Category: Hungary

The Hungarian Minister of Finance announced on 7 August 2018 that the maximum number of third-country nationals who might be employed in Hungary with work permit shall be 55,000. Last year the limitation was 59,000, which means that the maximum number of third-country nationals has been reduced with 4,000. The decision may be surprising, since according to the statistics severe labour shortage is experienced in key sectors and there is a need for the employment of third-country nationals.

However, it must be noted that as of 2016, it is not required to obtain a work permit for the employment of Ukrainian and Serbian citizens in those professions where there are shortage of workforce. Accordingly, the above specified limitation refers only to the employment of third-country nationals with work permit, therefore, the limitation is not applicable for Ukrainian and Serbian citizens working in sectors hit by labour shortages.

By Levente Csengery, Partner, KCG Partners Law Firm

The legal practice analyser group of the Curia (i.e. the Hungarian supreme court) published a summarizing opinion on the judicial practice of the possession protection cases initiated before Hungarian notaries. Under the provisions of the Civil Code, the owner shall refrain from any conduct that would unnecessarily disturb others, especially his neighbours, or that would jeopardize the exercise of their rights. The possessor is entitled to request the termination of the disturbance from the notary public within one year.

As a result of the increasing number of the constructions, there are more legal disputes between the investor owners and the neighbours relating to the disturbing effects of the construction works performed on a property. The reason of preparing such summary was that possession protection procedures are based mainly on the infringement of the neighbourhood rights, however, the criteria on the basis of which the fact of the unnecessary disturbance would have been determined in each case were not appropriately detailed.

The summarizing opinion of the group of the Curia will expectedly result in the unification of the judicial practice in possession protection cases, and the expected conduct against the owners could be more predictable.

By Gabriella Galik, Partner, KCG Partners Law Firm

Gender equality may be a core EU principle, but it will not become a reality without effective legal action. To meet the EU objective of reaching a 75% employment rate for both men and women by 2020, the European Commission aims to change the existing legal framework.

Thus, the European Commission has proposed to implement a directive on work-life balance for parents and carers and repeal the EU Parental Leave Directive (2010/18/EU). The proposed directive aims to increase the number of dual-earning families and help women return to work, while also requiring more flexibility from employers regarding employment types. Employers may benefit from certain flexible working schemes, although they may need to adjust to the new types of leave.

Should the proposed directive enter into force, it will set minimum standards for EU member states regarding parental and carer’s leave. Thus, members states will have to harmonise their rules and implement new types of leave. This article summarises the main provisions of the proposed directive and its potential impact on the existing Hungarian framework.

Comparison of proposed directive and national law

Paternity leave

The proposed directive will introduce paternity leave as a new legal instrument. Fathers will be allowed to take at least 10 days’ paternity leave regardless of their marital or family status as defined in national law.

Under the existing Hungarian regulations, fathers are granted five days’ paid leave or seven days in the case of twins. Paternity leave will therefore not be a new legal instrument in Hungary, although it may need to be increased.

Parental leave

Workers are already entitled to parental leave following the birth or adoption of a child under the EU Parental Leave Directive. However, although parental leave exists in all EU member states in some form, the proposed directive aims to harmonise it by, among other things, establishing a minimum period of four months, which cannot be transferred between parents. Each member state must ensure that workers may request parental leave on a part-time basis, in blocks separated by work periods or in other flexible forms.

In Hungary, parents are entitled to unpaid leave until their child turns three years old, which is a relatively long time. Hungarian law does not recognise flexible forms of parental leave, so some changes in this area are expected.

Carer’s leave

The proposed directive introduces carer’s leave, requiring employers to grant employees five working days’ paid leave a year in the event of a relative’s serious illness or dependency. Employers will be able to require appropriate substantiation of the relative’s medical condition.

In Hungary, employees can take carer’s leave, although this is usually unpaid. The Hungarian regulation is more lenient than the proposed directive in this regard, as Hungarian employees are entitled to two years’ unpaid carer’s leave. In Hungary, the extended care and its justification must be certified by the physician of the person in need of care. As a result, the Hungarian rules correspond to the provisions of the proposed directive.

