the audit become predictable;
  • At the same time, data protection aspects can be reviewed and, if necessary, data protection impact assessment documents can be revised, thus fulfilling the NAIH’s expectation of compliance with the principle of accountability.

Image source: Brian Penny, pixabay.com

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Personal data breaches and tasks related to their management

Data protection, News / / , , ,

Alongside technological development, numerous tools and methods have emerged with the aim of gaining unauthorized access to personal data. Although the tools used for cyber-attacks are becoming increasingly sophisticated, personal data continues to be most at risk from human error and carelessness. Regulation (EU) 2016/679 of the European Parliament and of the Council (the “General Data Protection Regulation,” “GDPR“) sets out detailed requirements for businesses and organizations regarding the collection, storage, and processing of personal data, compliance with which is essential for the protection of personal data and the proper enforcement of data security. The GDPR also contains provisions on how data controllers should act in the event of a personal data breach. In this article, we summarize the most important facts about personal data breaches.

Definition of the personal data breach

During the course of processing personal data, data controllers must take the measures specified in the GDPR to ensure the security of data processing. Personal data breach means a breach of security leading to the accidental or unlawful destruction, loss, alteration, unauthorised disclosure of, or access to, personal data transmitted, stored or otherwise processed.

For an incident to be considered a personal data breach, the violation of data security must be of such a nature that it poses a substantial risk to the protection of personal data. Data controllers need to be aware that it is not only the loss of personal data that constitutes a personal data breach. Personal data breach include:

  • Breaches of confidentiality, which may occur through the unauthorized disclosure of personal data (e.g., an email sent to the wrong recipient, or if documents containing personal data are saved in the wrong place, they may be shared with persons who are not otherwise authorized to access them, including other employees of the company). However, confidentiality breaches may also result from intentional conduct (e.g., unauthorized access through phishing attacks).
  • Breaches of integrity, which occur when personal data that has been processed is altered (e.g., when a person with access to accounting records – whether authorized or unauthorized – rewrites payments or breaks into the database in such a way that personal data gets deleted).
  • Breaches of availability, which refer to the destruction of processed data (whether accidental deletion or temporary server failure) or loss of access to data (e.g., loss or theft of a laptop or data storage device containing a copy of the customer database).

In summary, a personal data breach occurs when personal data is accessed without authorization, transferred without permission, or becomes inaccessible due to, for example, encryption by ransomware, accidental loss, or destruction.

Consequences of a personal data breach

Personal data breaches, if not handled properly and in a timely manner, can cause serious physical, financial, or non-financial damage to the people involved. Such consequences may include financial loss, identity theft, damage to reputation, or disclosure of confidential information. Furthermore, data protection incidents may lead to a loss of trust in the company as a data controller, and their improper handling may result in sanctions by the authorities.

Procedure to follow in the event of personal data breaches

Given that personal data breaches can have serious consequences, the data controller is obliged to handle the situation in accordance with the GDPR upon becoming aware of the breach. However, this requires that anyone who notices such a breach immediately report it to the designated data protection officer. It is advisable to set out the procedure for this in internal regulations.

Record of the personal data breaches

Under the GDPR, the data controller must keep a record of personal data breaches, including the facts relating to the breach, its effects and the remedial action taken.

Reporting personal data breaches

Personal data breaches shall be reported to the National Authority for Data Protection and Freedom of Information (“NAIH“) without undue delay and, where feasible, no later than 72 hours after the personal data breach has come to the knowledge of the controller. If the notification is not made within 72 hours, the reasons for the delay must be attached to the notification.

For the notification, the NAIH also provides a form available on its website, which can be submitted electronically (e.g., via official storage space or e-Paper service) by data controllers who are required to conduct electronic administration or who voluntarily undertake to do so.

The report must include:

  • the nature of the personal data breach including where possible, the categories and approximate number of data subjects concerned and the categories and approximate number of personal data records concerned;
  • the name and contact details of the data protection officer or other contact point where more information can be obtained;
  • the likely consequences of the personal data breach;
  • and the measures taken or proposed to be taken by the controller to address the personal data breach, including, where appropriate, measures to mitigate its possible adverse effects.
  • Last but not least, the report must include a copy of the relevant section of the report of the personal data breaches relating to the incident in question.

The report may be omitted only in the case of so-called ‘bagatelle’ incidents. Such incidents are those which are unlikely to pose a risk to the rights and freedoms of natural persons, but even in such cases, the incident must be recorded in the register.

Communication with the data subject

When the personal data breach is likely to result in a high risk to the rights and freedoms of natural persons, the controller shall communicate the personal data breach to the data subject without undue delay. The purpose of this measure is to enable the persons concerned to take the necessary precautions (e.g. reporting the theft of identity documents, blocking bank cards).

Risks should be assessed individually for each incident. During the process, aspects such as the type of personal data (e.g., special data) and the amount of data, the number of data subjects, and the possibility of identifying data subjects must be taken into account.

