Category: Hungary

A Government decree has been published recently on the compulsory professional liability insurance of designers and contractors relating to the construction of buildings under 300 sqm subject to simple notification.

Under the Government decree, the construction and the design contract shall contain, as an obligatory element, a declaration of the contractor or the designer stating that he has or will have the necessary professional liability insurance at the time of handover of the work site at the latest. According to the new rules, as long as the contractor does not provide the professional liability insurance, the construction work site shall not be handed over to the contractor, the construction log-book shall not be opened and the construction shall not be commenced. 

The Government decree amends the competence of the construction supervisory authority, which now checks or may check whether the designer or the contractor has the necessary professional liability insurance. Failing to obtain such insurance shall be considered as a serious infringement, and in this case, the authority may prohibit continuing the construction activities. The Government decree also determines in detail the damages that shall be covered by the professional liability insurance, the insurance amount and the period of maintaining the insurance policy. The new rules will enter into force on 1 January 2017. 

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

Based on the experience of the past years, as of 1 December 2016 the Company Registry Service of the Hungarian Ministry of Justice introduced a new electronic system to facilitate the submission of the financial reporting.

By using the new electronic system more than 400,000 enterprises can publish easier and faster their financial reports. The main advantage of the new system is that the reports will be checked during the uploading process, resulting in that the fine that may be imposed by the tax authority for making minor typo mistakes (e.g. mistyping the tax number or the registration number of the company) will be easier to avoid. The system is accessible on the Internet and there is no need to upgrade a form or to use special programs. However, it is important for the accountants to have stable internet connection in order to avoid data loss. 

The new system is accessible via the following link: https://e-beszamolo.im.gov.hu/ebekuldes 

By Gabriella Galik, Partner, KCG Partners Law Firm

Technological innovation in financial markets continues its inexorable advance. Alternative payment methods (such as e-money and peer-to-peer payment), alternative finance (such as peer-to-peer lending and crowdfunding), blockchain-based clearing and settlement, new insurance models, and virtual currency exchanges are only a few of the recent developments endeavoring to make the financial system more efficient.

These new forms of business will disrupt the present system of financial markets and the processes by which financial intermediaries work. Further, the underlying technologies require pioneering legal solutions to protect investors and foster innovation at the same time. In Central and Eastern Europe, banks are immersing themselves in the new challenges of the financial technology (“fintech”) industry. Hungarian banks are also conducting market research to evaluate fintech potential, but they cannot succeed in the absence of strong regulatory support.

Based on recent market practice, the following technological and regulatory improvements are shaping the agenda in financial markets.

Peer-to-Peer Solutions

The beginning of this century has been marked by buzzwords such as sharing economy and peer-to-peer (P2P) solutions. This latter phrase covers myriad use cases, but the two most emerging forms of peer-to-peer finance are P2P lending and P2P payment. Both financial technologies connect people and execute value transfer without interposing trusted intermediaries such as banks or clearing houses. 

P2P Lending. Marketplace lending platforms emerged before the financial crisis and rapidly spread after its conclusion. Because P2P lending is expected to emerge in CEE, including in Hungary, the legislators will have to enface regulatory challenges soon. Transparency and disclosure obligations will be of paramount importance in assessing how marketplace lending will impact the stability of the financial sector. In addition, different prudential requirements and consumer protection regulations need to be established, depending on the service providers’ reliance on the services of the banks.

P2P Payment and Blockchain Technology. While the end of the last decade was about the Internet of information, in the recent years a new trend has emerged: the Internet of value. Transferring value via Internet was not possible before the advent of blockchain technology, one of the most revolutionary technologies since the invention of the Internet. Blockchain is known mostly for underpinning bitcoin, but it has much wider implications than that. It is also a distributed ledger technology (DLT), enabling the transfer of digital assets without the need for trusted third parties. Prior to DLT, it was necessary to interpose a trusted third party who kept track of balances. Blockchain technology solved this problem by establishing a network of distributed ledgers that almost instantaneously records the transactions in blocks, thus building an irreversible chain and ruling out the possibility of so-called double-spending.

The most challenging legal issues around P2P payment and DLT involve the distributed nature of the system. As there is no entity that can supervise or interfere with the system, authorities will need to deal with the absence of effective regulatory supervision.

In addition to P2P payment, numerous companies are leveraging blockchain technology and its trustless nature. Without aiming to give an exhaustive list, possible applications of the DLT include clearing and settlement, new insurance models, smart contracts, crowdfunding, prediction markets, forward and futures contracts.

