Hungarian law differentiates between general employees and
executives. The biggest difference between the two is that many
provisions of the Hungarian Labour Code which protect
"ordinary" employees and restrict the kinds of agreements
which can be made with them do not apply to executives. This means
that the law is less protective and more flexible towards
executives.
Executives can be subdivided in two different categories. The first
consists of those who are actually on the top of the organization,
i.e. the managing director and those direct subordinates entitled
to substitute for said director should the director be absent. When
substituting, the subordinate need not be authorized to exercise
all rights of the managing director; it is sufficient if the
subordinate is authorized to a limited degree, such as, for
example, HR or procurement matters. If the company has several
managing directors ("ügyvezető") or is
led by a board of directors
("igazgatóság"), each of the
directors and each of their direct authorised subordinates will
automatically qualify as executives without the need to be defined
as such in a shareholders' resolution or in their employment
contracts.
While it is usually easy to identify the very top management level,
there can be some uncertainty as to who should be regarded as
an authorized subordinate for the top management if no clear
organizational chart or detailed job descriptions exist. The
substance over form rule applies here: It does not matter whether
the position is called, for example, "Vice Director";
only the actual scope of work and the rights and obligations of an
employee will determine whether he or she is an authorized
subordinate.
The second category of executives consists of employees who are
expressly declared to be executives. Only employees who work in
either a position which is of special importance for the operations
of the employer, or in a position which involves working with
highly confidential information may be declared as executives. In
addition to the special nature of the position, the employee's
agreed gross monthly salary must be at least seven times the
statutory minimum wage (in 2015: HUF 735,000). Although there is
still very little judicial insight on who can be classified as an
executive, so broad a definition leaves open the possibility
that even the managing director's secretary may be so
classified if she checks the director's emails, has access to
confidential information and has a salary which exceeds the above
threshold.
Interestingly, although the law recognizes two different categories
of executives, there are no differences in the rules that apply to
them; both receive the same treatment. The law does, however, draw
a distinction between employment contracts for general employees
and executives, where contracts for the former may not deviate from
the statutory rules if it is less favourable for the employee than
the law provides. In contrast, employment contracts for executives
may contain provisions that are less favourable to the employee
than the law would normally allow (with a few exceptions). An
example is that while executives are authorised to set their own
work schedule, they are not entitled to any additional payments for
overtime. This increases the performance character of the
employment of executives. As long as the executive completes all
tasks and the affairs within the executive's scope of authority
are taken care of satisfactorily, the executive may not be held
accountable for coming to work only at 10 A.M. It goes without
saying that this most probably means the executive will
occasionally stay at work after normal working hours without
additional financial compensation.
Another important difference between general employees and
executives is that an employer does not need to indicate any
reasons should it decide to terminate an executive's employment
(for general employees, a reason must be provided) and an executive
will have unlimited liability for any loss or damage that he or she
may cause negligently to the employer (the liability of an general
employee is limited to one and a half months salary).
Being an executive is, on the one hand, a privilege that usually
entails a higher salary, but, on the other, it has downsides and
additional risks. Given that the success of a company largely
depends on its executive(s) and that it is often difficult to find
a good leader for a company, the differentiation between executives
and general employees is certainly justified. Executives are
usually able to make use of the flexibility provided by the law:
Their contracts are usually individually tailored with details
negotiated. During the negotiation process, it is not uncommon for
executive candidates to make use of professional legal support. In
contrast, the standard practice for general employees is that
employment contracts are based on templates not subject to detailed
negotiation.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.