The data subjects do not need to be informed of a high-risk data protection incident if:

  • personal data is encrypted in such a way that it cannot be interpreted;
  • the data controller has since implemented appropriate protective measures;
  • or would require disproportionate effort on its part. (In such cases, the persons concerned shall be informed by means of public communication or similar measure whereby the data subjects are informed in an equally effective manner.)

 Summary

Personal data breaches represent a very broad definition of data security breaches. Such breaches can cause serious financial or non-financial damage to those involved, and if they are not handled properly, they can result in fines of up to several million forints. Data controllers are obliged to ensure the protection of personal data already during the processing of data. Therefore, prevention should be the primary focus. Properly implemented security measures (e.g., establishing authorization systems, adequate protection of passwords and devices) may be suitable for preventing breaches from occurring. In order to determine and comply with these, it is advisable to prepare internal procedures and action plans in advance and review them at regular intervals, as well as to provide data protection training to persons involved in data processing (e.g. employees) at appropriate intervals. In the event of a concrete personal data breach, it is also recommended to involve an expert, given the special rules of formalized official procedures and the need for individual assessment.

Image source: pixabay, pexels.com

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Practical issues relating to the written employment contract and the commencement of employment

News, Employment, labour law / / , ,

According to Act I of 2012 on the Labour Code (“Labour Code“) an employment relationship is established by an employment contract, which shall be made in writing by the parties. Thus, the establishment and existence of an employment relationship can be clearly established if there is a written employment contract. But what happens if the agreement is not concluded in writing or is concluded later? What happens if one party wants to withdraw after the written offer but before the signing of the employment contract? It is worth being aware of the detailed rules to ensure that your employer’s practices comply with the provisions of the law. Since a new ruling by the Curia on the subject was published in March 2025, we summarise the most significant information regarding the written form and the establishment and duration of employment relationship.

The importance of concluding in written form

As a general rule, an employment relationship is established by an employment contract. According to the Labour Code, the employment contract must always be concluded in writing, and it is enough for the parties to agree on the employee’s base wage and job. However, it is worth noting that in practice there are many examples where an employment relationship is established in the absence of a specific employment contract. For example, if an employer makes an offer containing the essential terms and conditions (job and base wage) and the employee accepts it, the employment relationship is deemed to have been established by the employee’s acceptance, without the parties signing the employment contract.

Failure to put it in writing does not result in the non-existence of an employment relationship. The Labour Code stipulates that the legal consequence of not having a written contract is invalidity, which can only be invoked by the employee, and only within 30 days of commencing employment relationship.

This interpretation was also confirmed by the Curia in its recent decision. In the case in question, the employee was employed for a fixed term but continued to work after the expiry of the fixed term, to which the employer did not object, and continued to fulfil its obligations to provide work for the employee and to pay wages. In the meantime, the parties wanted to settle their employment relationship, and the employer sent the employee an offer for an employment contract of indefinite duration, which the employee accepted, but the parties did not sign. In the meantime, the employer gave termination of notice to the employee, who claimed that it was unlawful on the grounds that, in the absence of a written employment contract, they were not in an employment relationship and therefore termination was not conceptually possible. The employee claimed that the employment contract was only signed after the termination of notice was given, so in in its view its employment relationship was established from that time.

In the case, the Curia ruled that the employee’s employment relationship had existed since the beginning of the fixed-term contract, which, after its expiry, had become an employment relationship of indefinite duration due to the parties’ implied conduct and which the employer was therefore entitled to terminate. This ruling also shows that the existence of an employment relationship is not solely determined by the written employment contract of the parties, in the absence of which the existence of an employment relationship can be established on the basis of the circumstances of the case.

The question legitimately arises: why then is there a need for a written employment contract? As an employment law counsellor, the answer is simple: to prevent disputes. In our experience, neither party wants to argue in court what kind of cafeteria allowance an employee is entitled to, what limits apply to the home office and how the annual leave can be granted. In addition, failure to conclude a written contract may result in sanctions applied by the Hungarian Labour Authority as a result of the inspection.

Important stages of the establishment of employment and a possibility of withdrawing

In addition to the written form of the employment contract, the dates – periods – at which the employment relationship is established are of paramount importance, as the parties have different rights and obligations at different stages.

At the time the employment relationship is established, we differentiate between the time when the employment relationship is established and the time when the employment relationship commences.

  • Establishment of the employment relationship

The employment relationship is established on the date of conclusion of the employment contract or on another date specified in the contract (offer). From that time onwards, the parties may not engage in any conduct that would prevent the employment relationship from being established. The question may arise as to what conduct can prevent the employment relationship from being established. On the employee’s side, for example, failure to attend compulsory medical examinations by the private induvial can be such case.

  • Commencement of the employment relationship

The commencement of the employment relationship is the date on which the employee starts to work. In the absence of a specific provision in the employment agreement, that is the day following the conclusion of the employment contract. From this point on, the “active” phase of the employment relationship begins, during which the parties can exercise their rights and must fulfil all the obligations arising from the employment relationship. If the parties have agreed on a probation period, the duration of the probation period also starts at the commencement of the employment relationship. Last but not least, this day is also significant from a social security point of view, as the start of the insurance relationship aligns with the commencement of the employment relationship.