Virtual Currency Exchanges

Virtual currencies are unregulated digital money, however, it is extremely hard to categorize them under existing civil and financial law definitions. In the absence of an issuer, they cannot qualify as e-money under the E-Money Directive. Although some virtual currencies have an issuer, they do not fall within the definition of e-money according to the European Central Bank, since they are not issued upon receipt of funds.

Trading with virtual currencies also takes place outside the established financial system. In order to prevent misuse of virtual currencies for money laundering and terrorist financing purposes, the European Commission has proposed bringing virtual currency exchange platforms and custodian wallet providers under the scope of the Anti-Money Laundering Directive. Moreover, if the legislative power would like to regulate the trade of virtual currencies, it would be required to define them within the scope of existing legal categories – e.g., as financial instruments.

Companies taking advantage of the above-mentioned technologies have just begun to spread in Western Europe but they will be present in CEE soon due to the passporting of their licenses, if nothing else. This will pose an enormous challenge to the legislator to regulate those services in a way flexible enough to promote innovation but strict enough to provide an efficient level of protection for both consumers and investors.

By Andras Nemescsoi, Partner, and Balazs Szalbot, Junior Associate, Horvath & Partners DLA Piper 

This Article was originally published in Issue 3.5 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

At the end of October 2016, a bill on the amendment of acts relating to electronic communication and consumer protection was submitted to the Hungarian Parliament.

As a significant change, the bill includes that companies liable for a serious infringement on e-commerce determined in a legally binding decision of the consumer protection authority, the Hungarian Competition Office or a court, shall be published in a public database available on the internet. The data published in the database shall be erased two years after the publishing, provided that the liability of the company has not been established again for other infringement. The cases of serious infringement relating to electronic commerce services will be introduced in a new government decree.

In addition, the regulations of the consumer protection fines will also be restricted by the bill. Accordingly, a unified fine in the minimum amount of HUF 200,000 has been determined for the repeated serious infringement relating to electronic commerce services caused by small and medium-sized enterprises or other companies. The bill also contains specific provisions for the audio recording of the phone communication between the call centre and the consumer, meaning that upon request of the consumer, the company shall ensure the listening to the audio recording at the call centre, the copying on one occasion of each recording and the provision of a copy of the recording by electric means. 

By Rita Párkanyi, Attorney, KCG Partners Law Firm

According to Marton Domokos, Senior Counsel of CMS in Budapest, one of the hottest topics in Hungary at the moment is the new set of data protection recommendations issued by the country’s Data Protection Authority (DPA), which he says have a wide range of ramifications in terms of employment policies. 

One of the DPA’s recommendations is related to the use of employee photos, which Domokos explains is usually not covered by internal privacy policies. The DPA is advising companies to review their policies by focusing on the necessity of the photo, as the company is entitled to use such photos as necessary for its operation. 

Another employment related update — “and a more significant one,” Domokos explains — affects how companies carry out background checks. According to Domokos, Hungarian legislation does not regulate the background checks that are usually carried out by employers. The DPA reviewed these practices in detail and recommended first that former employers can be contacted only with the potential employee’s express consent. The DPA is also recommending the a request for a certificate of a clean criminal record — a public record document that is accepted as authentic and valid for 90 days — should be the only form of criminal record review. Domokos acknowledges that there are other “informal methods” services that employers use in the country, but notes that “employers should be cautious when employing such services because they are not in line from a data protection perspective.”

According to Domokos, the DPA has also recommended that it is possible for companies to collect “publicly available data — such as from social media,” but instructs companies to notify the employee should of this collection and the employee should be allowed to dispute or object to any inaccuracies such collection might result in. 

While these recommendations primarily impact specific employment data protection issues, the DPA has also issued a major update with “general applicability in employment,” according to Domokos. “It is a 40-page long document that covers all kinds of data processing practices in the workplace,” he says, adding that one of the major elements is that consent cannot be a basis of employment-related data processing, even if the law allows for it. Domokos explains that the DPA claims that genuine consent cannot really exist in an employee-employer relationship and, as such, any purported consent is not valid. The new guidance from the DPA, Domokos believes, will lead to a real revision of workplace data protection policies. As an alternative, Domokos explains, companies need to implement the concept of a “legitimate interest,” with employers being prepared to communicate the legitimate interest for its collection or processing of data and why that interest is important. This, he explains, actually provides companies with more flexibility, but the update will require redrafting of many internal policies. 

