Hungary: Consultation duties in event of collective redundancy

The Labour Code, which entered into force in 2012, amended employers' consultation duties in the event of a collective redundancy. When the code entered into force, this change seemed technical and went somewhat unnoticed among other more significant changes. However, the change is important, as it simplifies employers' consultation duties in the absence of employee representative bodies. Simultaneously, the new rule's compliance with EU law has raised questions around how employers should act.

Previous regulations: ad hoc consultation committee

The previous Labour Code 1992 prescribed that employers planning to carry out collective redundancies had to initiate consultations with a works council or, in the absence of a works council, with a committee established together with the local trade union branch (if any) and the workers' representatives. The consultation had to:

• commence at least 15 days before the final decision on the collective redundancy was made; and
   
• continue until a decision was adopted or an agreement was reached.

The consequence of this rule was that employers without a works council or which were operating where there was no local trade union branch had to ask their employees to form ad hoc consultation committees in order to consult on:

• the planned redundancy;
   
• its consequences; and
   
• its effects on personnel.

As the establishment of a works council has long been regarded as the right of employees rather than the obligation of employers, many employers that would have been required to operate a works council under the Labour Code (due to their headcount) did not elect such a council.

Thus, employers without a works council faced an additional administrative burden when planning a redundancy: the establishment of an ad hoc consultation committee. The establishment of such a committee was not only time consuming, but also resulted in employers having to reveal their restructuring plans earlier than necessary or originally planned.

Existing regulations: consultation with works council

With the entry into force of the existing Labour Code, the above rule was abolished. The existing rule concerning consultation duties states that an employer must initiate consultations with a works council if it plans to carry out a collective redundancy.

This rule contains no reference to consultation with the local trade union branch or any other employee representative body, nor does it set out any obligation for the employer to establish an ad hoc consultation committee or otherwise consult with its employees if no works council exists.

The labour supervision authorities' official interpretation supports this simple interpretation of the law (ie, that if there is no works council, the employer is not obliged to consult). As a result, employers without a works council may skip the consultation phase.

This is relatively good news for employers without a works council, as they do not have to consult before implementing a collective redundancy. However, is such a solution in line with the EU Collective Redundancies Directive (98/59/EC)?

Compliance with EU law: to consult or not to consult?

The directive provides that before conducting a collective redundancy, employers must consult with the workers' representatives. The term 'workers' representatives' means the representatives defined as such by the member state's laws or practices.

The Labour Code's explanation states that the existing rule of the Labour Code complies with the directive, given that the rule defines 'workers' representatives' as comprising only works councils and no other organs. Consequently, if no works council operates at the employer's workplace, there are no workers' representatives and thus no one to consult with.

However, some commentators consider that the rule introduced by the existing Labour Code is not in line with the aim and principles of the directive's regulations – namely, that employee representatives are consulted before a collective redundancy is undertaken. Instead, they propose that the abolished rule of the previous Labour Code be applied to provide employees the opportunity to consult through an ad hoc committee or in another way.

Comment

Due to the local authorities' strict interpretation of the Labour Code, the risk of avoiding consultation in the absence of a works council is low. However, should an employee seek remedy in front of an EU tribunal and claim that the Hungarian rule does not comply with the directive, the outcome is unknown. For this reason, it may be advisable to undertake an ad hoc consultation process when planning a redundancy even if there is no works council and therefore no explicit legal obligation to do so.

This article was first published on www.internationallawoffice.com