The parties have the possibility to set an alternative start date in the employment contract, thus allowing the actual employment and availability obligation to be delayed by up to several months (e.g. in view of the employee’s previous notice period).

  • Right of withdrawal

Between the establishment and the commencement of the employment relationship, either party has the right to unilaterally withdraw from the employment contract, which will terminate the legal relationship between them with retroactive effect. This right can be exercised if, after the employment contract was concluded, there has been a material change in the circumstances of the party whereby carrying out the employment relationship is no longer possible, or it would result in unreasonable hardship.

It should be emphasised that only circumstances arising after the conclusion of the employment contract may entitle the parties to withdraw and that the parties must settle their claims against each other retroactively to the date of the conclusion of the employment contract.

Summary

It can be seen that, as an employer, there are a number of important aspects to consider and communicate when making an offer to ensure that the procedure complies with the law and to avoid disputes later on, such as:

  • When does the employee start work?
  • Are there any other conditions to starting work?
  • How long is the employer’s offer valid?
  • Are there any conditions to the offer that, if not accepted, will invalidate the whole employment relationship?
  • In what cases can either party withdraw from the offer?

Image source: Pavel Danilyuk, Pexels.com

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New forms of employment in the 21st century

News, Employment, labour law / / , , , ,

The digital revolution of the 21st century has led to the emergence of new forms of employment at global level. The common character of these employment relationships is that they provide more flexible working conditions than traditional employment relationships. These new forms of employment are characterised by different contractual relations, different rules on where, how and when work is performed, and increased use of information and communication technologies. In our article, we would like to present the three most typical types of new forms of employment.

Digital nomads

Digital nomads are people who can perform their work from anywhere – even a continent away – with the help of digital tools. Although the new trend is becoming more widespread, many people are not aware of its legal implications. Becoming a digital nomad has important employment, tax, social security and immigration consequences.

If the employment relationship has a cross-border element, questions arise as to which country’s employment rules apply, in which country the insurance obligation arises, how the tax liability is determined – especially on income from wages -, and whether there is a need to make a declaration or obtain a permit to stay legally in a country after a certain period of time

As an example, let’s take an employee who wants to establish an employment relationship with a company based in the UK by residing in Hungary on a permanent basis. In this case, in the absence of a choice of law, the parties must apply Hungarian labour law to the legal relationship, given that, as a general rule, the labour law of the country from which the employee usually works is applicable. Under current Hungarian labour law, employees may also work remotely, provided that the employee and the employer agree on this separately. In the case of teleworkers, the employee works part or all of the time at a place separate from the employer’s premises, even in a different country. In the example case, the parties determine the place of work in accordance with the residence in Hungary and may agree that the employee performs his/her obligations arising from the employment relationship through telework.

A different approach will apply to a temporary agreement where the worker is only temporarily (up to 1-2 years) going to a country other than the country of origin – the Posting of Workers Directive 96/71/EC will apply.. In this case, the labour law of the Member State where the work is carried out will apply on certain issues (e.g. minimum wage, paid leave, occupational safety and health), regardless of which Member State’s law applies to the employment relationship.

If the digital nomad is a third-country national, there is also an immigration aspect to his/her legal relationship, as he/she needs a residence permit to work and enter the country. In general, it can be stated that Hungary explicitly supports the entry and residence of third-country nationals as digital nomads. The Act XC of 2023 on the General Rules on the Entry and Stay of Third Country Nationals specifically provides for the so-called White Card, a residence permit that can be obtained through a preferential procedure, for digital nomads.

The correct assessment of the tax liability can only be determined by assessing the relevant legislation (e.g. the relevant double taxation convention) and the individual circumstances of the case. However, as a general rule, it can be stated that employees are liable to pay their taxes in the country where their centre of economic interest can be established. From a social security point of view, the place where the employee works is relevant.

Overall, these questions can be answered on a case-by-case basis, as different rules apply to the persons concerned depending on their nationality, the country in which they would work, the length of time they would work and the type of job they would perform.

Platform workers

Platform-work is a relatively new form of employment, which is based on matching the supply and demand of paid work through an online platform. So, the person who does the paid work is connected by the platform offering the service to the party who uses the service, i.e. the party who buys it. This type of work has grown in popularity in recent years, for example in the case of food delivery services or taxi services. It is estimated that the number of platform workers has now reached 43 million in the European Union. There are also a number of issues of relevance to labour law in relation to platform work.

The most significant is the issue of the qualification of the legal relationship. The vast majority of platform workers are self-employed, even though platforms have extensive powers of instruction, control and discipline. As a result, they are not guaranteed the broader protection of employment rights.

In Hungary there is no unified regulatory system for platform work yet. This means that courts examine the nature of the legal relationship individually in the event of litigation. In December 2023 uncertainty over the classification was increased by the judgment of the Curia on the qualification of a contract of a food delivery service provider, in which the body ruled that platform work does not constitute an employment relationship.

