Employee Business Protection in Hungary
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Summary
During employment an employee shall not conduct himself or herself in a manner which directly or indirectly would be detrimental to the legitimate economic interests of the Company unless permitted by law.
The employment agreement can stipulate post-termination restrictions but this shall only be valid if it lasts for a maximum of two years following termination of employment and if the employee receives an adequate compensation in return.
Restrictions during employment
The Hungarian Labour Code does not define the Company’s legitimate economic interest in detail. It does not even give a general definition for such interests because these interests are generally dependent on the Company’s business activities, the place of operation and the tasks performed.
Provision of confidential information for competitors, or establishment of a company with the same business activities that the employer pursues could be regarded as such jeopardizing the Company’s legitimate economic interests.
The Labour Code does not directly require employees to report any of their further employments to the employer; however parties are obliged to notify each other on any facts, data, circumstance that is important regarding the conclusion of the employment contract or their rights and obligations. Therefore employees shall report any further employment to the employer and such report shall include all those facts that could affect the employer’s legitimate economic interests.
Outside working hours an employee shall not conduct himself or herself in a manner which directly or indirectly would be detrimental to the legitimate economic interests of the Company, the Company’s reputation or the aim of the employment. On the basis of case law, if the employee outside working hours wearing he Company uniform acts in an anti-social behaviour and conducts disorders it could be regarded as a behaviour jeopardizing the Company’s reputation.
Not only the employment agreement but also the so called code of ethics can include regulations on the restriction of the employees’ behaviour during and outside working hours. Such restrictions are only valid if they are necessary for a reason directly relating to employment and if they are proportionate for achieving the objective. If the employment agreement of directors or executives generally prohibits freedom of expression (e.g. if the employee is generally denied public participation) it could be regarded as a clause against the law if the necessity for a reason directly relating to employment is missing. Such general clauses could only be acceptable in case of executives of big firms where political expressions although not directly relating to the Company’s activity but could influence the Company’s market position.
Employees are required to keep business secrets confidential and they shall not disclose any confidential information to unauthorized persons unless permitted by law.
Restrictions after employment
Post-termination restrictions can be agreed upon in the employment agreement itself or later on when the employment terminates.
Employees are required to keep business secrets confidential by law even after termination of employment regardless the way of termination (be it mutual agreement or dismissal) and parties are not required to stipulate post-termination restrictions either for such an obligation. In accordance with Hungarian case law, a post-termination restriction stipulated only for non-disclosure of business secrets in return for additional fee shall be void.
If the law does not require the employee to protect the employer’s legitimate economic interests after employment, such obligation can only be valid if parties agree on post-termination restrictions. The Labour Code does not regulate the types of such restrictions in detail. Generally parties stipulate non-compete clauses that seeks to prevent the employee from working for a competitor, or setting up in competition. Further, it is relatively common to include a restriction preventing an employee from poaching key colleagues. Under Hungarian law the period for stipulating such clauses can be a maximum of 2 years.
Post-termination restrictions are only valid if they are adequately compensated by the employer. Adequacy depends on the level of restriction that the employee suffers when trying to find new work. If the employee has special qualifications and he can only apply for a very limited number of job offers, the compensations should be higher. The law stipulates the minimum amount of such compensation that shall be one third of the salary the employee is entitled to during the non-compete period if the employment would not have terminated. Parties can also agree on a penalty in case of breach of non-compete clauses. If e.g. the employee established a new employment at the Company’s competitor, he must pay the penalty and therefore by payment of such penalty the Company cannot enforce the non-compete clause.
In case of breach of post-termination restrictions, the party in breach cannot claim enforcement. E.g if the employer failed to pay adequate compensation to the employee for such a restriction, the employee cannot be enforced to observe the restriction. If the employee is in breach, he cannot claim compensation and the employer can claim repayment of any paid parts. Further, any party can claim damages for breach of contract.
Dr. Égertz Andrea ügyvéd 