THE ROAD TO FLEXIBILITY?

LESSONS FROM THE NEW 1e PROEF HUNGARIAN LABOUR CODE

T"-/3 G678":/#'* and N'%;8&<< H=3** Abstract

As a result of a general revision, a new Labour Code entered into force on 1 July 2012 in . One of the determining objectives of the recent reform was ‘€ exibilisation’, and ensuring that regulation by labour law should be kept to a minimum.  e new rules increased the contractual freedom of parties, and particularly the role of collective agreements in the regulation of employment relationships. While maintaining the basic structure of Hungarian labour law, the new Labour Code introduced conceptual changes in several key areas, such as the termination of employment relationships, liability for damages and collective rights.  ese changes were justi‚ ed by the government on the grounds that the current labour law regulation was too rigid and that did not re€ ect the private law foundations of this ‚ eld of law suƒ ciently.  e article puts this statement under critical review and gives an overview of the most important elements of the labour law reform. In particular, a„ er a short introduction we will examine what changes the new Labour Code introduced in the hierarchy of legal sources, and what attempts were made to extend the scope of the Labour Code to other forms of employment. Further, we will analyse to what extent the changes introduced by the new Labour Code modi‚ ed the balance between the interests of employees and employers. Finally, we will also give an overview of the relationship between the new Labour Code and EU labour law.

Keywords: collective rights; D exicurity; implementation of EU Directives; legal sources of labour law; New Hungarian Labour Code; scope of the Labour Code

* Tamás Gyulavári, Lecturer, Pázmány Péter Catholic University, Labour Law Department; [email protected]. Z is article was published in the framework of TÁMOP No. 4.2.1.B- 11/2/KMR-2011–0002. project (furthering scientih c research at the PPKE) of the Pázmány Péter Catholic University. ** Nikolett Hős, Lecturer, Pázmány Péter Catholic University, Labour Law Department; hos.nikolett@ jak.ppke.hu, Z is article was published in the framework of TÁMOP No. 4.2.1.B-11/2/KMR-2011– 0002. project (furthering scientih c research at the PPKE) of the Pázmány Péter Catholic University.

European Labour Law Journal, Volume 4 (2012), No. 4 253 Tamás Gyulavári and Nikolett Hős

1. BACKGROUND AND OBJECTIVES OF THE LABOUR LAW REFORM: THE MOST FLEXIBLE LABOUR MARKET IN THE WORLD?

- ere was only sixth months between the publishing of the 7 rst dra8 and the adoption of the 7 nal proposal of the new Labour Code by Parliament in December 2011. - e government published the 7 rst consultation document, the ’Hungarian Work Plan’ (Magyar Munkaterv ), in June 2011. - is was an important document because it set the context of the revision of Act No. XXII of 1992 (1992 Labour Code or 1992 LC). - e 1e PROEF 1e 1992 Labour Code, passed shortly a8 er political change, was the third labour code, following the ‘socialist’ Acts of 1951 and 1967. However, the original text of the 1992 LC has been amended over 50 times in the past 20 years. Several amendments were adopted concerned labour law harmonisation, which encouraged the legislature to rethink the regulatory concepts of some labour law rules, however for a long time, a general revision of the Labour Code could not been realised. - e Hungarian Work Plan envisaged several measures to increase labour market W exibility and the employment rate in Hungary; among these measures it proposed the adoption of a new Labour Code. - e document pointed to the extraordinarily low Hungarian employment rate as one of the most critical problems aZ ecting the Hungarian economy. - e employment rate was 55.4% in 2010, the second lowest in the EU a8 er Malta (EU average 64.6%), and far oZ the targets of the Strategy (70 and 75%). 1 According to the Hungarian Work Plan, one of the causes of this low employment rate was that stringent labour law rules prevented employers to employ workers in employment relationships under the scope of the Labour Code. - erefore, rigid labour provisions were supposed to be the main cause of the low employment rate, and also of illegal forms of employment. 2 Among the most problematic areas, the document pointed to the stringent labour provisions on the termination of employment, working time, wages and the place of work. 3 - e government document referred to the development of a ‘Hungarian W exicurity model’, in which W exibilisation of labour law would be only one pillar. 4 With a mere general statement, it asserted that W exible labour law must be supplemented with a new type of security: rather than promoting job security, employment security should be promoted, thus increasing the adaptability of employees to the changing needs of the labour market and supporting labour market transitions. 5 However, taking only

1 Hungarian Work Plan, p. 9. 2 As note 5, above, p. 44. 3 As note 5, above, pp. 44–45. 4 As note 5, above, pp. 23–26. 5 As note 5, above, p. 38. - is is similar to what the Green Paper on modernising labour law highlighted – that ‘adopting a lifecycle approach to work may require shi8 ing from the concern to protect particular jobs to a framework of support for employment security including social support and

254 Intersentia e Road to Flexibility? the reforms made to the Labour Code, 6 the new policy of the Hungarian government is based on the 8 exibilisation of labour law, but the security measures increasing adaptability of employees have been neglected. us, the Hungarian model is a 8 exibility model rather than a 8 exicurity one. On the basis of the National Work Plan, the government prepared two Dra; s

between July and October 2011, and a few months later Parliament adopted Act No. 1e PROEF I of 2012 on the new Labour Code (the new Labour Code or new LC). 7 erefore, only one year passed between the publishing of the < rst proposal and the coming into e= ect of the new Labour Code, which is a very short period, bearing in mind the importance and general impact of this Act. 8 Beyond employment 8 exibility, the legislature also had other objectives, such as the simpli< cation of the existing regulation, developing new rules on the basis of the case law of the labour courts, and < ghting illegal forms of employment. Nevertheless, the main stream of the reform was the 8 exibilisation of employment protection, in order to increase the employment rate by promoting competitiveness of employers. is strategy contrasts with studies, which show that in fact the Hungarian Labour Code is quite 8 exible when compared internationally. 9 In spite of this, the government declared that the Hungarian labour market shall be ‘one of the most 8 exible in the world,’ 10 a policy that will result in one million new jobs by 2020. 11 is government target is similar to the Lisbon target (70%), however it seems to be even more radical. It is impossible to predict whether the new 8 exible rules on working time, liability for damages and the termination of employment etc. will generate hundreds of thousands of new jobs, although it may be a successful element in regional competition for foreign investment (e.g. with Slovakia and Poland).