The European Union, recognising the vulnerability of platform workers, adopted Directive 2024/2831 on improving working conditions in platform work (“Directive“) in 2024 to improve the platform worker’s employment conditions.

In order to classify the relationship correctly, the Directive requires Member States to introduce measures to facilitate the definition of an employment relationship. To achieve this, Member States should provide rules to determine whether a relationship is an employment relationship or another contractual relationship for self-employment, regardless of how the parties have previously classified the contract between them. The Directive introduces a rebuttable legal presumption that the relationship between the platform and the person performing the work is an employment relationship if facts indicating control and direction are founded in accordance with the law, collective agreements or practice in force in the Member State concerned. Member States, including Hungary, must implement the Directive provisions by 2 December 2026; in the meantime, the general rules are applicable.

Guidance on the classification of employment relationships in labour law disputes – although now repealed – continues to be based on the FMM-PM Directive 7001/2005 (“FFM-PM Directive“). The FFM-PM Directive distinguish between primary (e.g., subordination) and secondary (e.g., determining the place and time of work) qualifying attributes. While primary qualifying attributes can be decisive on their own, secondary qualifying attributes can typically only lead to a reclassification of a legal relationship in combination with other attributes indicating the existence of an employment relationship. It is expected that the regulation to be developed under the Directive will contain similar criteria, which may replace the criteria under the FFM-PM Directive, which is no longer in force but is taken into account in practice.

In practice, the question of classification often arises in the activities of marketing agencies. Agencies typically employ freelancers, who are assigned to clients to carry out specific tasks. However, clients should be aware that if freelancers are fully “integrated” into their organisational system when carrying out their activities, they will be considered by the court as employees of the client in a possible classification litigation.

Platform work also has tax and social security implications. The reason for this is that platforms are not obliged to pay taxes or contributions after their employees in the absence of an employment relationship.

Employer of record („EoR”)

A new type of employment is the so-called Employer of Record (“EoR“). This form of employment allows companies to enter markets in countries other than their home country without establishing a business premises (from corporate viewpoint) and recruiting employees there. The essence of the model is that the company wishing to enter a new market, as a client, enters into a contract with the company providing the EoR service. The EoR service provider concludes employment contract with the employees, so the EoR service provider becomes the employer of the employees (it bears all the responsibilities of employment), while these employees perform their activities on behalf of the client.

In Hungary the challenge with the EoR model is that the Hungarian labour law provides special provisions on temporary agency work which is a much more strictly regulated activity that requires a licence. It is similar in substance, since the purpose of temporary agency work is to allow the temporary-work agency to temporarily assign the temporary-agency worker, who is employed by the temporary-work agency for the purpose of a loan to the user enterprise for work supervised by the user enterprise. If the Hungarian labour authority finds that the service provider has engaged in temporary agency work without being registered with the authority, it may reclassify the legal relationship in question as temporary agency work and impose a fine of up to HUF 25 million on the service provider. For this reason, EoR service providers typically wish to avoid being classified as temporary work agencies.

Another problem with the model, as explained earlier, is the integration of the employee into the client’s work organisation. The reason is that the tighter the relationship between the parties, the greater the risk that the contract will be considered temporary agency work.

Tax issues may also arise in connection with the EoR model. If the client establishes a premise by using the EoR service, it may be subject to tax liabilities.

Summary

In summary we can conclude that the traditional employment model is still dominant, but labour market trends and new work-related demands suggest that atypical forms of employment will become increasingly popular in the future. However, before applying them, it is necessary to carefully examine the underlying conditions in the specific case to ascertain their lawfulness.

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Changes to the rules on the employment of guest workers in connection with investments

News, Immigration law / / , , ,

As of 1 July 2025, the rules on prior group employment approval and residence permits for employment for the purpose of investment will change. The main novelty is that the implementation of the investment will be divided into two phases, preparation and installation, and the permit granting process will be adapted accordingly. In this newsletter, we provide an overview of the conditions under which third-country nationals can be employed in Hungary in the course of various investments and how the permit procedures should be handled.

Conditions of employment for investment purposes

Act XC of 2023 on the General Rules for the Entry and Residence of Third-Country Nationals (the “Third-Country Nationals Act“) allows for the employment of guest workers for investment purposes. Within this framework, a residence permits for employment for the purpose of investment may be granted to a guest worker whose purpose is to perform actual work in an employment relationship in order to implement an investment with an employer who has concluded an agreement or contract with the Minister of Foreign Affairs and Trade in order to implement this investment and the employer has a prior approval for group employment as defined by law (“Employment Approval “). Before applying for a residence permit for a guest worker, the employer must therefore first obtain prior approval for group employment.

Prior group employment approval

Under the new legislation, which will enter into force on 1 July, the investment is divided into two phases for the purposes of authorisation: the preparatory phase, which involves the preparation, construction and bringing into use of the investment, and the installation phase, which involves the operation of the units already in use and the training of the personnel.