Ultimately, Domokos explains, the DPA is preparing for the new EU Data Protection Board and the unified Data Guidances. “So far they have only issued just a very general guidance on this,” he says, “but, interestingly, there are some concepts from the upcoming EU regulation that are already being used by the DPA such as in the case of voice recordings, where the DPA already is using access rights to a copy of the recordings.”  

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In “The Buzz” we interview experts on the legal industry living and working in Central and Eastern Europe to find out what’s happening in the region and what legislative/professional/cultural trends and developments they’re following closely.

Amendments to the Hungarian Labor Code entered into force in June 2016. The amendments were approved as part of the Act on the State Budget 2017 and are rather technical, mostly involving provisions that ensure compliance with recently amended European legislation. In this article, we briefly summarize the most important amendments to the Labor Code.

Protection From Dismissal

The Hungarian Parliament recently supplemented the rules protecting employees from unfair dismissal. The former labor code, in force until 2012, provided unconditional protection against the termination of employment of pregnant employees and those undergoing fertility treatment. The current labor code also includes this rule but stipulates that employees may only enjoy this protection if they had informed their employer about their pregnancy or fertility treatment before the dismissal was communicated to them.

The Office of the Commissioner for Fundamental Rights (OCFR) initiated a constitutional review of this provision before the Hungarian Constitutional Court shortly after the new labor code came into force. The Constitutional Court examined the question, agreed (partially) with the OCFR, and abolished the requirement to inform the employer of the said circumstances “before dismissal”. The current amendment supplements the partly abolished provision and affords the employer the opportunity to revise its decision if the employee informs the employer after the communication of the dismissal that she in fact enjoys protection. In such case the employer may withdraw its notice within 15 days of receiving the notice of the protection.

Provisions on Resting Time

The rules governing daily rest periods – Section 104 of the Hungarian Labor Code requires that a period of at least 11 hours must be provided for an employee between working days – were also modified. The most important reason for the amendment was that the European Court of Justice (ECJ) confirmed in one of its decisions (Syndicate Solidaires Isere case (C-428/09)) that the health, safety, and personal security of employees can only be ensured if their right to sufficient rest time is respected. This implies that no activity which may disturb the employee is allowed during the rest period. Furthermore, the rest period must immediately follow the working period.

Following the principles of the ECJ’s interpretation, the respective Hungarian provision was amended so that if an employee receives fewer than 11 hours of daily rest between two shifts, the next two daily rest periods must total at least 22 hours.

According to a secondary rule, if the rest period falls in the beginning of the summer period, a minimum of 10 hours must be provided, and in the case of divided, continuous, or multiple shift employment or seasonal work, the minimum rest period is 7 hours.

These new provisions will enter into force on January 1, 2017. This means that any working-time cycle, reference period, or pre-defined working time that is organized before then may “break” into the new year without change.

Provisions Related to Executives

The range of strict provisions governing executives’ employment will be widened.

Currently the Labor Code represents a rather flexible approach in relation to executive employees, in that it allows the parties to contract away from the legal rules on a wide range of topics. The Labor Code contains only a few provisions from which an employment contract may not deviate (e.g., an executive employee may not fall under the personal scope of a collective agreement).

According to the new provisions already in force, the labor contract of an executive employee may not deviate from the provisions of the Labor Code in respect of (i) the rules providing statutory exemption from work during fertility treatments, obligatory medical examinations, and maternity leaves; (ii) the rules governing the protection from dismissal in cases of pregnancy, maternity leave, and fertility treatment; (iii) the special working time rules of endangered employees.

The reason behind these amendments is that the related EU Regulation (2010/18/EU) on parental leave has changed, which has to be harmonized with domestic rules.

Ease of Sunday Working Ban

The earlier provision prohibiting Sunday work for employees working in on-call duty positions (e.g., facility management, security staff, etc.), if they were scheduled to work on the preceding Saturday, was abolished as of June 18, 2016. This provision was abolished as it was found to be impractical.

Summary

The Hungarian Parliament tried to keep the integrity of the Labor Code while amending it where necessary due to EU law obligations. The current modest amendments came by surprise, as a more significant amendment proposal had been prepared and published by the Government last autumn. That proposal was not approved, but it may be introduced to the Parliament again in the near future.

By Kinga Hetenyi, Managing Partner, and Daniel Gera, Attorney at Law, Schoenherr Hetenyi Attorneys at Law

This Article was originally published in Issue 3.4 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.