2. RESHUFFLING THE LEGAL SOURCES OF THE EMPLOYMENT RELATIONSHIP

e most important pillar of the reform is the complete reorganisation of the hierarchy of labour law sources, and at the same time the approximation of the Labour Code to the Civil Code. It is a fundamental change, which leads us back to the period before

active measures to assist workers during periods of transition’ (European Commission: Green Paper – Modernising labour law to meet the challenges of the 21 century. COM (2006) 0708 < nal, p. 10). 6 is paper does not deal with the proposals concerning active labour market measures. 7 e new Labour Code was passed on 13 December 2011 and it came into e= ect on 1 July 2012. 8 In fact, Parliament adopted the new Act with some delay, since according to the original plans the new Labour Code should have come into e= ect on the 1 of January 2012. 9 Cazes, S. – Nesporova, A., : a relevant approach in central and Eastern Europe, Ilo, Geneva, 2007, p. 147; Wallace, C., Work Flexibility in Eight European Countries: A Cross-national Comparison, Czech Sociological Review , 2003, Vol. 39, No. 6. 10 As note 5, above, p. 4; the Prime Minister’s lecture (http://index.hu/belfold/2012/04/23/). 11 Government Programme 2010 ( Nemzeti Megújulás Programja ), p. 18 (www.kormany.hu).

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the Second World War, when the regulation of employment was an integral part of civil (private) law, 12 as in other European legal systems. 6 e socialist labour legislation (1948–1990) broke away from this tradition and treated the Labour Code as a natural element of public law. Evidently, the political change brought about a gradual shi< back towards the legal traditions of private law, a process started with the cautious 1992 LC and completed with the new Labour Code. 6 e main consequence of this conceptual change is the enhanced role of contractual sources of labour law, above all collective agreements (collective autonomy), but also the agreement of the parties. 6 e rigidity of labour law has been linked to the weak regulatory function of

1e PROEF 1e collective agreements in the last two decades in Hungary. 6 erefore, one of the main objectives of the new Labour Code was to enhance the role of collective agreements in the regulation of employment relationships. 13 6 is conceptual change was necessary because the objectives of the 1992 Labour Code were only partially realised in legal practice over the last 20 years. 14 6 e 1992 Labour Code intended to introduce an essentially private law based regulation of employment relationships, thus it laid down minimum standards, and other rules might have been regulated by collective agreements, which were more favourable to employees. However, as the legislature expected that it would take time as long as collective agreements both at workplace level and sector level developed, it also introduced dispositive rules into the Labour Code, from which the parties could derogate in favour, and exceptionally, to the detriment, of the interest of the employees. However, collective agreements still do not play a signiA cant role in the regulation of employment relationships. 15 According to data from 2009, only 33.9% (901,500 persons) of all employees (2,656,000 people) were covered by collective agreements. In other words, approximately 2/3 of Hungarian employees are not covered by any collective agreement. 6 is rate is very low compared to the EU bargaining coverage rate of 66%, thus, in contrast to the Hungarian A gures, 2/3 of all EU employees are covered by a collective agreement. 16 Although the scope of collective agreements may also be extended to an entire sector of the economy, only 8.6% of Hungarian employees are covered by such sector level agreements. Research carried out on this subject has pointed to several weaknesses in the content of such collective agreements: most of the collective agreements only repeat the rules of the Labour Code (so-called parrot clauses), 17 and they o< en include illegal and meaningless terms and conditions. 6 is

12 Szladits K. A magyar magánjog vázlata. 2. rész. 4., átdolg. kiad ., , 1935. 234–236. o. 13 As note 5, above, pp. 23–24. 14 KISS Gy. Munkajog a közjog és a magánjog határán – egy új munkajogi politika kialakításának szükségessége. Jogtudományi Közlöny , 2008/2., pp. 70–81. 15 KISS, as note 18, above, pp. 70–73; Radnay J.: Munkajogunk helyzetéről. Gazdaság és Jog 2010/9–10., p. 33. 16 Industrial Relations in Europe 2010, European Commission, 2011, p. 36. 17 Újvári J, A papagájklauzula esete a munkaszerződéssel. In Tanulmányok Dr. Veres József egyetemi tanár 70. születésnapjára. Szeged , 1999. pp. 427–430.

256 Intersentia e Road to Flexibility? is the case in spite of the fact that the Minister has the right to revise the legality of collective agreements in the extension procedure. 18 e low coverage is a decisive characteristic of former socialist states, since the Czech Republic, Poland, Slovakia, Bulgaria, Latvia, Lithuania, etc . have a similar, or even lower : gure. ‘Although before 1990 sector level

bargaining never played an important role in most of the CEE countries and collective 1e PROEF bargaining has always taken place mainly at company level, the central state had an important in= uence on wage setting and coverage rates were high. A> er 1990, in most CEE countries central elements disappeared from the wage-setting process (with the important exception of the minimum wage) and coverage rates declined rapidly.’ 19 ‘Collective bargaining structures and practices remain fragile in Central and Eastern Europe and coverage is low – the average of 43% around the end of the decade is 4 percentage points below that in 2000.’ 20 ere are several further reasons for the weak regulatory function of collective agreements in Hungary. Firstly, mass privatisation hampered the spread of collective agreements. With the closing of the ‘socialist : rm’, which was the basis of trade union activities, trade unions were not strong enough to enforce collective agreements in the years following the regime change. 21 Micro, small and medium sized workplaces became the dominant employers, employing over half of all workers, and in these workplaces the enforcement of the Labour Code were, in general, problematic. 22 Furthermore, in these small : rms it was not feasible to conclude collective agreements due to the lack of trade unions and the strict rules on trade union representativeness, since a high proportion of votes at elections were required from a trade union to have the right to conclude a collective agreement. 23 Secondly, employers were not interested in the conclusion of collective agreements, since there were only a few rules in the 1992 Labour Code from which they could derogate via collective agreements to the detriment of the interest of employees. e main principle of the relationship between the Labour Code and collective agreements was ‘relative dispositivity’, i.e. that collective agreements could derogate from the rules of the 1992 LC only in favour of employees. e lack of the genuine (eT cient) regulatory function of collective agreements was revised by the legislature in two ways: e modi: cations of the Labour Code increased the