The application for the Employment Approval for the preparatory phase of the investment is submitted by the investor in order to be able to employ more third-country nationals during the implementation of the investment. The application is assessed by the Minister of National Economy, who examines the business plan of the investment, the number of third-country nationals to be employed, their job (by FEOR codes) and the distribution of the employees between the main contractors and subcontractors. The application must specify the details of the investor, the main contractor and the subcontractor. The competent government office will also be involved in the procedure in order to examine the labour market situation in the region with regard to the available Hungarian labour force. The Employment Approval can be valid for the entire duration of the investment, up to a maximum of three years. During the period of the Employment Approval, any deviations from its provisions, such as the identity of the main contractors and subcontractors, the job of third-country nationals (by FEOR codes) and their distribution, must also be approved by the Minister of National Economy.

The application for the Employment Approval for the installation phase of the investment may be submitted during the period of the Employment Approval for the preparatory phase or from the day after its expiry. It may only be requested for the stage of the project for which installation is required. As with the application for the preparatory phase, the assessment is the responsibility of the Minister of National Economy and the procedure must also specify the number of third-country nationals to be employed, their job (by FEOR codes), the names of the main contractors and subcontractors and the distribution of the employees. For this phase, the competent government office will also examine the valid labour needs. The Employment Approval may be valid until the investment is put into operation, but for a maximum period of one year. As with the rules for the preparatory phase, any deviations from the provisions of the Employment Approval during the period of the Employment Approval, such as the identity of main contractors and subcontractors, the work of third-country nationals (by FEOR codes) and their distribution, must also be approved by the Minister of National Economy.

Employment of guest workers

Guest workers may be employed under a residence permit for employment for the purpose of investment. The residence permit may be granted to guest workers who carry out the work for remuneration and for the realisation of the investment. In addition to the general requirements, to the application for a residence permit must be attached the Employment Approval and proof of an agreement with the Minister of Foreign Affairs and Trade. In the case of the Paks Nuclear Power Plant and the Budapest-Belgrade railway line projects, the legislation provides for preferential treatment, and the employer does not need to attach the agreement issued by the Minister of Foreign Economic Affairs if it is a general contractor or subcontractor under the relevant legislation.

When applying, the employer must enclose, as proof of the suitability of the accommodation, the official permit for the establishment of the accommodation and proof of the number of persons the property can accommodate. If the employer does not provide accommodation for guest workers on the site of the project, in an area separate from the local population, the permit may be refused.

A residence permit issued for employment for the purpose of investment based on an Employment Approval for the preparatory phase of the investment is valid until the investment is carried out, but for a maximum of 3 years, while a residence permit issued for employment for the purpose of investment based on an Employment Approval for the installation is valid until the investment is put into operation, but for a maximum of 1 year and counts towards the number of permits determined annually.

With this permit, the guest worker cannot apply for a residence permit under any other title and is not entitled to a national residence card.

The fixed duration of the employment relationship should be determined with reference to the period of validity of the residence permit issued.

Obligations of the employer

The employer is obliged to ensure that the employees are properly accommodated and that the guest worker holding a residence permit for employment for the purpose of investment leaves Hungary no later than on the sixth day following the termination of the employment relationship, in the event of termination of the employment relationship, and in the event of a breach of this obligation the authority shall impose a fine of HUF 5 million on the employer. The employer may be exempted from the fine if it can prove that it has taken all the measures it could reasonably be expected to take.

Summary

The legal framework for the employment of guest workers in Hungary is strictly regulated and the new legislation coming into force from 1 July 2025 will change the framework for the employment of guest workers for investment purposes. The division of the authorisation procedures into two separate phases – the preparatory and the installation phase – and the detailed regulation of the employer’s obligations require considerable administrative and legal preparation on the part of investors and employers.

It is therefore of the utmost importance that employers familiarise themselves with the new requirements in time and comply fully with them, also in view of the severity of the sanctions. Timely and professionally sound legal advice can help to ensure compliance, smooth authorization procedures and avoid fines.

Image source: Anamul Rezwan, Pexels.com

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The deadline for publishing annual accounts is approaching – company law matters to do

News, Corporate law / / , , ,

The preparation and approval of annual accounts is an important part of the operation of any company in each year and requires the involvement of an auditor if certain conditions are met. Depending on the outcome of the accounts, there may be cases where the capital situation needs to be reviewed and adjusted. In this newsletter, we set out the main points to be noted with regard to the general deadlines for the adoption and publication of the annual accounts.

The importance of the annual accounts

The annual accounts of companies required by Act C of 2000 on Accounting (the “Accounting Act“) must be published annually by the last day of the fifth month following the balance sheet date of the financial year in question, i.e. 31 May for companies with a financial year ending on 31 December and are available to the public.

The purpose of the accounts is to give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and of changes in those assets and liabilities, including to enable third parties to obtain a true and fair view. The accounts include the company balance sheet, which details the company’s assets and liabilities, and the profit and loss account, which shows the company’s assets and liabilities for the previous year and the current year in a comparable manner.

