Employees are represented on the boards of Hungarian companies with more than 200 employees. Both unions and employers were consulted on how the directive was to be implemented in Hungary and the unions expressed concern on the role they had been given. However, this did not lead to a wider public debate.
Employee representatives make up one third of the members of the supervisory board in companies with more than 200 employees.
The bill transposing the directive was presented to the National Reconciliation Council (OÉT), in which unions, employers and the government were represented, in February 2004 before being debated in parliament. It was discussed in both plenary and committee sessions and some minor changes were made as a result. However, the unions were unable to change the way that the selection of Hungarian members of both the SNB and the SE representative body was left in the hands of the works councils, rather than the unions, as this followed the arrangements already agreed for European works councils (see section on the position of unions and employers).
The implementation of the directive, where the government took an essentially minimalist approach, (see László Neumann September 2004) did not lead to a wider public debate. There have been, however, subsequent changes to the system of employee representation at board level, which represents a potential weakening of the employees’ position.
Directive was implemented through legislation in May 2004, well before the October 2004 deadline.
The legislation implementing the directive on employee involvement in European companies was passed by the Hungarian National Assembly on 24 May 2004, published on 28 May, and came into effect on 8 October 2004. The title of the legislation, which also adapted Hungarian law to the Regulation on European companies, is Act XLV of 2004 on the European Company (2004. évi XLV. törvényaz európai részvénytársaságról).
Special negotiating body (SNB)
Hungarian members of the SNB are chosen by the works councils, with direct elections if there are no works councils. Unions have no role.
Hungarian SNB members are appointed by the works council, the central works council, if one exists, or the central works councils jointly where there are several (Article 21).
If one of the companies or workplaces involved does not have a works council, the employees concerned should elect a representative to attend the meeting of the works council to make the choice. More than half of the employees involved should vote for the election to be valid (more than one-third if the election is rerun) (Article 22).
There is no role for unions in choosing SNB members, despite the fact that in the Hungarian system of employee representation at workplace level many rights are shared between the works councils and the unions at the workplace.
External union representatives in Hungary can be appointed to the SNB.
The Hungarian legislation states clearly that trade union members who are not employees of the companies involved “may also be appointed” to the SNB (Article 21). However, the fact that the choice is in the hands of the works council may make this fairly unlikely in practice.
Funding not limited to a single expert.
The Hungarian legislation on funding does not limit funding to a single expert. It simply states that the company is liable for “justified necessary expenditure in connection with the operation” of the SNB. However, there are limits on the total amount of expenses to be borne by the participating companies, which are in line with those in the Hungarian Labour Code (Article 28).
Standard rules under the fallback procedure
Basically, same arrangements apply as for SNB members – Hungarian members are chosen by the works councils, with direct elections if there are no works councils.
Almost the same arrangements which apply for the choice of Hungarian members of the SNB also apply for the choice of Hungarian members of the SE representative body – known as the representative body (képviseleti testület) in the Hungarian legislation. In other words, they are chosen by the works councils and if there is no works council they are directly elected by the employees (see section on SNB). The one significant difference from the position on the SNB is that, in the case of the representative body, trade union members who are not employees of the company are not specifically permitted to be members (Article 35).
The company should bear the expenses of the representative body, and there are no limits on the number of experts.
The company is obliged to cover the costs of the representative body. These specifically include organising meetings, interpreting services, accommodation and travel expenses of members and “experts’ fees”. The fact that the representative body may seek the assistance of “experts to assist it in its duties” is also explicitly stated. As with the SNB, there are limits on the extent of the costs to be borne by the company, which are in line with those in the Hungarian Labour Code (Article 40).
The mechanism for choosing board members is left to the SE representative body – but members of the representative body itself may not be board members.
The legislation does not set out in detail how Hungarian employee representatives at board level are to be chosen. It states that employee delegates at board level “shall be selected, appointed or recommended by the representative body from among the employees of the European company”. However, the Hungarian legislation also states that members of the representative body may not be chosen as board members (Article 48).
Misuse of procedures and structural change
The issue of misuse of procedures is not covered by the Hungarian legislation.
There is nothing in the legislation that covers the situation where procedures are misused to deprive employees of their right to participate in company decisions.
There is no requirement in the Hungarian legislation to renegotiate the agreement if there has been structural change.
There is nothing in the legislation that requires the agreement to be renegotiated if there are structural changes after the SE has been set up.
Both unions and employers were consulted on the legislation implementing the directive. The unions were unhappy about the fact that they had no role in the choice of Hungarian SNB and SE representative body members but were unable to obtain changes in this area.
In the discussions in the tripartite National Reconciliation Council (OÉT), one of the key points of issue was the way in which Hungarian SNB and SE representative body members were to be chosen. In the draft text proposed by the government, the choice lay with the works councils. However, the unions proposed that the choice should be given to them, with works councils only acting if there were no unions. This was opposed by the employers. The question of the legal position and relative influence of works councils and unions at the workplace has been one of the major issues in Hungarian industrial relations in recent years, and the balance between them has varied over time.
In this case the government was unwilling to change its view that the choice of SNB and SE representative body members should be given to the works councils, as it was able to argue that was already the position for Hungarian SNB members for European works councils. The unions had not raised any objections to this procedure at the time (see László Neumann September 2004).