18 Kártyás G., Takács G. Pellengér vagy piedesztál? – A kiterjesztett hatályú kollektív szerződések normatani értékelése. Pécsi Munkajogi Közlemények 2011/II. 91–111; Fodor T. G., Nacsa B., Neumann L. Egy és több munkáltatóra kiterjedő hatályú kollektív szerződések összehasonlító elemzése. Országos összegző tanulmány. Kende Ügyvédi Iroda , Budapest, 2008, 17–19; Ungi N. A kollektív szerződések elemzésének tapasztalatai I-II. rész. Munkaügyi Szemle , 2007. január-február . 19 Industrial Relations in Europe 2010, European Commission, 2011, p. 131. 20 Industrial Relations in Europe 2010, European Commission, 2011, p. 36. 21 Laky T., Neumann L., Boda D. A privatizáció foglalkoztatási hatásai , Budapest 2001. 22 Laky T. Az atipikus foglakozásokról . (http://people.mokk.bme.hu/~kornai/laky/Cikk/atipikus.pdf) p. 14. 23 Article 33 of the 1992 LC.

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number of possible derogations from the Act to the detriment of employees. 24 However, these were limited, and individual interventions and did not change the general rule of relative dispositivity (in meius derogation). Moreover, several statutory provisions were adopted to compensate for the lack of collective agreements, for instance, extra payments for night work, overtime, shi6 work etc. beyond the basic wage are statutorily regulated in Hungary, so that the law determines a 7 x rate of the basic wage that must be paid to the worker when he/she works for instance during the night or in shi6 s. According to some authors, this has resulted in a relatively rigid regulation of employment relationships, and the provisions of the Labour Code were not su9 ciently private law based. 25

1e PROEF 1e : e new Labour Code changed the relationship between the statute and collective agreements radically. Firstly, collective agreements may derogate from most of the rules on individual labour law (rules on the employment relationship) to the detriment of employees as well. : e legislature expects this to have a positive e; ect on the number and role of collective agreements, since employers will de7 nitely be interested in concluding such agreements. : e government wants more collective agreements and believes that collective agreements derogating from a minimum rule and providing other bene7 ts instead result in win-win situations for employers and employees, creating incentives for both employers and trade unions to conclude such agreements. Secondly, this conceptual change will strengthen the position of trade unions in collective bargaining, since in exchange for accepting detrimental changes they can demand more favourable conditions in other areas. : irdly, the new ‘so6 ’ criteria on the representativeness of trade unions (10% membership of all employees) may also contribute to an increase in the number of collective agreements. Fourthly, the new Labour Code is expected to increase the role of collective agreements by allowing ‘workplace agreements’ concluded by works councils and employers to also derogate from the rules of the Labour Code. However, workplace agreements will play a subsidiary role, since they may regulate the terms and conditions of employment if there is no collective agreement or any trade union to conclude a collective agreement. Moreover, wage bargaining is excluded from the scope of workplace agreements. : e main objective behind the subsidiary role of workplace agreements is that they can be concluded, in principle, by employers, where the average number of employees exceeds 7 6 y. 26 : us, they may cover mainly medium- sized companies, where at present, collective bargaining hardly exists. However, this is one of the most controversial elements of the new LC for the following reasons: In the course of collective bargaining over terms and conditions of employment, there can be conO ict, whereas the main task of works councils is to cooperate with

24 See, in particular, Act No. XVI. of 2001 on the amendment of the 1992 LC concerning transposition of nine Directives. 25 See, e.g., KISS, as note 18, above, p. 71. 26 : e election of a works council is obligatory, if the number of employees exceeds 7 6 y (Article 236 of the new LC).

258 Intersentia e Road to Flexibility? employers. 27 Work councils cannot organise strikes, and their members cannot support a organised by workers or a trade union in the workplace. 28 e lack of e: ective collective action weakens their bargaining position signi< cantly. 29 In addition, only the Chair of the works council enjoys protection against termination of employment; its members are not protected in this way. 30 Further risk lies in the

possibility of creating ‘yellow’ works councils, the election of which may be ‘initiated’ 1e PROEF by the employer with the mere objective of concluding a workplace agreement in place of the collective agreement, and this may result in unbalanced derogation to the detriment of unorganised employees. All in all, therefore, the new regulatory role of workplace agreements is a dogmatically problematic solution. Beyond collective agreements, the regulatory function of the agreement of the parties has also been strengthened by the new Labour Code. Although the parties’ agreement, particularly the , may derogate merely in meius from the Labour Code and from collective agreements, the new Labour Code also allows such agreements to regulate a greater number of issues in peius than the old Act. For instance, by agreement of the parties, the employer may allocate one-third of the vacation time by the end of the year following the year when due. 31 Taking into account the unequal position of the parties, this kind of new provision entails the risk of abuse by the employer. While the increasing importance of the parties’ agreement is less important than the changing role of collective autonomy, it highlights the expanding emphasis on contractual freedom. In parallel to the growing proportion of large international companies in the Hungarian and regional economy, company statutes, unilateral codes and by-laws have been playing an emerging role in labour law regulation. 32 Interestingly, while the socialist labour legislation contained detailed rules on the regulatory function of company statutes and workplace practice, albeit in an evidently di: erent context, the 1992 LC remained silent on these legal problems. 33 Considering the relevance of soO law instruments in the structure of legal sources of labour law, the new Labour Code 34 contains a laconic article on unilateral company statutes and workplace practice, which declares both of them as a special form of ‘employer’s order’

