FAQ – Personal Service Contract, Employment Relationship

Personal service contract and employment contract seem to be very similar, but the differences between the two contract types are determinative. The most important features, similarities and differences of the above mentioned contracts are summarized in this script.

1.) Personal service contract

Personal service contract is in Act V of 2013 – on the Civil Code (afterwards: Ptk.) regulated. In civil relations the principle of interdependence and the principle of equality dominates, consequently the parties gain the so called freedom of contract: they are free to determine the content of the contract and they can depart from the provisions of the Act with mutual consent (Section 6:59 Subsect. 2 of Ptk.).

Instructions can be given to an agent and to an employee as well, they are obliged to follow these instructions. Difference is, that the principal in a personal service relation can not prescribe how the agent his/her tasks organize. Instructions can only be related to the carried assignment the principal has entrusted to him/her. All costs of the agent incurred in connection with the fulfillment of the instructions shall be reimbursed by the principal, but the agent shall be required to advance any costs ordinarily required for carrying out the assignment.

As a matter of fact, the agent may disobey the principal’s instruction if it is essential for the principal’s interest. If the principal gives unreasonable or impracticable instructions, the agent shall be obliged to warn him thereof. If the principal insists on his instruction in spite of the warning, the agent shall be entitled to withdraw from or to terminate the contract, or may carry out the assignment according to the principal’s instructions, at the principal’s risk. The agent shall refuse to comply with such instruction if compliance would constitute an infringement of the law or any administrative decision, or it would jeopardize the safety or property of others.

The agent shall be entitled to demand remuneration even if his actions brought no results. Remuneration shall be payable at the time the contract is performed.

2.) Employment relationship

Act I of 2012 – on the Labor Code (afterwards: Mt.) regulate the employment contract, which have a hierarchical structure: the parties of these kind of contracts are not equal, employers are often in a more beneficial situation than employees. Consequently the Act provides some guarantee and security provisions for employees (e.g. departures from the provisions of Mt. is in some cases even with mutual consent forbidden, in some cases is a departure only to the benefit to the employee allowed).

Under an employment contract the employee is required to work as instructed by the employer and the employer is required to provide work for the employee and to pay wages (Sec. 42 of Mt.). The functions of the employee’s job shall be determined by definition of the related responsibilities in detail. Employer entitled to prescribe the place and time to the employee, where and when he is supposed to appear in a condition of a fit work and how the work has to be done. Furthermore as the employee in an employment relationship is not independent, the employer can also specify all the detailed questions related to the employment.

2.1.) Disobeying instructions

Employee has the right to disobey instructions of the employer, however the regulations are stricter than in a personal service contract. Employees may refuse to carry out an instruction if it violates the provisions of employment regulations, or it would result in direct and grave risk to the life, physical integrity or health of the employee. If the instruction would result in direct and grave risk to the health of others or to the environment, they shall refuse it. In the event of refusal to carry out an instruction the employee shall be available nonetheless, because the primary duty of the employee – besides work as instructed by the employer – is to be at the employer’s disposal in a condition fit for work during their working time for the purpose of performing work. Employees may disobey the employer’s instruction to the extent absolutely necessary to protect the employer from suffering losses, and the employer cannot be warned in time. The employer shall be notified thereof as soon as possible.

2.2.) Probationary period

In the employment contract the parties may stipulate a probationary period of not more than three months. If there’s a collective agreement between the employer and the employees, the term of the probationary period may not exceed six months. During the probationary period both of the parties acquire the right of termination without notice may be exercised, without giving reasons.

2.3.) Remuneration of work

  • Base wage: employers may also establish wages on a performance basis, or by a combination of time basis and performance basis.
  • Wage supplement: A wage supplement is paid to employees in addition to their wages for regular working time (e.g.: working on Sundays, – as well as working Easter Sunday or on Whit Sunday, or on public holidays falling on Sundays), night work, shift work, stand-by and on-call duty).
  • By agreement of the parties, the base wage may include the wage supplements. The parties are entitled to stipulate in the employment contract in lieu of wage supplement; and in the case of stand-by and on-call duty; may stipulate a fixed monthly payment covering regular wages and wage supplements as well (145 Subsect. 1-2 Mt.).

2.4.) Termination

An employment relationship may be terminated by mutual consent; by notice; by dismissal without notice.

  • Termination: an employment relationship may be terminated either by the employee or the employer by notice. The reasoning shall clearly specify the grounds for termination. In specific circumstances (pregnancy, maternity leave, etc.) a notification is not allowed.
  • Termination without a notice: the employer or employee may terminate an employment relationship without notice if the other party:
  1. a) willfully or by gross negligence commits a grave violation of any substantive obligations arising from the employment relationship; or
  2. b) otherwise engages in conduct that would render the employment relationship impossible.

Fix-termed employment relationships and employment relationship during the probationary period can be terminated by the employer without giving reason.

Do you have some more questions regarding Hungarian employment or company law? Contact us!

Dobos István attorney at law (ügyvéd; Budapest)

E: dobos@doboslegal.eu

T:+3630 3088151

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