Labor Code changes may spell heavy fines for firms if ignored

Competition

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Under an amendment to the Hungarian Labor Code passed by Parliament, new obligations for firms employing workers posted to them by a foreign company may impose an administrative burden on Hungarian and foreign employers alike, with significant fines in case of non-compliance, says a press release sent by law firm Baker & McKenzie to the Budapest Business Journal on Thursday.

The new provisions have been introduced to the Labor Code as a result of implementation of the Directive of the European Parliament and the Council, with the aim of introducing more effective means to prevent, monitor and sanction malicious practices related to the remuneration and working conditions of employees transferring within the EU, the statement says. 

Pursuant to the new rules, if an employee works in Hungary within the framework of providing services by the foreign company to the host company, the host company is obliged to inform the foreign employer in writing about the Hungarian Labor Codeʼs minimal requirements applicable to foreign employees employed in Hungary, the press release says. The notice must be sent to the foreign company prior to the conclusion of a service contract. These minimum requirements include, among others, mandatory rules of the Labor Code concerning minimum rest periods and maximum working time, minimum paid annual vacation, minimum salary, occupational safety and provisions on equal treatment, it adds.

The receiving Hungarian employer must ensure that the employment contract or equivalent document of posted workers, their time sheets and proof of payment of their wages are available during the entire term of their employment at the place of work, and for a period of three years after the end of the working relationship, in paper or electronic form at the employer’s registered seat or branch for review and verification, according to the press release.

Hungarian companies that fail to notify the foreign employer about the mandatory minimum rules of the Labor Code have joint and several liabilities with the foreign employer for an employeeʼs potential claims in relation to the Hungarian entityʼs non-compliance with these mandatory rules. In addition, the authority may impose a fine on the host company, the press statement adds. Furthermore, if the Hungarian company was aware - or should have been aware if taking reasonable care - that the foreign employer has not paid the employee’s salary, then it will be jointly and severally liable with the foreign employer for the payment of wages and other payroll costs otherwise payable by the foreign employer.

The new rules impose obligations on the foreign employer as well, the press statement notes. The posting company must notify the labor authority about the employment no later than at the beginning of commencement of the employment, and supply data on the foreign company, the activities to be carried out by the posted person, and the main conditions of the work in Hungary. The foreign employer must appoint a person responsible for liaising with the labor authority. This person will be responsible for sending and receiving the documents of the posted employee. The foreign company shall notify the labor authority via the designated electronic interface about such a contact person.

The deadline to submit the above data was August 31, 2016, with respect to employees already employed in Hungary at the date of entry into force. With respect to workers posted to Hungary after the entry into force, the obligation already applied at the time of entry into force on July 8, 2016. The authority may impose a fine on the non-complying foreign company.

Besides the Labor Code, the Act on Labor Inspection has been significantly modified. The scope of the act has been widened to foreign companies who are sending employees to Hungary in order to provide cross-border services from July 8, 2016. As a consequence, the Hungarian labor authorities may impose a fine on the foreign employer in case the obligations stipulated by Hungarian labor law provisions are not met. In addition, the national labor authorities responsible for posting must now cooperate with each other regarding the fulfillment and supervision of all posting-related obligations and cooperate efficiently when reaching out to each other to enforce compliance with the regulations. As a result, the collection of fines imposed on a foreign company will be more efficient.

The new regulations will mainly be applied to companies located in a member state of the European Economic Area (EEA) that post employees to a Hungarian company, according to the press release.

If Hungarian companies post employees to other EEA member states, similar data supply and registration obligations may apply to the Hungarian companies, in accordance with Directive 2014/67/EU, under which member states are obliged to implement the same obligations in their own national law. It cannot be ruled out, however, that an EEA member state may implement the Directive in a stricter way, and so stricter rules may have to be observed in a given member state. Consequently, Hungarian companies posting employees to other EEA member states may also suffer from a higher administrative burden. Moreover, due to closer cooperation of national labor authorities, verifying compliance with laws will be relatively easier, and infringement may result in serious fines according to national laws, says the press release.

“It is not entirely clear from the Labor Code who qualifies as a foreign employer. The Act on Labor Inspection contains a clear reference that under the terms of a foreign employer, a foreign employer must be construed if it is located in an EEA state and provides services to a Hungarian company,” said Dr. Éva Ganzenmüller-Nagy, Senior Associate at Baker & McKenzie Budapest. “Both the wordings of the regulations and the reporting data sheet buttress the argument that the obligations of reporting and data supply concern employers that are located in an EEA state. The Labor Code uses the expressions ‘foreign employer’ and ‘receiver entity’ and thus it cannot be stated without doubt that they only relate to EEA companies,” she added.

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