Necessity of an audit

The preparation of the accounts is essentially the responsibility of the management, and their adoption is the responsibility of the supreme body. Under certain conditions, the adoption of the accounts may be subject to an audit. This includes the auditor’s responsibility to determine whether the annual accounts have been prepared in accordance with the law and whether they give a true and fair view of the company’s financial position.

The Accounting Act requires all companies keeping double-entry books to have a statutory audit. Exceptions to this requirement are those companies whose annual net sales did not exceed 600 million Hungarian Forints (until 31 December 2024, 300 million Hungarian Forints) on the average of the two financial years preceding the financial year under review, and whose average number of employees was less than 50. In other words, if any of these conditions are not met, the company is obliged to be audited. If the company is subject to an audit, the auditor’s report is a prerequisite for the lawful adoption of the annual accounts. Of course, companies that are not otherwise required by law to have an auditor may also decide to audit the accounting documents.

Appointment of an auditor

The appointment and engagement of an auditor is necessary for the company to be able to fulfil its audit obligations. The first auditor must be appointed in the instrument of incorporation. The mandate of the auditor must last at least until the adoption of the accounts following his/her election, with a maximum duration of 5 years. In view of this, the supreme body must decide on the election of an auditor several times during the operation of the company (at least every 5 years), which must be notified to the court of registry in the context of a change registration procedure. Once the appointment has been made and accepted by the auditor, the management must conclude a contract with the auditor within 90 days, in accordance with the conditions laid down.

In view of the above rules, companies typically determine the end of the auditor’s mandate by 31 May. With regard to the upcoming deadline for the adoption of the annual accounts, it is worth checking whether the company is required to have an audit and whether it currently has an appointed auditor to fulfil its obligations under the Accounting Act.

Capital position analysis

Once the annual accounts have been drawn up and adopted, the company’s economic result, which may be negative, becomes clearly visible. The Civil Code imposes a number of capital requirements on companies, which are not met if

  • the equity of the company decreased to half of its original value due to losses;
  • the equity of the company decreased under the minimum limit of initial capital determined by law (currently HUF 3 million for a limited liability company);
  • the company is threatened with insolvency or has stopped making payments; or
  • the assets of the company do not cover its debts.

In the case of limited liability companies, the law imposes an obligation to intervene, which must be remedied by the most appropriate and long-term solution for the company, and the result of which must be reported to the court of registry, if necessary.

There are a number of solutions to remedy a negative capital situation, but they will only be effective if they respond to the cause of the capital shortfall and take into account the short and long-term company law related effects. Experience over the years has shown that we always recommend that, in addition to our company law lawyers, accountants and auditors should be involved in preparing the appropriate decision – even before the adoption of the accounts, if necessary.

Image source: Nataliya Voitkevich, Pexels.com

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The European Data Protection Board’s New Guidelines on Pseudonymisation

News, Data protection / / , ,

In the first quarter of 2025, the European Data Protection Board (“EDPB“) adopted a new guideline under reference number 1/2025 (the “Guideline“), focusing on the principles and benefits of pseudonymisation under Regulation (EU) 2016/679, the General Data Protection Regulation (GDPR). In this newsletter, we summarise the main findings of the Guidance that are relevant to practice.

What is the significance?

The rules on data processing apply in a wide range of roles, often as an employer, supplying partner or contractor. Choosing the right legal basis for data processing and complying with the principles is of paramount importance, as are the technical and organisational measures in place to ensure the security of the data processed. The GDPR considers pseudonymisation as a risk mitigation tool, whereby personal data are processed in such a way that it is not possible to identify the natural person to whom they relate without further information, i.e. identity can only be established by additional information.

It is a condition that this information – i.e. the pseudonym and the additional attribute – is stored separately and that it is ensured that the data cannot be linked to the natural person concerned unless the conditions are met. Where pseudonymisation is used, the specific risks that the method is intended to reduce must be identified and the procedure must be designed to be effective in achieving the stated aim. This may be particularly relevant in cases where the nature of the data processed would make it easy to identify the natural person. However, it is essential that pseudonymisation does not replace other data protection measures but complements them.

Supporting compliance with data protection principles

Pseudonymisation, as a good practice identified by the EU Commission, can, if properly applied, help data controllers to comply with the principles of the Regulation. According to the GDPR, data may only be collected for specified purposes and processed in a manner compatible with those purposes. Pseudonymisation reduces the risk that personal data may be further processed in a way that is incompatible with the purpose for which the data were originally collected.

For example, assigning widely different pseudonyms (e.g. employee identifiers) to data of persons with very similar identifiers (e.g. employees named Steven Smith) may not only enhance confidentiality, but also contribute to the requirement of accuracy and timeliness of personal data by reducing the possibility that data (e.g. payroll) are wrongly attributed to the wrong person.

Justification of the legal basis for processing

To demonstrate the lawfulness of processing, it is essential to indicate the appropriate legal basis. Since pseudonymisation reduces the risk to the rights and freedoms of data subjects, it can facilitate the use of legitimate interest as a legal basis (Article 6 (1) (f) GDPR). Pseudonymisation minimises the chances that the data will lead to unauthorised identification.

