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An executive position in the workplace involves a series of responsible and often unpleasant decisions that distinguish and separate those in such positions from non-executive employees. Executives form a bridge between the employees and the employer’s owners.

Precisely because of the greater impact on the organisation and functioning of the employer, Act I of 2012 on the Labour Code (hereinafter “Labour Code”) provides different rules for executive employees compared to “ordinary” (non-executive) employees in several cases. In the first part of our series of articles, we will look at which employees are covered by the provisions applicable to executive employees.

1. Who is an executive employee within the meaning of Section 208 Article 1?

The person referred to as a manager or executive in common parlance does not always correspond to the employees defined as executive employees in the Labour Code. According to the Labour Code, the employer’s head (e.g. CEO, managing director) and other employees under his/her direct supervision who are authorized replace him/her are the executive employees[1].

In practice, being an executive employee within the meaning of Section 208 Article 1 of the Labour Code depends on the company structure. The head of an organisationally important department within the company does not qualify as executive if he or she is not directly under the control of the top management. However, a member of a smaller group may also be an executive employee if the head of the employer directly supervises his/her work.

Therefore, the job title alone does not mean that the Labour Code provisions on executive employees apply to a specific employee. Rather, the position held in the employer’s organisation can be used to determine who qualifies as an executive employee under Section 208 Article 1 of the Labour Code.

2. Who else qualifies as executive employee?

• In addition to the Labour Code definition described in the previous Section, the Labour Code also allows the parties to stipulate in the employment contract the application of the provisions applicable to executive employees, even if the employee would not qualify as executive employee according to the legal definition – if certain conditions are met^[2].

If the employee (i) holds a position of a highly trusted or important nature and (ii) his/her basic salary is at least seven times the minimum wage (in 2022 the minimum wage is HUF 200,000 gross, seven times HUF 1,400,000), (iii) his/her employment contract may provide for the application of rules specific to executive employees. We emphasize that the three conditions shall be met simultaneously: the employer may not unilaterally decide to apply the rules for executive employees to the employee if the first two conditions are met but the employee does not agree to the amendment of his/her employment contract.

For example, the head of the accounting department of a large company may qualify as executive employee in view of the importance of the task he/she performs, the confidentiality of the task and the amount of his/her salary, even if the head of the employer does not directly supervise him/her based on the organisational structure, if his/her employment contract shall contain a relevant clause.

In this case, the rules applicable to executive employees apply to the relevant employee by mutual agreement of the parties and not because of his/her position within the employer’s organisation.

• The Labour Code stipulates in one case – that of public employers –that the entity exercising the ownership rights has the right to determine in advance the positions of a confidential nature and high priority for which the employment contract may be concluded by applying the rules applicable to executive employees[3].

The reason for this is that public foundations, municipal or state-owned companies and budgetary bodies are on the employer side, which manage public funds, often according to specific legislation[4], their own internal rules and procedures. In our view, the legislator intended to promote more efficient operation of public employers by allowing them to specify in advance job titles qualifying as executive employee positions.

In our next article, we will look at the rules on employment contracts for executive employees.

Dr. Renáta Szücs

Photo credit: pexels.com

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[1] Labour Code Section 208 Article 1

[2] Labour Code Section 208 Article 2

[3] Labour Code Section 207 Article 1

[4] For example, Act CXXII of 2009 on the more economical operation of publicly owned companies