27 Article 235(1) of the new Labour Code; see also the powers and responsibilities of the works council in Article 262 of the new LC. 28 Article 266 of the new Labour Code. 29 Gyulavári T., ‘ Munkajogi jogforrások’, in Gyulavári T. (szerk.), Munkajog, ELTE Eötvös Kiadó, Budapest, 2012, p. 53. 30 Article 260(3)-(5) of the new Labour Code. 31 Article 123 6) of the new Labour Code. 32 M. Antonio Garcia-Munoz Alhambra, Beryl ter Haar, A. Kun, ‘SoO on the Inside, Hard on the Outside: An Analysis of the Legal Nature of New Forms of ’,  e International Journal of Comparative Labour Law and Industrial Relations , Vol 27, December 2011, Vol. 4. pp. 334–367. 33 Gyulavári T., Kun A., ‘Munkáltatói jogalkotás? A munkáltatói szabályzatok szerpe a munkajogi szabályozásban’, Magyar jog , 2012, március, p. 160; KISS Gy, Munkajog, Osiris, Budapest, 2005, p. 79. 34 Article 17 of the new LC.

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(unilateral legal statement). Apparently, company statutes are not a legal source of labour law. 35 In respect of the deviation from the law or the collective agreement, the new provision remains vague. Principally, company statutes may regulate employment relationships, as long as it is explicitly permitted by a law, collective agreement, or it contains a unilateral commitment by the employer. In spite of this, it is still unclear whether a company statute or a workplace practice may derogate from the Labour Code (in peius, in meius, or both). Notwithstanding, the con6 ict between a company statute and workplace practice is also a legal and practical puzzle (e.g. the termination of employment based on the breach of obligations by the employee). 1e PROEF 1e 3. SCOPE OF THE LABOUR CODE

8 e principles and concepts developed by EU documents on the future of labour law (the principles of the , the Green Paper on the future of labour law, and the Flexicurity Guidelines) played some role in the Hungarian labour law reform. 8 ese documents could have gained particular importance since they highlighted the general problems and trends in the regulation of employment relations in the EU Member States. According to György Kiss, ‘the labour law policy that has emerged on the basis of these EU law documents provided a good opportunity for the renewal of the Hungarian labour law system.’ 36 8 e problems and objectives outlined in these documents have matched those in Hungary and helped to de? ne the general direction and principles of the Hungarian labour law reforms. In particular, the material scope of the Labour Code is a key concept in this respect, providing a good opportunity to extend the protection of labour law to a wider range of the working population. Accordingly, the ? rst proposal of the Labour Code 37 suggested extending the application of a few basic rules of the Labour Code (on minimum wage, holidays, notice of termination of employment, severance pay and liability for damages) to other forms of employment, such as civil (commercial) law relationships aimed at employment (a ‘person similar to an employee’), which in principle do not fall under the scope of the Labour Code. A person similar to an employee was de? ned as a person who works under any other contract than a contract of employment, and whereby:

a) the individual undertakes to perform any work personally, for remuneration, on a regular basis for another person; and b) beyond performing this contract, this person cannot be expected to do any other work for remuneration on a regular basis.

35 Article 13 of the new LC. 36 KISS Gy, A magyar munkajog megújulásának esélye az Európai Unió munkaügyi politikájának tükrében. Pécsi Munkajogi Közlemények , 2008/1, 7–31. 37 See the Hungarian text of the First DraZ of the Labour Code: www.pazmanymunkajog.com/images/? les/docs/2011/MT_2011_juliusi_Tervezet.pdf.

260 Intersentia e Road to Flexibility?

With regard to this last condition, it is notable that the proposal excluded the application of these rules if the income from the contract in question exceeded 500% of the national minimum wage applicable at the time of the performance of the contract. 38 Although the employment relationship (based on a written employment contract)

is still the dominant form of employment in the Hungarian labour market, covering 1e PROEF over 80% of the working population, there is a growing number of ‘workers’ contracting in other forms, especially civil law (mandate or service) contracts. In this way, the legal concept of the ‘person similar to an employee’ could have been a great development in Hungarian labour law, establishing labour law protection for around 15–20% of the working population, 39 but it was later deleted from the draC , surprisingly on the proposal of trade unions. is provision could have prevented, or at least diminished, litigation concerning disguised employment, which is quite common in present court practice. 40 e above described proposal is similar to the concept of the ‘worker’ in the United Kingdom, and the reason for using this extended deG nition of dependent status is to be found in the purpose of the particular statutory provisions to which it applies: ‘ e legislature has in essence taken the view that casual workers who would not necessarily fall within “employee” status should not, for that reason, be denied basic protections which do not depend, for their eP ective functioning, upon the employment relationship in question being regular or long- term.’ 41 At the same time, the material scope of the Labour Code has been notably extended by the wider regulation of ‘old and new’ atypical forms of employment. Part-time and G xed-term contracts were regulated by the socialist Labour Codes, however, part-time employment was rarely used in practice. e harmonised provisions improved the regulation of part-time and G xed-term employment by inserting detailed provisions (e.g. equal treatment), however, the misuse of G xed-term contracts is a widely existing practice and part-time work still barely exists in the labour market. erefore, legal harmonisation did not have much practical eP ect on the low number of part-time workers and the misuse of G xed-term contracts. e detailed regulation of barely existent telework and the increasingly popular temporary agency work is relatively new, and can be considered the positive eP ect of labour law harmonisation on national law. 42 Casual work and working from home have been regulated for decades in separate laws, but they are now integrated into the

38 Article 3 of the G rst proposal of the new LC. 39 Főbb munkaügyi folyamatok 2011 . Központi Statisztikai Hivatal, www.ksh.hu. 40 See the abundant case law on disguised employment: BREZNAY Tibor (ed.), A Munkajog nagy kézikönyve. Complex, Budapest, 2006, pp. 33–43; 7001/2005. (MK 170.) FMM-PM guideline on legal aspects concerning the evaluation of contracts based on employment. 41 Deakin S., Morris G., Labour Law , FiC h Edition, Hart Publishing, 2009, pp. 146–147. 42 Kártyás, G., Munkaerő-kölcsönzés Magyarországon és az Európai Unióban , PhD esis, Budapest, 2011, p. 318.