Likewise, pseudonymisation can help to ensure compatibility with the original purpose (Article 6 (4) GDPR). Pseudonymisation can also be a good safeguard when considering compatible purposes for further processing, as it can limit the possible consequences of the envisaged further processing for the data subjects, thus reducing the risk of further processing purposes.

How to apply?

The organisation acting as data controller must ensure that pseudonymised data cannot be linked to an individual as long as the additional information is processed separately. To achieve this, the data controller must modify the data and store additional keys and information separately so that only authorised persons can link the data.

For the sake of the efficiency of the method, pseudonymised data should not contain direct identifiers (e.g. known identification numbers such as tax identification number, ID number), because these direct identifiers can be used to easily associate data with data subjects. Instead, identifiers, unique codes that can only be assigned to data subjects using additional information may be used; this is the pseudonym. All this needs to be ensured by appropriate technical and organisational measures, such as:

– encryption,

– use of interpretation keys and separate storage,

– ensuring access only to authorised persons.

Data processed in the course of a pseudonymisation as personal data

It is important to note that pseudonymised data is still considered personal data, i.e. it is subject to the GDPR, and therefore the rights of the data subject must be ensured. For example, if the person can provide the pseudonym under which his or her data is stored and can prove that this pseudonym relates to him or her, the data controller must be able to identify the data subject, and the claims made in the exercise of the data subject’s rights must be met if any additional conditions are met.

The pseudonymisation of data reduces the risks for the data subjects, since in case of a possible unauthorised access or disclosure, with a proper pseudonymisation, the direct identification data relating to the natural person will not be disclosed (e.g. a cafeteria declaration is sent to the wrong place but only the pseudonym is indicated).

Interestingly, if the security of the pseudonymised data is compromised, leading to an unauthorised reversal of the pseudonymisation, this may constitute a data breach and appropriate action may need to be taken depending on the circumstances of the specific case.

Conclusion

The Guideline provides a useful framework for the use of pseudonymisation as a data processing safeguard. It is not only a technical tool, but a set of data protection procedures that contribute to the compliance with the GDPR rules, while at the same time helping to ensure data processing and related rights. The introduction of pseudonymisation is appropriate based on a review of the data processing strategy in place, but it also requires technical and organisational measures and the appropriate completion of the data processing documentation.

Image source: Markus Winkler, Pexels.com

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International publication on Global Law Experts

News, Employment, labour law /

Global Law Experts recently published Anna Katalin Papp’s article on Doing Business in Hungary from an Employment Law Viewpoint

Introduction

Employment relationships under Hungarian law are primarily, but not exclusively, governed by the provisions of Act I of 2012 on the Labour Code (“Labour Code“). In addition, the content of employment relationships is further governed by the provisions of other legislation (e.g. Act XCIII of 1993 on Occupational Safety and Health), collective agreements, internal rules of the employer and individual employment contracts. As an EU member state, Hungary is also subject to EU legislation – either directly or by implementation – in the area of labour law. Below is a summary overview of the most important Hungarian labour law rules. Please note that the below does not constitute full legal advice.

  1. Establishment of employment

The employment relationship is established by the conclusion of a written employment contract. The employment contract must contain the mandatory elements prescribed by law (e.g. basic salary, job title) and any other conditions that the parties consider necessary. In that context, the parties may derogate from the provisions of the Labour Code mostly in the favor of the employee, unless derogation is prohibited by law.

It is important to note that the employment relationship is an agreement between the parties, thus it can only be modified by the mutual consent thereof.

At the same time as the employment relationship is established, the employee must be provided with an information letter containing the most important information about the employment relationship (e.g. the person exercising the employer’s rights, the duration of the daily working hours, possible starting and ending dates of work, benefits beyond the basic salary, etc.). This is a unilateral information letter issued by the employer, therefore, as a general rule, it can be unilaterally amended (updated) by the same.

The employee should also be informed of their job duties at the time of the establishment of the employment relationship, as the job description summarizes the tasks expected by the employee to perform. That is typically included in a separate job description – the content thereof can indeed be unilaterally amended by the employer without changing the job title.

When the employment relationship is established, the employer must also register the employee with the tax authorities.

  1. Working hours and work schedules

The standard daily working hours in Hungary are 8 hours, and the standard working week is from Monday to Friday (i.e. 40 hours a week in principle).

Deviations from the daily working hours and working days are possible for certain activities (e.g., multi-shift activity) and working schedules (e.g., working time frame) within the limits provided by the law.

The right to schedule working hours is assigned to the employer, but it can also be delegated to the employee, known as a flexible work schedule.

  1. Teleworking

As a result of COVID, teleworking, or a hybrid version thereof, has also become widespread in Hungary. According to Hungarian law, teleworking is when the employee works partly or at all time at a location separate from the employer’s premises.

Teleworking must be agreed in the employment agreement, i.e. the consent of the employee is always required, if the employer wishes to introduce or eliminate it. Still, the detailed terms (e.g., the number of office and teleworking days) may be determined unilaterally by the employer.

