The basic rules of the cessation of the employment relationship are included in Act XXII of 1992 (Labor Code).

Cessation of the employment relationship

The employment relationship ceases upon the employee’s death, upon the dissolution of the employer without legal successor and upon the expiration of the fixed term determined in the labor contract. A fixed term employment relationship becomes an indefinite term relationship if the employee works for a further day following cessation of the employment relationship and his direct superior is aware of it.

Termination of employment relationship

Both fixed- and indefinite-term employment relationships may be terminated by mutual consent of the parties, to take effect either immediately or at a later date.

Termination of fixed-term employment

An employment relationship established for a fixed term may be terminated only by mutual consent or by extraordinary dismissal unless a trial period applies, in which case it may be terminated with immediate effect.

Termination of indefinite-term employment

Ordinary termination

Both the employee and the employer may terminate an employment relationship established for an indefinite duration by giving notice. No deviation from this provision is permitted.

Employers must give grounds for termination (i.e. dismissal). An employee may be dismissed only on grounds concerning the employee’s ability or employment-related conduct or the employer’s operations. Prior to dismissal by the employer, the employee must be given an opportunity to present his/her defense against the complaints raised against him/her.

In the five-year period before an employee reaches retirement age, his/her employment may be terminated by ordinary dismissal only in particularly justified cases.

The notice period is be at least thirty days and is extended proportionally to the years of employment at the employer but may not exceed one year. The employer must release the employee from work duties for half of the notice period, during which the employee is entitled to his/her average earnings.

At least fifteen days prior to a decision to make collective redundancies, the employer must begin consultations with the works council or with a committee comprising representatives of the local trade union branch and the workers and must notify the employment center competent where the redundancies are to be made of its collective redundancy decision.

Extraordinary termination 

The parties may terminate an employment relationship by extraordinary notice in the event that the other party willfully or by gross negligence commits a grave violation of any substantive obligations arising from the employment relationship, or otherwise engages in conduct rendering further existence of the employment relationship impossible. The employer must give the employee written notice of extraordinary termination, but prior to this announcement the employee must be given an opportunity to learn about the reasons for the planned action and to present a defense against the complaints raised against him.
 The right of extraordinary termination has to be exercised within a period of fifteen days after gaining knowledge of the grounds therefor, and within no more than one year of the occurrence of such grounds.

If an employee exercises extraordinary termination of an employment relationship, the employer must pay the employee his average earnings for a period equivalent to the notice period for ordinary dismissal by the employer and the provisions pertaining to severance pay also apply. The employee may also claim compensation for any damages incurred.

Severance Pay

An employee is entitled to severance pay if his/her employment relationship is terminated by ordinary dismissal or by consequence of dissolution of the employer without legal succession. The employee is not entitled to receive severance pay if he/she qualifies as a pensioner on or before the day his/her employment is terminated.

Mandatory severance pay is equivalent to the following multiples of the employee’s average monthly earnings for the given number of years of employment:

– one: less than three years;

– two: three to five years;

– three: five to ten years;

– four: ten to fifteen years;

– five: fifteen to twenty years;

– six: twenty to twenty-five years.

Procedure in the event of termination of an employment relationship

Termination of employment also terminates the rights and duties of the parties arising from the employment relationship. An employee must vacate his position as ordered and settle accounts with the employer. The employee must be paid his work wages and other emoluments on the last day of employment and must be supplied the statements and certificates prescribed by provisions of the Labor Code. At the employee’s request, upon cessation of his/her employment, or within the following year, the employer must provide a work certificate containing the job profile filled by the employee at the employer and an evaluation of the employee’s work.

Unlawful termination of the employment relationship and its legal ramifications

If a court determines that the employer has unlawfully terminated an employee’s employment, the employee must be restored to be employed in his/her original position if he/she so requests, unless this cannot reasonably be expected of the employer. In this case the court may order the employer to pay no less than two and no more than twelve months’ average earnings to the employee. The employee must also be reimbursed for lost wages and compensated for any damages arising from such loss.

An employee who terminates his/her employment relationship in violation of the Labor Act is liable to pay compensation to the employer of an amount equivalent to his average earnings due for the notice period.


May 2005
 Dr. Nikolett  Kovács
trainee attorney



* This Newsletter is for information only. Owing to its size, it is not comprehensive and does not qualify as advice .