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Labour Code as special employment relationships. , e real novelties are the three absolutely new atypical forms: on-call work, 43 job sharing, 44 and joint employment. 45 Obviously, the legislature strives for full regulation of employment relationships, which may give stability to the otherwise regularly (too o8 en, even) changing provisions. 46 , e other reason behind this abundance of atypical forms in the new LC is the assumption that these forms may be the main generator of new jobs. According to the National Work Plan, the low Hungarian employment rate is closely connected to the low activity rates among disadvantaged groups of employees on the labour market such as women with small children, young workers, and older workers, thus

1e PROEF 1e workers ; ve years before the pensionable age, and workers whose employability has changed due to accidents, etc. By referring to international experiences, the document points out that the employability of these disadvantaged groups could be improved by the extension of = exible forms of employment. 47 However, some rules on atypical forms of employment, especially with regard to on-call work, job sharing and joint employment, are fairly brief and sketchy. Hungarian legal practice have shown so far, that to date, Hungarian ; rms have been reluctant to use the vaguely regulated new legal institutions, consequently, it is doubtful whether the adoption of these new forms of employment in itself will have the expected eD ect on employment.

4. THE HUNGARIAN PATHWAY TO FLEXIBILITY?

, e central issue of the debate has been whether the new rules diminish the protection of employees – a matter that was even analysed by the International Labour OM ce in the light of ILO Conventions. 48 It is always hard to assess such a complex question in the case of a text changing about half of the former Code. However, our short answer for this question is positive, since the majority of the modi; ed provisions are bene; cial to employers. , e new chapters on working time and wages provide many obvious examples of how what at ; rst appear to be minor amendments may substantially aD ect working conditions. For instance, the former compulsory wage supplement for a8 ernoon shi8 work was removed from the Code, which may reduce the generally low salaries (the national gross average is about 700 ) in large companies using shi8 workers. Moreover, by agreement of the parties, the basic wage may include most of the wage supplements provided by the Labour Code. 49 , e collective agreement or

43 Article 193 of the new LC. 44 Article 194 of the new LC. 45 Article 195 of the new LC. 46 For instance, there were two new Acts on Casual work in 2009 and 2010. 47 Hungarian Work Plan, pp. 11–12. 48 Memorandum of Technical Comments on the Dra8 Labour Code of Hungary. International Labour OM ce, November 2011 (www.szakszervezetek.hu). 49 Article 145 of the Labour Code.

262 Intersentia e Road to Flexibility? the parties’ agreement may of course contain such a payment, however, the inclusion of an ‘extra payment clause’ is rather unlikely in many workplaces due to the weak bargaining power of workers, the lack of trade unions, and the di: cult labour market situation (high unemployment). Certainly, there are many similar changes that erase former ‘acquired employee rights’ – amendments = ercely opposed by trade unions

during the debate. ere are also a few examples of increased protection for employees, 1e PROEF for example, they are entitled to 45 minutes rest time a@ er 9 hours of work instead of the former 40 minutes. 50 Beyond the above-mentioned ‘technical’ modi= cations, the following three = elds where conceptual changes have worsened the protection of employees must be emphasised,: unlawful dismissal, employer’s liability for damages, and collective rights. It is important to state that the regulation of the termination of employment has remained basically unchanged, and has, rather, been simpli= ed. All in all, therefore, the termination of employment by the employer has not become easier. Nevertheless, the legal consequences of wrongful termination by the employer have been signi= cantly mitigated, thus, in certain cases an unfair dismissal may be even cheaper for the employer than the continuation of employment (e.g. the lack of lost wage). According to the new rules, compensation for the loss of income from employment payable to the employee may not exceed twelve months’ absentee pay. 51 Formerly, the employee was entitled to payment between the dates of the termination of employment and the decision of the court, beyond an extra payment of 2–12 months’ salary or reinstatement of the job. It is beyond question that the old system was not fair to employers’. In the case of wrongful termination by the employer, they had to pay the employee’s salary between the date of the termination of the employment relationship and the = nal decision of the court. In the case that the court proceedings lasted for 3 or 4 years, the employee was entitled to receive quite a signi= cant income in this way. Moreover, the employee was not obliged to mitigate the cost to the employer by searching for a new job in this period. Even if this system was justi= ed by deterring employers from breaching the rules on the termination of the employment relationship, it was not fair because it punished employers for the duration of court proceedings. e new rules put less emphasis on punishing the employer, and more on recovering the damages of the employee in the case of a wrongful dismissal. However, by limiting the compensation for a loss of income to a maximum of twelve months’ absentee pay with a very limited option to restore the employment relationship, it is questionable whether this new framework for wrongful dismissals does not mean throwing the legislative baby out with the bathwater. e second conceptual change concerns the liability for damages. e proposals of the Hungarian Work Plan were much more radical in this = eld than the adopted Labour Code, since the Hungarian Work Plan proposed, originally, to introduce

