Termination of Employment: What Every Employer Should Know
Labor disputes most often arise in connection with the termination of employment. Many of these disputes could easily be avoided by adhering to a few simple but important rules.
In this post, we outline the steps and key regulatory points that can help ensure a smooth termination process for employees employed under an indefinite-term employment contract through regular dismissal—potentially without the need for legal intervention.
Basic Principles of Labor Law
It’s important to note that one of the legal policy intentions behind labor law regulations is to mitigate the imbalance between employees and employers in favor of the employee. This is achieved through additional regulations imposed on the employer, with the most significant parts of these regulations relating to the termination of employment.
Notice of Termination
The Notice of Termination must always be given to the employee in writing, with the detailed rules contained in Section 24 of the Labor Code. But when is the notice of termination effective? As a general rule, the termination becomes effective when it is handed over to the recipient. If the employee refuses to accept the termination, the employer can document the attempt to deliver it by taking minutes, and in such a case, the termination will be considered delivered.
If we wish to communicate the termination by letter because the employee is not present at the workplace, it’s important to send it by registered mail with a return receipt. Even if the employee refuses to accept the letter, does not collect it from the post office, or moves away from the address known to the employer, the termination will be considered delivered on the 5th working day following the placement of the delivery notice. In a legal dispute, this can be proven by presenting the return receipt of the Post.
Cases of Regular Termination by the Employer
The Labor Code stipulates that the reason for regular termination by the employer must be related to:
- The employee’s conduct related to the employment relationship, vagy
- The employee’s ability, or vagy
- The employer’s operation.
ok lehet. It is important to note that the parties cannot agree otherwise, meaning that none of these categories can be expanded or excluded. In simpler terms, no matter how much we may want to part ways with the employee, we can only do so for a reason that fits into one of the above three categories.
A reason for termination may be if the employee violates generally accepted or workplace-specific behavioral rules. This could include inappropriate communication or behavior that hinders cooperation, whether with colleagues or business partners. It may serve as ground for termination if the employee fails to perform their duties, performs them with many errors or deficiencies, is regularly late, or does not comply with workplace regulations. We may terminate an employee if they fail to follow the employer’s instructions. If an employee learns sensitive information related to the company’s operations and discloses it in any form, this may also be a reason for termination. Termination can also be based on the employee’s behavior outside of working hours, such as inappropriate conduct at a company event.
However, it is important to emphasize that each case, each breach of obligation, and each omission by the employee must be individually assessed to determine whether it truly constitutes grounds for termination. In some cases, unclear or inappropriate employer expectations or instructions may have led to the employee’s error, in which case it may be more appropriate to issue a warning first and only terminate the employment in the event of repeated omissions. In a potential legal dispute, it may be up to the court to determine whether the termination imposed as a disadvantageous consequence by the employer was proportionate to the employee’s omission.
A reason for termination related to the employer’s operation may be if the employer reorganizes the workplace structure, leading to the restructuring or elimination of one or more positions. In such cases, it is not uncommon for certain positions to become redundant because the tasks associated with those positions are reassigned or shared among other employees, leading to the elimination of the employee’s position. In cases of restructuring and position elimination, it is worth noting that in legal disputes, courts do not examine whether the restructuring was indeed necessary for the company’s operation, making this one of the most commonly used reasons for regular termination in Hungary.
As an interesting note, the Labor Code considers it a reason related to the employer’s operation if a third party (the lessee) terminates a labor leasing agreement, and the employee’s work is therefore no longer needed. In this case, the employer engaged in labor leasing will be entitled to terminate the employment contract through regular termination.
Justification of the Termination
Regardless of the reason for termination, it is extremely important—and often not given enough attention or care—that the termination must be accompanied by a clear, factual, and reasonable written justification. In the event of a legal dispute, the employer will be responsible for proving that the content of the communicated termination was clear, factual, and reasonable.
The written termination must include the specific facts and circumstances that led to the termination, and the justification must be worded in such a way that it is clear to the employee why the employer no longer requires their services. General statements, such as the employee’s inappropriate behavior or inadequate performance, are insufficient, as they do not meet the clarity requirement and may result in the termination being deemed unlawful.
The most straightforward requirement for the justification is that the reasons given must be factual, meaning they must be essentially true. However, it is not uncommon for employers to cite reasons in the termination that are not the actual reasons for ending the employment relationship, but rather other reasons that the employer believes would be easier to prove in the event of a lawsuit. However, if the employee challenges such a termination in court and the employer cannot prove that the reason stated in the termination existed (for example, if the stated restructuring was not actually carried out or had no impact on the employee’s employment relationship), or if the employee successfully proves that a different reason led to the termination than the one stated in the termination, the employer will almost certainly lose the case.
