A Short Guide to Employment Contracts

The following article will give you some useful hints on how to prepare legally and commercially feasible employment contracts under the new Hungarian Labour Code. The actual terms and conditions of an employment contract strongly depend on the employer’s operation, structures, the given position and the parties’ negotiations.

As a general rule, in their employment contract the parties may deviate from most of the rules of the Labour Code (or from a collective bargaining agreement) as long as the change is beneficial to the employee. However, certain rules of the Labour Code expressly prohibit changes. It is also important to keep in mind that the amendment of the contractual terms is only possible with the consent of both parties.

The employment contract must be concluded in writing and must specify certain mandatory terms to be valid. These terms are the parties of the employment, the employee’s gross base salary (not less than the statutory minimum salary) and the position. There are optional terms that need to be expressly stipulated in the contract in order to apply. The most important examples are the following:

If the parties intend to have a part-time employment, this must be expressed in the contract, otherwise it will be deemed to be concluded for fulltime employment. Similarly the fixed-term (maximum 5 years) nature of the employment must also be stated in the contract. The parties might agree on a probationary period (not exceeding 3 months) which is quite common in practice but this also needs to be stipulated in the contract to apply.

In case of contractual senior executive employees, this status must be specifically agreed in the contract if its statutory terms and conditions are met. As a consequence, different rules will apply to the employee in relation to termination, conflict of interest, liability. It is worth noting that in case of senior executives, in the contract the parties may deviate from many rules of the Labour Code even to the detriment of the employee, therefore, there is more room for negotiations.

Although the place of work is not an essential term, it is advisable to specify it in the contract to minimise the risk of dispute. It can be determined as one or more concrete places or by way of reference to a bigger geographical area. Otherwise, the place where work is normally carried out is deemed to be the place of work.

Considering the salary, the parties may agree that the employee’s base salary includes certain allowances (e.g. shift allowance, night work allowance). It is also possible to agree in the contract that instead of allowances a monthly lump sum is provided to the employee.

The scheduling of the working time is the employer’s competence, but it is important to mention that the parties’ agreement is required to apply a break longer than 20 minutes but maximum
60 minutes (e.g. a one-hour lunch break).

Regarding the annual leave the parties may stipulate certain terms and conditions to make the allocation more flexible or stipulating the possibility to allocate certain part of the annual leave in the next calendar year.

If the employer intends to apply disciplinary sanctions, they need to be stipulated in the contract if there is no collective bargaining agreement applicable. In case of the termination rules mostly the general rule applies (i.e. deviation in favour of the employee), but the parties can agree in the contract in longer notice period (maximum 6 months) applicable even in the case of the employee’s regular notice (which would otherwise be 30 days not increasing based on seniority).

It is practical to consider terms and conditions in the contract the purpose of which is to clarify the general principles of employment. Here we can mention the general principle to protect the employer’s economic interests and reputation, the rules on conflict of interest and confidentiality.

Finally, the parties need to agree on certain terms and conditions in their contract in case of atypical employment relationships (e.g. telework, job sharing and employment with multiple employers).