Hungary: Economic measures passed to tackle the fall out of the coronavirus outbreak

On 18 March 2020, Hungarian Prime Minister Viktor Orbán announced the implementation of an economic package containing measures to mitigate the adverse impact of the coronavirus outbreak on the nation's economy.

The economic package includes grace periods on capital repayment and interest payment obligations for corporate and residential loans and financial leasing agreements, the maximisation of the annual percentage rate (APR) for new non-secured consumer loans, a freeze on rents, certain tax breaks and changes in employment law.

From March 19, grace periods will apply to all capital repayment, interest payment and fee payment obligations for corporate and residential loans, and financial leasing agreements. This is in line with a new legislation announced today, whereby all payment obligations for loans already disbursed will be restructured.

The aim is to provide relief for corporate borrowers in order to preserve their businesses and avoid unnecessary defaults as a direct consequence to the suspension of their business activity due to the coronavirus outbreak. Grace periods will also apply to residential borrowers. Lenders will also benefit from these measures in an indirect manner, given non-performing loans have a higher capital requirement compared to performing loans under the Capital Requirements Regulation No. 575/2013 (CRR). Borrowers, however, may opt to fulfil their capital repayment and interest payment obligations according to the original terms of the loan or leasing agreement.

The term of the security agreements regarding Borrower obligations will also be extended in accordance with the prolonged loan agreements.

The annual percentage rate (APR) on new consumer loans signed on and after 19 March 2020 will be capped at the rate equal to the base rate published by the MNB and increased by 5%.

The industries most hit by the outbreak, including tourism, hospitality, entertainment, performing arts, sports, gambling, film and events management services, will be granted the following tax breaks for the period between 1 March 2020 and 30 June 2020:

• Employers are relieved of paying all payroll taxes for their employees.
• Social security contributions payable by employees are reduced to the 4% healthcare contribution payable for healthcare services and cannot exceed HUF 7,710 a month.
• Taxi drivers under the “KATA” flat rate scheme are relived from their KATA payment obligation.
• The 4% tourism contribution does not need to be paid or reported during this period.

Furthermore, lease agreements may not be terminated and rents may not be increased for tenants operating in the sectors listed above during this period.

Furthermore, certain employment laws have been made more flexible in order to accommodate swift negotiations and the rapid conclusion of agreements between employers and employees.

The most important changes introduced by the governmental order are the following:

The employer is entitled to make the scheduled working time more flexible by not maintaining the 96-hour notification set out in section (5) of Par.97. of the Labour Code. (This will allow employers to adapt more quickly to the changing dynamics of its operations.)

The employer can unilaterally order home office and telework. Although employees in our experience are cooperative when asked to work from home or by telework, this unilateral right makes it easier for the employer to act.

The employer is entitled to take all necessary and justified measures to check the health status of employees. (This measure again helps employers institute the examination procedures necessary to ensure a safe and healthy working environment for all employees).

In all cases, employers must prepare a data protection notice on the privacy aspects of such measures (e.g. the scope of the personal data collected, the data collection process, the data retention period and the people authorised to access any personal data collected). It may also be necessary to prepare a legitimate interest-balancing test (érdekmérlegelési teszt) to prove whether the measures that were implemented to check the health status of employee are necessary and justified.

No deviating regulation of a collective agreement can prevail concerning the rules listed above.

There is a general rule in the decree allowing the employer and the employee to deviate in their agreement from the rules set out in the Labour Code. This decree lifts the prohibition in the agreement that specifies parties can only deviate from Labour Code rules to the benefit of the employee. Currently, a deviation is permitted even if it is to the disadvantage of an employee. This measure gives employers and employees the flexibility to find solutions that may save the employment relationship during these difficult times.

The measures were introduced by Government Decree No. 47/2020. (III. 18).

For more information on these measures and how they could impact your business, contact your regular CMS advisor or local CMS experts: Erika Papp, Gabriella Ormai, Eszter Kálmán, Márton Domokos and Zsolt Beregi who contributed to the article.