Perhaps the most explanation is required for what constitutes the reasonableness of the termination. It is not enough for the reason for termination to be factual if the reason cannot be considered reasonable. The requirement of reasonableness can be summarized as follows: the stated factual reason must be causally related to the termination of the employment relationship, meaning the specific reason stated in the termination must have led to the termination of the employee’s employment. Accordingly, a termination that cites a factual restructuring as the reason will be unlawful if it does not explain how the specific restructuring affected the employee’s employment (for example, if the employee did not work in the position that was restructured or eliminated, according to the justification for the termination). A termination that cites only a drop in the employer’s revenue as the reason but does not address the restructuring that became necessary as a result and affected the employee’s employment does not meet the criterion of reasonableness.
In addition to the above basic statutory criteria, case law has established another requirement for employer terminations: the termination must also be timely. This means that the reason (i.e., the reason stated in the termination) must be communicated to the employee within a reasonable time after it occurs. For example, if the restructuring cited in the termination was carried out six months earlier or is planned to be carried out only six months later, the employer’s action will not be considered timely.
Information on Legal Remedies
Another important additional obligation for the employer is that the written termination, prepared in accordance with the clarity-factuality-reasonableness requirements, must also contain information on legal remedies. This must include details on the deadline and the court before which the employee can file a lawsuit against the company to contest the lawfulness of the termination.
Notice Period and Severance Pay
It’s also important to remember that in the case of regular termination, the employee begins their notice period the day after the termination is communicated. The minimum notice period is thirty days, but this is extended depending on how long the employee has been employed, as specified in Section 69 of the Labor Code. The employee must be released from the obligation to work for at least half of the notice period, although there is no obstacle to releasing a problematic employee from work for the entire notice period if the employer deems it necessary; the employee’s consent is not required for this. The handover of duties, including the training of the employee taking over the tasks, must also take place during the notice period.
Another aspect of the termination process is severance pay. In the case of regular termination by the employer, the employee may be entitled to severance pay, the amount of which is influenced by the length of service with the employer and, in certain cases, the employee’s age (employees are entitled to increased severance pay during the five years preceding the old-age retirement age). However, it is important to note that the employee is not entitled to severance pay if the employer terminates the employment based on the employee’s conduct related to the employment relationship or ability unrelated to health, or if the employee is already classified as a pensioner at the time of termination.
Restrictions on Termination
There are cases in which the Labor Code prohibits or restricts the employer’s right to terminate. The employer cannot give regular termination in cases related to parenthood as specified by the Labor Code. The law also restricts the employer’s right to terminate in cases where the employee is absent from work due to their own or a family member’s illness. In such cases, termination can be communicated, but the notice period does not begin until the end of the incapacity or unpaid leave. The employee’s personal circumstances may also restrict the employer’s right to terminate. For example, in the case of an employee who is not yet classified as a pensioner but is within five years of the old-age retirement age, for a mother or a single father raising a child, and for employees receiving rehabilitation benefits or allowances, the law imposes stricter requirements on the reason for termination and imposes an obligation on the employer to offer a different position if possible.
If There Is a Dispute…
If the employee believes that the termination was unlawful and challenges it in court, they may have an advantage if the employer failed to fully comply with the statutory requirements for communicating the termination. If the employee succeeds in court, they will not only be entitled to receive compensation for damages suffered but may also be entitled to claim lost wages for up to 12 months, which the employer must pay in addition to the severance pay they are entitled to (even if the employee was terminated for their conduct related to the employment relationship).
It is important to note that in the lawsuit the employer may no longer rely on any new circumstance or fact underlying the termination, but only on those already set out in the delivered written notice of termination. However, it is accepted in judicial practice that if the employer cites multiple grounds in the termination and successfully proves the lawfulness of the termination on at least one of those grounds, the court will deem the entire termination lawful, regardless of whether other cited grounds are overturned. If there are several complaints against the employee, it is therefore advisable to list all of them in the notice of termination.
Conclusion
In summary, despite the somewhat relaxed requirements of the new Labor Code in force since 2012, employers can still find themselves in lengthy and potentially costly legal disputes due to non-compliance with formal requirements and the failure to give appropriate reasons for termination. While there is no guarantee that a properly executed termination will not lead to a dispute, complying with the above requirements can significantly improve the employer’s chances of avoiding an unfavorable outcome in a legal dispute.
If you have specific questions or need legal assistance, we are happy to help. Please send us a message or contact us.
Book an appointment via email at office@bhknpartners.hu, or contact us through the provided contact details!
