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Transposition of the SE legislation in Hungary (Final report: September 2004)

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)

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