Employers in Hungary generally enjoy a great degree of freedom in establishing the manner in which they conduct their business. This freedom includes, among others, the ability to define the framework of their operations and set up their organisational structure. An additional aspect of this freedom is the right to change that structure and reorganise the workforce, if they deem it necessary. This article focuses on certain limitations of that freedom and examines their application in practice.
Background: economic grounds for dismissal
Employment law generally aims to mitigate the effects of the disparity between parties’ economic power, hence it sets certain limitations to what employers can do. One of these limitations is the restriction regarding grounds for dismissal. The rules governing dismissal differ in each jurisdiction, but – in one form or another – most of them accept economic grounds as a valid reason for dismissal. Hungarian employment law also recognises such grounds (in Hungarian terminology: “reasons related to the employer’s operations”) as valid grounds for dismissal.
When an employer terminates one or more employment relationships on the basis of an economic ground, it still enjoys a great deal of flexibility. As an example, in the case of a dismissal for economic grounds Hungarian employers do not have to offer other available jobs to the employees as opposed to other legal systems, where this is customary or even a legal obligation.
Employers’ freedom regarding dismissals
The employers’ freedom has several facets. Firstly, employers may freely decide on a reorganisation when they deem it necessary. When a dismissal is based on economic grounds (eg workforce reorganisation), in the event of a dispute, a court can only examine the validity of the grounds (whether it indeed took place), but cannot examine its reasonability or economic substance.
But what does this look like in practice? If an employee challenges the dismissal in court, the employer has to prove that the grounds for dismissal were valid, ie (i) the reorganisation has indeed taken place, (ii) the employee’s position has been terminated, and (iii) the tasks have been allocated to other persons, etc. This is normally the point at which the court’s authority to examine the background ends, because if these circumstances are successfully proven by the employer, the court has no authority to further examine whether the reorganisation was necessary.
Secondly, if several employees are affected by a reorganisation, an employer may freely select the employees who will be made redundant.
If, for example, the decision is to reduce the headcount of a sales department, consisting of 20 employees, by 25 %, the employer is free to select which five employees will be made redundant. Unless specific circumstances (such as discrimination) occur and are raised by the employee during a court procedure, the court may not examine why one person, and not another from the same position, was made redundant.
Selection of employees
But how do employers select? Practice shows that employers tend to select lower performing employees, but in general they are not required to set out any sort of (objective) guidelines, performance standards or any other criteria based on which the selected employees and not others are made redundant. Normally employers do not have to justify why they selected X instead of Y at court.
This does not mean that employers could not take into account certain other considerations (social background of employees) or set out social plans detailing selection criteria; it only remains that they are not legally required to do so.
General legal principles and anti-discrimination rules are a significant limitation to that freedom. When making their selection, employers may not act discriminatively. If an employee challenges the dismissal as being discriminatory (which happens quite often), the court could conclude that although the reason for the dismissal is valid and lawful, the dismissal itself is still unlawful.
Disputes surrounding discrimination
What does such a dispute look like? If an employee challenges the dismissal on the basis of discrimination, the employee has to declare and make it probable that he or she had an attribute protected by law (eg sex, age, family status, sexual orientation, etc) and that he or she suffered due to that attribute in comparison with other employees. If an employee makes such a claim, the employer must prove that it has not acted discriminatively, and as a part of that process has to reveal the selection criteria (if any).
Employers acting in good faith have no reason to worry though. The court practice shows that courts seem to strongly accept employer’s freedom for selection and discrimination claims are only successful in obvious cases. In one recent case heard by several courts, the Supreme Court declared that the employer had not acted discriminatively when the two oldest employees with the longest length of service were made redundant. The Supreme Court considered that the employer had the right to choose who to terminate and there were no grounds supporting age discrimination. The court further stated that the length of service at a particular employer is not an attribute that is protected by equal treatment laws.
As opposed to other legal systems, where in the case of a dismissal for economic grounds the employer must offer other available jobs to the employees, Hungarian employment law is not as strict and provides less protection to employees.