50 Article 103 of the Labour Code. 51 Article 82 of the Labour Code.

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the full liability of employees for damages caused to employers. Finally, the adopted Labour Code introduced minor changes concerning the liability of employees, including a higher maximum amount of compensation (4 months salary instead of the former half month) payable to the employer in the case of slight negligence, and liability for the full extent of losses in the case of grave negligence (instead of the former half month). Moreover, the parties may agree in writing that employees in certain positions (e.g. cashiers) must pay a guarantee of one month’s base salary to the employer, which may be used only for satisfying compensation claims. 52 7 e latter amendment in particular was 8 ercely opposed by trade unions, as it put an extra

1e PROEF 1e burden on this low-income group of employees. However, more radical changes were introduced regarding the employer’s liability for damages. Although the former general rule of objective liability – whereby the employer is liable to pay compensation for damages caused in connection with an employment relationship – was retained, the new exemption clauses have restricted this liability remarkably. 7 e employer shall be relieved of their liability if they are able to prove: a) that the damage occurred as a result of unforeseen circumstances beyond their control, and there had been no reasonable cause to take action for preventing or mitigating the damage; or b) that the damage was caused solely by the unavoidable conduct of the aggrieved party. 53 Consequently, the former objective liability has been retained on the surface, however, the whole system has shi@ ed towards liability based on fault. 7 e reason behind this conceptual change is the will to restrict the almost absolute liability of employers, which was clearly established by court case law based on the provisions of the 1992 LC. 54 However, the ILO recommended retaining the wording of the 1992 LC, since ILO standards do not recognise such elements of force majeure as an acceptable ground for refusing employment injury compensation: ‘With the exception of some limitative enumerated cases, ILO instruments aim at ensuring that employment injuries should be compensated with no fault imputed to either side, and compensation shall be provided without any question being raised as to whether the injury was attributable to fault on the part of the employer, the employee or any third party.’ 55 7 irdly, there have also been signi8 cant changes to collective labour law. Hungary has traditionally had a dual system of industrial relations, thus both works councils and trade unions can be organised and can represent employees interests. Traditionally, trade unions are a separate organisation to the employer: they are a form of NGO. Trade unions have legal personality, thus, they can above all own property and they can represent their members in court proceedings by a mandate. Works councils do

52 Article 189 of the new Labour Code. 53 Article 166 of the new Labour Code. 54 Kun, A., ‘A munkáltató kártérítési felelőssége’, in Gyulavári, T. (szerk.), Munkajog, ELTE Eötvös Kiadó, Budapest, 2012, p. 383. 55 Memorandum of Technical Comments on the Dra@ Labour Code of Hungary, International Labour O\ ce, November 2011 (www.szakszervezetek.hu), p. 11.

264 Intersentia e Road to Flexibility? not have a legal personality – they are part of the employers’ organisation, and in this way, they represent directly the employees’ interests in the workplace and participate in the decision-making of the employer. According to the Labour Code, a works council shall be elected if the average number of employees working for the employer or in the employer’s independent establishment or division is greater than < = y. 56

e new Labour Code has introduced several changes regarding the powers of 1e PROEF workers’ representatives. One of the most interesting questions is how these changes will modify (if at all) the relationship and the position between trade unions and works councils. e < rst proposal of the new Labour Code would have diminished and restricted the rights of trade unions (e.g. the protection of trade union o? cials, shorter working time reductions) even more radically, but the government signed an agreement with a few of the national trade union associations just before the adoption of the Act by Parliament, which considerably extended trade union rights in comparison with the original proposal. e < nal version of the new LC mostly retains the rights of trade unions, nevertheless, there are several changes which apparently favour works councils over trade unions (see below). However, if we take into account the powers of trade unions and their position in collective bargaining, we can still conclude that trade unions will remain the strongest form of worker representation in Hungary. Works councils still ensure the participation of employees in the decision-making of the employer. e employer is obliged to inform the works council of its most important decisions, and the works council shall be consulted prior to the employer making a decision in respect of any plans for action or the adoption of regulations aD ecting a large number of employees (restructuring, changes in technology, redundancies, etc.). e position of works councils is strengthened in two respects in the new LC: First, works councils and not trade unions shall monitor compliance with the provisions of employment regulations in the future. is is, however, only a ‘right to monitoring’, since in the case that the works council detects a violation of the law, it does not have any power to enforce it against the employer. Second, in the case of transfer of undertakings, it is the works council whom the employer must inform, and with whom they have to start consultation. In the 1992 LC, the works council had this right only if there was no trade union in the workplace. On the other hand, the position of works councils was also weakened as of 1 July 2012. According to the 1992 Labour Code, if the employer failed to consult the works council, the decision was null and void. According to the new Labour Code, there are no eD ective sanctions if the employer fails to comply with the co-decision rights of the works council or if they fail to consult the works council. At the same time, the position of works councils has obviously been strengthened by the fact that they can conclude workplace agreements if there is no collective agreement in the workplace.

56 Article 236(1) of the new Labour Code. In workplaces of less than 51 employees but more than 15 employees, a shop steward shall be elected.

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* us, the works council can bargain with the employer over longer reference periods, shorter rest periods, etc. It is only wage bargaining that is excluded from the scope of workplace agreements. * e position of works councils is strengthened not so much by extra rights in the Labour Code, but by the fact that they can enter into collective bargaining with the employer. Although, as we pointed out in Section II, this may be a dogmatically doubtful solution. * e new Labour Code diminishes the rights of trade unions in three respects: Firstly, the legal protection against the termination of employment is not provided for every o4 cer of the trade union (as in the 1992 LC), but only for a minimum of 2 and 57 1e PROEF 1e a maximum of 6 o4 cers (depending on the number of employees in the workplace). Secondly, the employees designated by the trade union are entitled to a shorter working time reduction – this is one hour for every second member of the trade union. 58 In this way, if the trade union has 200 members working for the employer, its members are entitled to 100 extra hours/month. 59 * irdly, this working time reduction cannot be redeemed by the employer if the trade unions are not using this extra working time. 60 Contrary to this, the 1992 Act allowed half of the extra working time to be redeemed if the trade union members were not using it.61 Since redeeming working time reductions was the main source of income for trade unions, this is a very painful and fundamental change for trade unions. Despite these restrictions, the position of trade unions is strengthened by the changing role of collective agreements in the regulation of employment relations. According to the new rules, trade unions can derogate from most of the rules of the Labour Code to the detriment of employees. In this way, trade unions will gain a strong bargaining position against employers, and their responsibility is also greater in respect of the result of such bargaining. 62 It is, nevertheless, still an open question as to whether the reform will actually strengthen the role of trade unions by increasing the use of collective agreements.

