Executive employees at your Hungarian company

Who are the executives

Executives are people who have the right to make executive decisions on behalf of a business. Please note that it is not enough to have “executive” included in the title of an employee for them to become an executive. Titles can be assigned freely in Hungary; the attached FEOR codes and rights are what matter when determining whether someone is an executive.

There are three typical cases:

1. The managing director, especially if they can act on behalf of the company without restrictions. The managing director is not necessary an employee. If they are, their relationship to the company is governed by the Labor Code; if they are not, it is governed by the Civil code.

2. Employees who report directly to the managing director and are entitled to substitute them in part or in full. This is not simple substitution during a holiday, but actual interchangeability in representation or decision making. Typical examples are the CTO or the CFO.

3. Other employees may also become executives if their job is crucial to the operation of the business or highly confidential, and if their monthly gross salary is at least 7 times the monthly gross minimum wage. Their executive status must be reflected in their labor contracts, which mean they can be classified as executive employees only if they agree to it.

Executive employees under the Labor Code

The Hungarian Labor Code usually protects the rights of the employee. A labor contract can always be more lenient than what is prescribed, while deviations from the Labor Code to the detriment of the employee are not accepted (because it cannot be verified whether it is the actual will of the employee or if the agreement was achieved by coercion).

Executive employees might need more freedom in their work than what the Labor Code normally allows for. In line with this, the Labor Code itself allows for deviations in their case so that executive employees can focus their efforts on the growth of the business. This means the loss of some protections the labor Code offers to regular employees, although the actual labor contract may be more lenient than what is required, depending on the agreement of the parties.

The protections that must remain in place are typically related to childrearing. In line with this, executive employees

• remain exempt from work for the duration of doctor’s appointments in relation to reproduction, and they cannot be expected to stay on standby;
• cannot be terminated during pregnancy and on maternity leave while the child is under 3 years old;
• are allowed to request unpaid leave in relation to caring for their children;
• cannot be scheduled for a night shift from the announcement of pregnancy until the child reaches 3 years;
• can still receive extra PTO while their children are under 16.

In the meantime, the protections lost reflect the increased responsibilities of executive employees, as seen below.

No collective agreements

Most importantly, collective agreements do not apply to the executives of the same business. Collective agreements typically include additional safeguards for regular employees, but they might be restrictive to the work of executives.

Flexible working time

A full-time job is 40 hours a week, which is normally distributed 5 days a week, 8 hours a day. Even if someone works according to another distribution, in shifts, in working time banking, rest periods must be observed to ensure that employees can maintain a good work-life balance, and that they can start their shifts properly rested. Moreover, wage supplements must be applied in specific cases, such as for overtime.

In contrast, executive employees can allocate their working time themselves. On the surface level, this looks like they can come and go as they please, and they are not even required to keep track of working hours. At the same time, this also means that they cannot receive wage supplements for standby or overtime, and it is not supervised whether appropriate rest periods are being observed. Rules regarding their paid time off or holidays may also be different from what is prescribed in the Labor Code, so make sure you agree on rules that are acceptable to both parties before signing an executive contract.

Stricter non-compete rules

Employees are normally required to consider the interests of their employers and not engage in activities that may harm those. The rules regarding this are stricter in the case of executive employees, who usually

• cannot have a side job;
• cannot have a side business in the same field;
• cannot have shares in a business that operates in the same field or a field that is similar enough (the only exception from this is having stocks in a public limited company);
• must let their employer know if any of their close relatives engage in the above.

Increased liability

Employees are normally liable for damages caused to the business if the damage could have been avoided. If the damage was caused by recklessness, meaning inattention or negligence, they might need to pay a compensation up to four months’ salary. If the damage was intentional or the result of gross negligence, they must pay full compensation.

In contrast, executive employees will be required to pay full compensation already if the damage was caused by recklessness, not only in the case of gross negligence.

If the damage was unforeseeable, neither regular nor executive employees are considered liable.

Less protection against dismissal

Unless an employee is still on probation, an employer cannot terminate an employee without good cause or without notice. In contrast, executive employees enjoy less protection:

• Under ordinary termination, the employer is not required to provide justification for their decision (this benefits the employer by lowering the risk of litigation over wrongful termination).
• The employment relationship may be terminated with ordinary termination while the executive is on an unpaid leave in relation to caring for their children (while regular employees cannot be terminated during such a period).
• The protections regularly available close to retirement age will not apply to executive employees.
• An executive employee close to retirement can be dismissed while they are on sick leave, unlike regular employees.
• Under immediate termination, an executive employee may be dismissed within 3 years after the discovery of a valid reason for dismissal (for regular employees, the time limit is only 15 days)

At the same time, if it turns out that the termination was unlawful and the employee sues, they may be eligible to receive a severance equal to 12 months’ salary.

Before signing an executive contract

As you can see, the greater freedom executive employees enjoy offers both advantages and disadvantages, both for the employer and the employee. The most important aspects of this are working time, non-compete rules, liability, and protection against dismissal. Aspects not discussed here are identical for regular and executive employees. You can get an overview here.

If you operate a company in Hungary, consult an HR or labor law specialist before creating the first executive positions to make sure every concerned party is aware of the increased responsibilities and the business remains compliant with the Labor Code.

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