Almost ten years ago, in 2012, major changes were introduced in Hungarian employment law, including a new Employment Code. The updated rules had a significant impact on market practice and, consequently, on the volume of employment litigation. The latter number was further influenced, however, by the new Code of Civil Procedure, which came into effect in January 2018. In this article, we offer insight and explanation for the possible causes of the decreasing number of employment lawsuits.
Decrease in Numbers
As per court statistics, between 2000 and 2011 the number of employment litigations initiated was over 25,000, almost every year. In 2012 this number dropped below 20,000 and, in the following years, the fall continued. By 2019, the number of cases had decreased to 4,615.
In 2020, the Hungarian court system also underwent radical changes, with the abolition of the separate administrative and employment courts. In the first half of 2021, only 2,563 new employment claims were brought to courts, which, in the light of the downward trend, is not a surprising number. Some types of cases have indeed been reclassified from employment cases to administrative cases, however, the decrease in the number of employment lawsuits has been long present before this reclassification.
It is also noteworthy that in 2019 30% of the employment cases completed by courts lasted three months or less, by far the highest rate for the duration of employment disputes. This ratio remained at 28% in the first half of 2021. It indicates that almost one-third of employment disputes end on either the first or the second court hearing, which is due to the number of settlement agreements approved by courts.
The Price of Wrongful Termination
Many professionals claim that it is simply no longer worth it for employees to start a litigation procedure with their (former) employer. The new employment and civil procedure regulations certainly did not make it easier for employees to bring their claims to court. The new Employment Code has changed the basic characteristics of the legal consequences of wrongful termination, such as their extent and conditions for application. Before 2012, employees could generally apply for reinstatement and were entitled to claim a higher and non-fixed amount of compensation, whereby the length of litigation just increased the amount of their claim.
According to the current regulation, employees may only apply for reimbursement in narrow and predetermined cases of serious infringements. In addition to this, the current Employment Code caps the amount of compensation that may be claimed in case of unlawful termination – employees may only receive up to 12 months’ absentee pay as compensation. When employees find a new job that offers them a higher salary during the litigation, they may only claim a fraction of that compensation.
As the quantitative risk of wrongful termination has thus been defined and significantly reduced, the employers can avoid and/or mitigate the legal consequences of wrongful termination through applying termination agreements more frequently and, due to this, the latency of the termination cases is increasing.
The Change in Market Practice
Not all causes for the decrease in court claims and changes in the employment practice are negative, however. In recent years, employers are getting more careful with handling their HR matters, as the supply and demand sides of the employment market change. Employers also frequently request the help of attorneys in HR matters, which could also be a factor in decreasing the number of employment disputes.
In the event an employer decides to end the employment relationship, current market practice shows that, instead of unilateral termination, termination agreements are increasingly common. While a termination agreement reduces the risks of a lawsuit, it also helps the parties create a win-win situation. To facilitate negotiations and reach an agreement, employers can also assess the situation in light of the above-mentioned cap applicable in case of wrongful termination.
Although the visible number of employment disputes decreased, we cannot conclude that there are no disputes between employees and employers. However, the above numbers show that the current employment and procedural laws can lead and influence the parties to resolve their conflicts by means other than litigation, resulting in cost and time-saving solutions and settlements.
By Szilvia Fehervari, Partner, Szabo Kelemen & Partners Andersen Attorneys
This Article was originally published in Issue 8.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.