L. Fulton (2008) Anchoring the European Company in National Law - Country Overviews (online publication, prepared for worker-participation.eu)
Hungary transposed both Regulation 2157/2001/EC and Directive 2001/86/EC by means of Act XLV of 2004 by unanimous vote in Parliament on 24 May 2004. The Act was promulgated on 28 May 2004 and will come into effect on 8 October 2004. Hungary seems to have chosen the legislative mode of transposing the Directive on employee involvement in the SE rather than via an agreement between the social partners.
Prior to being submitted to the Parliament, however, the draft bill was discussed by the plenary meeting of the tripartite National Interest Reconciliation Council (Országos Érdekegyeztetõ Tanács, OÉT) on 27 February 2004. The plenary meeting’s decision sent the proposal back to the joint session of the Economic and Legal Committees of the Council, which then held a second round of debates on the bill.
This relatively early adoption can be explained by the fact that the Hungarian legislature usually has a long summer break, and inclusion of the debates in the Parliament’s autumn agenda would have jeopardised appropriate preparations, first of all by the courts of registration, by 8 October 2004. This is the first time EU regulations have been transposed at the same time as the “old” member states: previously, legal harmonisation had meant the en masse transposition of existing EU legislation.
Basically, the government’s approach was to create a favourable business climate, establishing the simplest possible rules for setting up and running companies, in particular the headquarters of SEs, in Hungary. As the political state secretary at the justice ministry stressed in his Parliamentary speech, “in this case national rules constitute an issue of competitiveness”, as effective and flexible rules may have a favourable impact on incoming foreign investment and thus on job creation in the context of the Single European Market. He also stressed that transposition of the European Company Statute would be a useful experience in view of future development of Hungarian company law.
As far as the directive on employee involvement is concerned, the government’s draft bill relied heavily on the rules established by the earlier transposition of the European Works Council directive, and also made reference to those sections of the Labour Code of 1992 which regulate the functioning of works councils, as well as certain aspects of trade union functioning within companies, and to existing board-level employee representation laid down in company law (CXLIV Act of 1997 on Business Companies).
The Hungarian legislation considered the company law considerations of transposition a competitiveness issue, and so adopted a minimalist approach. The Hungarian Act supplementing the EC regulation on the SE Statute is as concise as possible, although it had to introduce the one-tier corporate governance system, a brand-new feature in Hungarian company law. The Act invented the Audit Committee, similar to the Supervisory Board of the two-tier system, in order to ensure compatibility with other laws and institutions.
Obviously, the government wants to make use of the experience obtained while working on transposition, and in March 2004 the expert group of the Ministry of Justice issued a paper on the new concept of company law and procedures of courts of registration for debate. By and large, it outlines future legislation on deregulation and makes it possible for company statutes to opt for new tools to meet various needs. Among other things, it proposed the optional one-tier system and the possibility of setting up a German-style Supervisory Board with strong decision-making powers. The paper also questions the very existence of board-level employee representation and proposes the revision of its rules. (Legislation on new company rules is expected in the second half of 2005.)
As for employee involvement, the Hungarian transposition practically copied the wording of the transposed European Works Council Directive. Therefore similar to the transposition of the EWC directive, the most controversial issue of the Act transposing Council Directive 2001/86 EC is the total neglect of workplace-level unions, either in the setting up or in the operation of SNBs and of the employee representative body defined by the standard rules. As with European Works Councils, this Act too authorises works councils (central works councils) to delegate representatives for Hungarian employees, or in the absence of a works council it calls for direct elections. Although union confederations realised this shortcoming of the bill and tried to oppose it in the draft, in the end they failed to turn the tide. Employer and government representatives successfully argued that there were similar provisions in the transposition of the EWC directive which had been approved by the trade union confederations the previous year, when they seemed not to be aware of the importance of the European representation structures.
Another interesting feature of the Act is that it avoids repeating the provisions of Hungarian company law on employee board-level representation; nonetheless, in line with the Directive, it requires at least the same level of involvement as in predecessor companies. Yet, in the merger of smaller companies it may happen that the board of a European Company employing more than 200 persons does not include employee delegates at all. Hungarian unions and works councils have to understand this and undertake the responsibility to fight for the level and quality of employee involvement in the negotiations between the SNB and the company management. On the other hand, this legal solution, offered by the Directive itself, may signal a possible deregulatory approach for the future development of Hungarian labour legislation, which will rely on a negotiated way of shaping the new employee representative body rather than on defining mandatory bodies and/or board delegates.
In the context of a negotiated way of shaping institutions, assurance of the genuine representation of workers and the presence of the trade union federations is a crucial issue. It is regrettable that in the course of transposition the national trade union federations were not given the possibility to have their experts in the SNB, and the presence of the trade union representatives was regulated in a restrictive way. At the same time, the Hungarian transposition was a genuine effort to achieve a good solution and sometimes came up with innovative solutions in order to guarantee genuine employee representation. In this respect, the detailed rules of information and consultation, as well as of judicial remedies in case of breaches of the law, are of paramount importance.
Download complete report on the transposition process in Hungary (pdf, 125 KB)