5. IMPLEMENTATION OF EU LABOUR LAW

* e implementation of the labour law Directives was accomplished in three waves (in 1997, 2001 and 2003) in Hungary and in the form of so-called ‘package legislation’, so that several Directives were implemented at the same time. 63 * us, the approximation

57 Article 273 of the new LC. 58 In the 1992 Labour Code, this was 2 hours for every third member of the trade union. 59 Article 274 of the new LC. 60 Article 273 of the new LC. 61 Article 25 of the 1992 LC. 62 www.hrblog.hu/azujmt/2012/01/27/uzemi-tanacs-kontra-szakszervezet-ki-az-erosebb-1-resz-2/. 63 For instance, Act No. XVI of 2001 transposed nine Directives in the Hungarian Labour Code, including the Posting of Workers Directive, the Working Time Directive, as well the Directive on the European Works Council.

266 Intersentia e Road to Flexibility? process started in 1997 64 and the 3 nal steps were taken in 2003. 65 Legal harmonisation was continuous since the accession of Hungary to the EU. Nevertheless, the general review of the Labour Code concerned several rules implementing EU law. Taking this into account, the European Commission initiated a general examination of the new Labour Code in light of EU labour law Directives. Following consultations with the

Commission, the Parliament adopted changes to the new Labour Code before it took 1e PROEF into e; ect on the 1 of July 2012. In the following paragraphs, we will highlight the most interesting elements of the new LC concerning the implementation of EU labour law rules. One of the aims of the legislature was to review national rules implementing EU law, and where possible, bring national law closer to the Directives’ minimum standards. One of the main regulatory principles of European labour law Directives is that they only lay down minimum standards – a @ oor of rights from which there may be no downward derogation, but upon which it is possible to improve. 66 One of the results of growing economic interdependence of national legislation, particularly in such developed regional economic integration projects as the internal market, is that national legal systems cannot develop in isolation from each other. is @ oor of rights model deliberately retains di; erences in the regulation of national labour laws, in order to enhance legal experimentalism and a dynamic evolution of national legal systems. National legislatures that are increasingly economically interdependent can observe each other and can emulate practices to which they are closely related by trade or by institutional connections. 67 e prerequisite of such legal experimentalism is that legal diversity should be maintained in the EU, therefore full harmonisation or the creation of a static level playing 3 eld has never been the objective of European legislation in labour law. One of the criticisms of this @ oor of rights model is, however, that in the case Member States that may not have suG cient incentives to regulatory learning and experimentalism, this system can lead to a convergence of national laws around the abstractly de3 ned minimum standard. is last point is important in light of the objectives of the legislature concerning the new Labour Code. One of the declared aims of the labour law reform was that the rules of the Labour Code should be as @ exible as possible, and they should only lay down minimum standards where possible. In order to achieve this goal, the legislature also objected to reviewing already harmonised national law to assess whether it could be made more @ exible and brought closer to the minimum requirements of the Directives. is also re@ ects the aim of the legislature to ensure that labour law rules

64 Act No. LI of 1997. 65 Act No. XX of 2003. 66 Deakin, S., ‘Labour Law as Market Regulation: the Economic Foundations of European Social Policy’, in Davies, P., Sciarra, S. and Simitis S. (eds.), European Community Labour Law: Principles and Perspectives , Oxford, Clarendon Press, 1996, p. 78. 67 Deakin, S. and Wilkinson, F., ‘Rights v EG ciency? e Economic case for Transnational Labour Standards’, Industrial Law Journal , 1994/23, pp. 289–310.

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should not create unnecessary burdens for employers, and that regulation should provide more possibilities for private law regulation. One example is the changes introduced in the rules on consultations with workers’ representatives in the case of collective redundancies. According to the new Labour Code, where an employer is contemplating collective redundancies, he/she shall begin bargaining with works councils. Such bargaining should be carried out until an agreement is reached between the parties, and at least for 15 days. 68 Consequently, if there is no works council, the employer does not have to comply with the consultation obligations of the Directive. In order to avoid such

1e PROEF 1e a situation, the rules of the 1992 Labour Code established a three-stage system for workers’ representatives for the purposes of consultation. : e employer had to begin negotiations with works councils, and if there were no works councils, with representative trade unions or with an ad hoc committee of employees. : is system ensured that employers could not avoid the application of the Directive if there was no works council in the workplace. : e Directive refers to national law on the de; nition of ‘workers’’ representatives, 69 therefore the new rule provides formal compliance but a less e= ective implementation of the Directive. : is provision is in contrast with the similar consultation provisions on the transfer of undertakings, where the legislature prescribes direct consultation with workers’ representatives if there is no works council in the workplace. It is notable that the original dra> of the new LC suggested introducing a provision whereby the employer has to consult an ad hoc committee of employees in the case of collective redundancies if there is no works council in the workplace. On the other hand, it is also questionable whether national law in this way provides full compliance with the Directive. : e Directive does not require Member States to provide a speci; c mechanism for worker representation merely in order to comply with the requirements of the Directive where an undertaking has no workers’ representatives by virtue of national law. However, as the Court of Justice has pointed out in the Commission v UK case, the combined e= ect of Articles 2, 3 and 6 of the Directive is that Member States have to take all measures necessary to ensure that workers are informed, consulted, and are in a position to intervene through their representatives in the event of collective redundancies. 70 As it was pointed out in Section II of this article, in order to enhance the role of collective agreements in the regulation of employment relationships, the new Labour Code introduced radical changes into the relationship between the statute and collective agreements. Above all, collective agreements may derogate from most

68 Article 72 of the new LC. 69 According to Article 2(1) of the Directive 98/59/EC, where an employer is contemplating collective redundancies, he shall comence consultations with the workers’ representatives. : e term ‘workers’ representatives’ means the workers’ representatives provided for by the laws or practices of the Member States (Article 1(1)b). 70 C-383/92 Commission v UK [1994] ECR I-2479, para. 23.