Time off on grounds of force majeure

The proposed directive maintains the rules in relation to the existing right to take time off work in the case of an event of force majeure. Member states have had to grant this allowance to their workers since the EU Parental Leave Directive’s implementation, so no changes to Hungarian law are envisaged.

Flexible working arrangements

Under the EU Parental Leave Directive, member states had to implement rules which allowed employees to request changes to their working hours or patterns when returning from parental leave. The proposed directive aims to maintain the possibility of flexible working arrangements and extend their scope. Employees may agree with their employer on remote working arrangements, flexible working schedules or a reduction of working time. Member states will thus have to ensure that these opportunities are provided for in national legislation until employees’ children turn 12 years old. Once their child turns 12 years old, an employee must return to their original working pattern.

The Hungarian Labour Code allows employees to work part-time (half of their regular daily working hours) until their child turns three years old. For parents with three or more children, the age limit is five years old. If the proposed directive enters into force in its current form, the Hungarian legislation will need to be harmonised with the directive to allow returning employees to choose between working part-time, remotely or according to a flexible schedule.

Comment

The proposed directive will bring about considerable change for the Hungarian employment and social systems. After its entry into force, Hungary will have two years to harmonise its laws with the adopted rules. Continued social dialogue will be required in the long term, as the directive will affect cost-sharing between employers and the Hungarian state. With state social budgets under pressure, it will be interesting to see how the costs of new or additional benefits will be met and whether these measures will indeed improve employee wellbeing and work-life balance.

By Daniel Gera, Counsel, Dorottya Gindl, Associate Schoenherr

The discounted 5% VAT rate introduced in 2016 will be abolished as of 1 January 2020, meaning that the 27% VAT rate will be applicable from that date, which can have significant effect on the market. In order to avoid a possible market chaos, the Hungarian Real Estate Development Roundtable Association (IFK) proposed introducing flexible, gradual VAT and stamp duty regulations that may result in increasing tax burden in the next 3-4 years. The new system could ensure that the supply and the sales of the new real estates are not reduced drastically from 2020.

According to the proposal of IFK, after 1 January 2020, the current 9% tax burden on new real estates (i.e. the 5% VAT + 4% stamp duty paid by the buyer) could be increased to 14% by introducing a 5% stamp duty to be paid by the seller. This lower tax burden (compared to the 27% VAT) could hold the real estate constructions in an optimal level, but it would also mean a higher income for the Hungarian budget.

The real estate developers are confident that the drastic decline in real estate constructions from 2020 could be avoided by this intermediate solution. The proposal of IFK has already been sent to the Hungarian Government.

By Eszter Kamocsay-Berta, Managing Partner, KCG Partners Law Firm

The Hungarian Parliament amended the Hungarian Data Protection Act in June 2018 in order to ensure the consistency of the Hungarian legislation with the provisions of the GDPR.

The amendment introduces new definitions, obligations and specification of the actual Hungarian data protection laws, such as the mandatory triennial revision of the data processing if the data processing is necessary for compliance with a legal obligation and the applicable law does not prescribe any mandatory revision. The amendment clarifies in addition the position and the role of the data protection officer, and specifies the right to an effective judicial remedy. 

The majority of the amendments entered into force on 26 July 2018, however the provisions relating to the data protection authorisation process of the Hungarian Data Protection Authority (“NAIH”) enters into force on 25 August 2018.

EU regulations, such as GDPR, are directly applicable in the EU Member States and have direct effect, therefore, there is no need for a separate act to incorporate the provisions of the regulation to the national legal system. The principal aim of amendment is to ensure the conditions for implementing the provisions of GDPR, thus to elaborate the procedural rules necessary for applying the legal institutions defined in the GDPR and to define the material and procedural provisions applicable to data processing not subject to GDPR.

The amendment of the Hungarian Data Protection Act is the first step of the harmonisation of the Hungarian legislation to the provisions of the GDPR, however, the sectoral acts (such as the Hungarian Labour Code) still need to be amended in order to ensure their consistency with the GDPR. 

