Hungary: Conflicts of interest in employment relationships

Depending on the circumstances, the conflict may constitute a severe violation of the employee's employment terms and can be punished appropriately. In other cases, a conflict may arise that is not the employee's fault, which can therefore be appropriately rectified without penalties. Thus, employers must act with care when identifying how to address such situations.

This update summarises the legal aspects of a conflict of interest under Hungarian employment law and examines some legal measures that can be taken to address them.

Legal regulations

Neither the Labour Code nor other employment-related regulations define the concept of a 'conflict of interest'. However, the Labour Code's general principles contain a rule which prohibits employees from engaging in conduct which could jeopardise their employer's rightful economic interests.

Further, the Labour Code stipulates that, employees cannot, even outside their paid working hours, engage in any conduct that – with a view to their job or their position in the employer's hierarchy – could directly and factually damage:

• their employer's reputation;
• its legitimate economic interests; or
• the purpose of their employment relationship.

Another general rule stipulates that employees cannot exercise the right to express their opinion in a way that would cause serious harm or damage to their employer's reputation or its rightful economic or organisational interests.

These are important employee obligations and will serve as a basis for examining each situation that may arise.

Examples

Secondary jobs

The most typical example of a possible conflict of interest is when an employee obtains a secondary job. This possibility is not excluded by law – in principle, employees may take on secondary jobs if the two jobs do not interfere with or result in a violation of the original employer's interests.

In an attempt to avoid potential conflicting situations, employers usually restrict the possibility of their employees taking on secondary jobs by:

• excluding this possibility in their employment contracts; or
• allowing it only after the employer's prior consent has been obtained.

A conflict of interest can typically arise if the two employers pursue the same or similar activities. The same applies if an employee works as a freelancer or establishes his or her own business with a similar activity.

An employee who takes on a secondary job as an employee or freelancer within the same sector and thereby pursues a competing activity with his or her employer will be considered to have severely violated his or her employment terms. In such cases, the employer may terminate the employment relationship with immediate effect. Court practice is usually strict and approves dismissal with immediate effect in such cases.

Secondary jobs sometimes do not interfere with an employee's original employment, but merely disturb his or her performance of the original role's duties (ie, because the employee cannot get sufficient rest and thus cannot perform his or her tasks properly). These cases do not create a competing situation or a conflict of interest, so employers should act carefully when considering the appropriate penalties. In such cases, the employer may prohibit the secondary job or give the employee a warning, but a dismissal with immediate effect would most likely be regarded as disproportionate.

Conflict of interest for personal reasons

Such situation could typically occur when an employee enters into a hierarchical relationship with a person with whom he or she has a personal connection or relationship outside the workplace (eg, a family member, close friend or spouse). Such situations must be treated with a high level of care. Court practice does not usually consider that these persons could not behave objectively with each other in the context of their employment or that they would automatically misuse this position. However, employers may take organisational measures (ie, relocate one of the employees to another department) to avoid unwanted consequences.

Such a situation may sometimes occur without the employer's knowledge, which may raise questions about the limits of the employees' right to privacy and their duty to inform the employer about circumstances that may influence the performance of their employment duties.

Conflict of interest for political reasons

Although the freedom of thought and political views are constitutional rights, they may, in certain cases, violate the employer's economic interests if an employee joins a political party. This may result in a conflict of interest in the case of employers that must remain objective and cannot avoid the appearance of being linked to a political party.

Addressing conflicts of interest

As explained above, it is impossible to give a detailed overview of all situations which may result in an employee conflict of interest. The above examples highlight certain aspects and show that the protection of an employer's rightful economic interest may sometimes collide with employees' freedoms or constitutional rights. However, limiting that freedom is not prohibited, especially when the holder of those rights enters into a contractual relationship at his or her free will.

Employers must act with care when limiting such rights and are advised to implement measures aimed at preventing conflicting situations (ie, to prescribe reporting or notification duties to employees). If an employee reports a situation from which a conflict of interest may arise, the employer is in a position to take measures. An employee's violation of a notification obligation may support the employer's position in the case of a subsequent dispute.

Notification obligations or other rules may also be prescribed by the employer in internal policies. A detailed internal policy or code of conduct can be useful for setting clear guidelines as to how to avoid and resolve conflicts of interest. The legislation supports such practice, as the Labour Code acknowledges that employers' internal policies are sources of binding rules in an employment relationship.

This article was edited and first published on www.internationallawoffice.com