The parties usually establish the employment relationship for an unlimited period. However, in certain cases, for various reasons, like business or organisational considerations, it seems to be better to conclude a fixed-term labour contract. In this article we summarize what you as an employer shall consider in Hungary in case you would hire someone for a fixed period.
1. How shall you specify the fixed term?
The parties shall set out in the labour contract if they intend to establish the employment relationship for a fixed term. In case the parties fail to declare the fixed period, or the clause is invalid, then the employment relation shall be considered as established for unlimited period.
The parties may determine the period of the employment according to the calendar, for instance by declaring that “the employment is established for a fixed term until 31st December 2020”.
Further, the Hungarian Labour Code (“Labour Code”) provides the possibility for the parties to determine the fixed term not in accordance with the calendar, but by other appropriate means, for example by adapting the duration of the employment to a specific task.
While the determination of the term of the employment according to the calendar is quite straightforward, the determination “by other appropriate means” might raise questions.
2. What to consider when the fixed term is not determined according to the calendar?
In case the parties do not set out the term of the employment according to the calendar, the date of the cessation shall not depend solely on the will of the employer or the employee.
In a case the Curia, established, for instance, that the provision of the employment contract, according to which the employment relationship between the parties exists “until the cessation of the lease of the unit”, is not in itself unlawful. However, if the condition, upon which the term of the employment depends, occurs due to the action of one party, the party, who caused the occurrence of the condition obviously cannot refer to the termination of the employment relationship.
Nevertheless, in another case, the Curia declared the provision of the labour contract as invalid, according to which „the employment relationship shall be terminated at the time of recalling (from Germany)”. The idea behind this is that the „recalling” of the employee depends solely on the will of the employer.
Furthermore, it is essential that if the parties do not set out the term of the employment according to the calendar, the employer shall inform the employee about the expected term of the employment. For instance, if the employer hires an employee to replace a colleague, who is on maternity leave, the employer shall inform the employee that this may be expected to last for 2 years. However, the employment is terminated at the time of the return of the replaced person regardless if it may occur after 1 year.
3. Can the parties set out a probationary period?
Basically, probationary period may be stipulated not only in an employment contract for unlimited period, but also in fixed-term employment contracts.
However, it was questionable in practice whether the term of the probationary period may be the same as the term of the employment relationship. That is to say, is it possible that the parties conclude a labour contract for three months and consider its whole period as probationary period?
It is recalled that the function of the probationary period is to provide the opportunity for the parties to verify whether the other party fulfils the obligations undertaken in the contract and whether they comply with each other’s expectations. Consequently, according to the jurisprudence, the probationary period, taking into consideration its function, can only be shorter than the term of the employment.
Therefore, to stipulate a 3 months’ probationary period in an employment contract concluded for 3 months is unlawful, but it is not contrary to law to stipulate a 3 months’ probationary period in an employment contract concluded for 6 months.
4. What is the maximum period of the fixed term?
As the establishment of an employment relationship for fixed-term might deprive the employee of certain provisions, which otherwise would protect him, the Labour Code limits the length of the employment relationship for fixed-term.
Accordingly, the length of the employment relationship for fixed term may not exceed five years, including the duration of an extended relationship and a new fixed-term employment relationship concluded within six months with the same employer.
An exception from the above rule is if an official permission is necessary for the establishment of the employment relationship. This can be the case with non-EU employees, whose employment requires a permission as a main rule. In case of such employees, the employment relationship may be established for the maximum period declared by the permission. However, in their case, the 5-year limit is not applicable to the extent that the further fixed term at the time of the extension of the permission and the previous term together may exceed the 5-year threshold
5. Can the fixed term be extended or what about chain contracts?
As the expiration of the fixed term automatically terminates the employment relationship and in this case, the rules of notice period and justification are not applicable, it can be an attractive alternative for the employer to hire the employee based on the chain of short, fixed-term employment relationships instead of an employment relationship for unlimited period.
Besides the 5-year limit mentioned above, the chain contracts have another limit, that the fixed-term employment relationship may be extended, or another fixed-term employment relationship may be concluded within six months from the time of the termination of the previous one only in case if the employer has legitimate interests and it may not infringe the legitimate interest of the employee.
The Curia dealt with the question of chain contracts in several cases and concluded that if the employment contract was extended without any lawful interest 6 times during the term of ca. 20 months, it shall be considered as abuse of rights.
In a more extreme case, the parties extended the employment contract 19 times in 5 years and as the employer could not state a specific, concrete, economical or service related circumstance, which affected the position of the employee and required or justified occasional or cyclical employment, the Curia considered the stipulation for fixed-term as invalid.
However, in a case, where the employer operated based on annual framework and support contracts, under uncertain financial conditions, there was a legitimate interest on the employer’s side for hiring the employee within the framework of more, short fixed term consecutive employment relationships.
6. What will happen if the employee continues to work after the expiration?
It is an interesting question what will happen if the parties conclude an employment contract for fixed-term, the fixed-term expires, but the employee continues to work without the extension of the contract in writing by the parties.
Based on the regulations before 2012, if the employee worked at least 1 working day after the expiration of the fixed-term with the knowledge of his direct superior, the employment relationship transformed into an employment for unlimited period. However, if the original legal relationship was established for maximum 30 days, the employment relationship was only extended with the length of the original legal relationship.
The current Labour Code does not contain such rule, therefore, if the employee continues to work after the expiration of the fixed-term without the written agreement of the parties, then an invalid employment contract will be established between the parties.
There are two ways to resolve the „dilemma”. The first option is that if the employee refers to the invalidity within 30 days and the parties do not remedy its cause, i.e. they do not conclude a contract in writing then the employer shall terminate the contract without notice. In that case, the employer is obliged to pay the employee absentee pay covering a period otherwise due in the event of dismissal by the employer.
The second option is that if the employee does not refer to the invalidity within 30 days, then a valid employment relationship will be established between the parties for an unlimited period as the parties did not stipulate a fixed term, Of course, in this case, the employer might be fined for labour law violations.
7. How can the fixed-term employment be terminated?
Finally, it is worth mentioning the different rules which apply to the termination of fixed-term employment relationship.
When it comes the „ordinary” dismissal, it can be used in a limited way in case of fixed-term employment. Indeed, the employer can only terminate the fixed-term employment relationship during the liquidation or bankruptcy proceedings, for reasons related to the employee’s ability or if maintaining the employment relationship is no longer possible due to unavoidable external reasons.
While, for example, the employer can terminate an employment relationship for indefinite period on the basis that it decided redundancy due to economic reasons, this is not possible in case of fixed-term employment as a redundancy decided by the employer cannot be considered as an external reason.
Furthermore, the Labour Code provides the possibility for the employer to terminate the fixed-term employment relationship by dismissal without notice. However, in this case, the employee is entitled to absentee pay for twelve months, or if the time remaining from the fixed period is less than one year, for the remaining time period.
To sum up, the establishment of a fixed-term employment relationship can be an attractive alternative for the employer to adjust its need for workforce to its operation, for instance to adapt to the demand. However, it is advisable to act carefully, as a fixed-term employment relationship has also its pitfalls, for instance the problem of chain contracts or the limited possibility of dismissal.
 Act I. of 2012 on the Labour Code
 formerly known as Supreme Court
 See also. Judicial decision No. 2000.369.
 See also. Judicial decision No. BH 1995.319.
 See also. Judicial decision No. BH 1999.524.
 See also. Judicial decision No. EH 1999.136.
 See also. Precedential judicial decision No. Mfv.10260/2018/5.
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