The rules on teleworking are fundamentally different for jobs involving IT devices (e.g. office workers) and non-computing jobs (e.g. seamstresses, chefs).

  1. Executive employees

An employee is considered to be an executive employee in two major scenarios:

  • by virtue of their position:
    •  the executive(s) of the employer and other employees under their direct authority and authorized to replace them, in whole or in part (e.g. MD, CFO);
  • by agreement of the parties, if
    • the employee holds a position of major importance or a position of a highly confidential nature for the operation of the employer;
    • their basic salary is at least seven times the statutory minimum wage, i.e. HUF 2,035,600 (approx. EUR 5,100) in 2025.

Regarding  executives, the parties may derogate from most of the provisions of the Labour Code, for example, the termination of an executive does not need to be justified in principle (taking into account the fiduciary nature of the position).

  1. Non-compete agreements

Upon agreement of the parties, the employee may not engage in any conduct that would harm or jeopardize the legitimate economic interests of the employer (e.g. working for a competitor, starting a business in a competing activity) for a maximum of 2 years after the termination of employment.

Importantly, a valid and enforceable agreement is conditional on (i) the written agreement of the parties; and (ii) appropriate consideration for the employee in exchange for the restriction.

Proportionate consideration must be assessed on a case-by-case basis. When determining the amount of compensation, the degree of impediment the agreement has on the employee’s ability to find employment elsewhere shall be taken into consideration and tailor-made to the certain employment. However, in general the consideration shall not be less than one third of the basic salary due for the same period as the agreement.

  1. Termination of employment

The employment relationship may terminate automatically (e.g. death of the employee, termination of the employer without successor, expiry of the fixed term), or initiated by the parties, namely by (i) mutual agreement; (ii) termination (with notice period); or (iii) termination with immediate effect.

Upon mutual agreement the parties are free to determine the terms of termination of their employment relationship, notwithstanding the provisions of the Labour Code.

In the case of termination by notice (termination in lieu of notice), the employment relationship is terminated at the end of the notice period. The basic notice period prescribed by law is 30 days, which increases based on the length of service in the case of termination by the employer.

An employment relationship of indefinite term may be terminated by the employee without giving reasons, whereas the employer is obliged to give reasons. The employer may give notice of termination only for reasons related to the employee’s conduct or ability or the employer’s operations.

The employer or the employee may terminate the employment relationship with immediate effect if the other party (i) willfully or by gross negligence, seriously breaches a fundamental obligation arising from the employment relationship, or (ii) otherwise engages in conduct which makes it impossible to continue the employment relationship.

The termination with immediate effect shall be communicated within 15 days of gaining knowledge of the grounds therefor.

  1. Consequences of unlawful termination

The Labour Code provides for sanctions for unlawful termination of employment.

In the case of an unlawful termination by the employee, the employee

  • in the case of an employment contract of indefinite term, shall pay an amount equal to the absentee pay due for the period of the employee’s normal notice period (typically 30 days),
  • in the case of a fixed-term contract, shall pay an amount equal to the absentee pay for the remaining period of the fixed-term contract (but maximum of 3 months).

In the event of unlawful termination of employment by the employer, it must compensate the employee for any damage caused by the unlawful termination (the amount claimed for loss of earnings must not exceed the employee’s 12 months’ absentee pay).

In certain cases (e.g. violation of equal treatment, abuse of rights), the employee may also request the reinstatement of his/her employment relationship, in which case, if the court grants the request, the time spent in the interim period (the period between the unlawful termination and the final court decision) is considered as employment and for that the employee is entitled for renumeration.

  1. Employment of foreigners

Employment of EU nationals is permit-free but may be subject to registration.

Employment of third-country nationals is, as a general rule, subject to permit. There are several types of permits that can be applied, depending on the circumstances of the case to decide which permit is appropriate for the particular third-country national.

  1. Foreign employers

If a foreign company decides to carry out activities/provide services in Hungary, it is advisable to consider the nature of the Hungarian activity (especially with regard to the persons to be employed) at the time of the establishment of the Hungarian company. The conditions of employment – for example: form of employment (e.g., employment / assignment), persons to be employed (e.g., on the basis of nationality), mode of employment (e.g., Home office / office presence) – have a fundamental impact on the employment structure.

  1. Taxation of salaries

Payments received with respect to the employment relationship (typically salary) are generally subject to three main taxes and contributions in Hungary: (1) personal income tax (15%), (2) social contribution tax (13%) and (3) social security contribution (18,5%).

These taxes and contributions are typically deducted (or paid) in advance by the employer, thus the employee receives his/her tax-deducted, i.e., net salary from the employer.

However, there are certain benefits (e.g. some cafeteria benefits or the newly introduced housing allowance) that are taxed more favourably, and there are also employees who may qualify for tax relief under certain conditions (e.g. based on age, family status).

https://globallawexperts.com/doing-business-in-hungary-from-employment-law-viewpoint-2/

 

 

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