268 Intersentia e Road to Flexibility? of the rules on employment relationships to the detriment of employees. Although the new LC allows derogations from those rules of the Code implementing EU law in favour of employees’ interests, there are cases where this can be problematic. For instance, collective agreements may derogate from several rules of the Labour Code implementing the rules of the Working Time Directive (Directive 2003/88/EC). 71

For instance, Articles 104 and 105 are implementing the rules of the Working Time 1e PROEF Directive on minimum rest periods. According to these rules, employees shall be a@ orded at least eleven hours of uninterrupted rest aB er the conclusion of daily work and before the beginning of the next day’s work (daily rest period). 72 Furthermore, workers shall be entitled to two rest days in a given week (weekly rest days). 73 is provides formal compliance with Articles 3 and 5 of the Working Time Directive on minimum rest periods. However, the LC allows derogations from these rules without providing ‘equivalent periods of compensatory rest’ for the workers concerned. Even if Article 17(3) of the Directive allows derogations from the rules on minimum rest periods through collective agreements, the workers concerned must be a@ orded ‘equivalent periods of compensatory rest or, in exceptional cases in which it is not possible, for objective reasons, to grant such equivalent periods of compensatory rest, the workers concerned are a@ orded appropriate protection.’ e general rule of the LC that the derogation must be in favour of employees does not provide full compliance with the requirements of the Directive. e new Labour Code also introduced a new general principle of interpretation, stipulateing that ‘the rules of the Labour Code shall be interpreted in accordance with the Hungarian legal system and the law of the .’ 74 e function of such general principles of interpretation is to draw the attention of those applying the rules of the LC to the fact that they have to take into account the context of regulation. Labour law rules should not be interpreted in isolation, but they shall be interpreted in relation to the whole legal system, including the law of the European Union. On the other hand, in this way the legislature aims to avoid the rules of the Labour Code not bieng interpreted in compliance with the general objectives of regulation. is is important, particularly in light of the fact that the impact of EU labour law on Hungarian legislation and legal practice is increasingly signiM cant. us, several provisions of the LC originated in EU law measures. is principle draws the attention of those applying the rules of the LC so that they have to take into account the case law of the European Court of Justice. is is important, for instance, in the interpretation of the rules on the transfer of undertakings, which cannot be interpreted without the well-established case law of the ECJ on the concept of the transfer of undertakings, or an economic entity that retains its identity aB er the transfer.

71 Directive 2003/88/EC on certain aspects of working time, OJ L [2003] 299/9. 72 Article 104(1) of the new LC. 73 Article 105(1) of the new LC. 74 Article 5(1) of the new LC.

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6. CONCLUSIONS

* e issue of the revision of the 1992 Labour Code was raised in 2002, when the government and the social partners concluded an agreement in the National Reconciliation Council (OÉT) about the adoption of a new Labour Code. Besides the political intention, there also emerged a general consensus on the necessity of revision of 1992 Labour Code in legal scholarship. 75 * e general revision of the Labour Code has been on the table for a while, however, previous attempts have failed for several reasons. Firstly, the failure could be explained by the politically sensitive nature of the

1e PROEF 1e issue, and thus the lack of political will to enforce it. Secondly, there was no general consensus or even academic debate about a general regulatory concept. * e new Labour Code, which entered into force on the 20 anniversary of the 1992 LC, i.e. 1 July 2012, amended about half of the text of the 1992 Labour Code and introduced fundamental changes. * e purpose of this article has been to give an overview about the most important elements of the labour law reform. As has been pointed out, the determining principle of the general review was the ‘< exibilization’ of labour law. One of the most contested issues around the new Code is whether, and to what extent, the revision will contribute to ful@ lling the desired employment objectives of the government, i.e. to create 1 million new jobs within 10 years. * e new Labour Code is far from the most < exible labour law in Europe, however the changes that took into eK ect in July mainly favour employers’ interests to the detriment of employees. 76 It is, of course, questionable whether labour law plays such an important role in investment decisions that this reform will be an eK ective instrument for creating more (and especially better) jobs. 77 At the same time, the ’most < exible labour law regulation’ may contribute to the deepening of social inequalities. As a recent OECD report points out, ‘a key challenge for policy, therefore, is to facilitate and encourage access to employment for under-represented groups, such as youths, older workers, women and migrants. * is requires not only new jobs, but jobs that enable people to avoid and escape poverty. Policy reforms that tackle inequalities in the labour market, such as those between standard and non-standard forms of employment, are needed to reduce income inequality.’ 78

75 Radnay, J., Munkajogunk helyzetéről, Gazdaság és Jog, 2010/9–10, p. 36; Prugberger, T., Kritikai észrevételek az új Munka Törvénykönyve koncepciójához, Miskolci Jogi Szemle 2006/1, KISS, as note 18, above pp. 70–82. 76 Gyulavári, T., Hős, N., Kártyás, G., Takács, G., A Munka Törvénykönyve 2012, Kompkonzult, Budapest, 2012. 77 More and better jobs: Patterns of employment expansion in Europe. European Foundation for the Improvement of Living and Working Conditions, 2008. 78 ‘Divided we stand: Why inequality keeps rising. An Overview of Growing Income Inequalities in OECD Countries: Main Findings’, OECD, 2012, p. 41.

270 Intersentia