By Rita Parkanyi, Partner, KCG Partners Law Firm

The European Commission („EC”) has launched an infringement proceeding against Hungary in July 2018. According to the EC, the Hungarian law excludes certain cost types from the electricity and internal gas network charges, which are in infringement of the prescribed cost recovery plan set out in the Directive of Electricity and Internal Gas. In addition, the EC also stated that Hungary had accepted certain amendments in its electricity legislature that restricts the right of market operators to ask for a complete judicial review on the decision of network charges of the national regulatory body.

The EC had sent its letter of formal notice in 2015, followed by its two reasoned opinion in December 2016 and April 2017 to Hungary concerning this topic. Due to the fact that the Hungarian legislative measures taken thereafter still do not comply with to the EU legislation, the EC decided to transmit these questions to the European Court of Justice.

By Eszter Kamocsay-Berta, Managing Partner, KCG Partners Law Firm

Shortly after the expiry of the 9 June 2018 deadline, the Hungarian parliament has finally adopted the new act on the protection of trade secrets (“Trade Secrets Act”) which will transpose the Trade Secrets Directive EU 2016/943 into national law.

Background

On 8 June 2016, the European Parliament and the European Council adopted a Directive (“Directive”) which aims to standardise the national laws in EU countries to stop the unlawful acquisition, disclosure and use of trade secrets. The aim is a common, clear and balanced legal framework which will support innovation and discourage unfair competition in the EU. The deadline set for the Member States to transpose the Directive into their national law was 9 June 2018.

Prior to the implementation of the Trade Secrets Directive, the Hungarian provisions on trade secrets could be found in several acts. Trade secrets and know-how were defined in the Civil Code as part of personality rights, and the infringement of the respective rules was mainly sanctioned by the Civil Code. However, one could find relevant provisions e.g. in the Competition Act, the Labour Code, and in the Penal Code.

The implementation of the Directive and the main changes

Hungary now complies with its obligation by having chosen to implement the rules of the Directive by way of adopting a separate new act on 20 July. The new act came into force on 8 August 2018.

The definition of trade secret is now amended to be in line with the Directive, including the secret nature of the information. The new definition stresses that trade secret protection only applies if “it has been subject to reasonable steps under the circumstances to keep it secret”.

The new Trade Secrets Act moves away from the current Hungarian concept and ensures protection of trade secrets similar to intellectual property rights, especially in the case of an infringement. It removes the trade secret and know-how protection from the personality rights section of the Civil Code and clarifies that they are marketable economic rights. They can be sold as a whole or in part, and they can be licensed to a contracting party.

The sanctions for infringement are now regulated uniformly in the new act. The relevant provisions will be removed from the Competition Act and the Civil Code. Further to the previously also applicable legal consequences in the case of a breach of trade secrets (e.g. establishing and termination of the infringement), the trade secret holder may, among others, demand that the infringer (i) gives information on the persons involved in the infringement and the supply chain; (ii) reimburses the enrichment etc. As a new sanction, it may be requested to publish the decision establishing the infringement in a national daily paper or on the internet. For a faster and more effective enforcement, an interim injunction may now also be claimed at court against the wrongdoers. The possibilities therefore have become significantly broader.

The Trade Secrets Act also contains special rules on civil proceedings, e.g. with regard to the limitation of access to trade secrets and participation in court hearings.

Companies need to prepare in advance

Based on previous practice, courts most often reviewed confidentiality agreements with employees and business partners when assessing whether companies had taken reasonable measures to protect trade secrets.

However, there are a number of additional steps the companies can and should take to protect their crown jewels. Adopting the GDPR regulation, if not done so already, is a great opportunity to revise company policies, also in respect of trade secrets.

Takeaway

If the necessary preparatory measures are taken, the new act will ensure more effective protection of the intellectual capital of the companies. Among others, it is also beneficial for start-ups which generally lack the required funds to register their intellectual property. Overall, the improved legal protection will support innovation, help the knowledge transfer, and enhance the competitiveness of Hungarian businesses.

By Anna Turi, Counsel, Mark Kovacs, Associate Schoenherr