Business Law I.

- Fourth mid-term
Norbi Székely

1 Introduction to EU law
• Brief history of EU: The European Union (EU) resulted from transformations of earlier organizations
and is the outflow of a series of events that was initiated by the Second World War. Politicians both
inside and outside Europe saw cooperation within Europe as a mean to lessen the chance of another
war breaking out in Europe.
• There are three main pillars of the EU. The first is the European community1 , which main purpose
was to govern the freedom of persons, the freedom of goods, the freedom of capital and the
freedom of services. The second pillar is included in the Common Security and Foreign Policy.
The third pillar covered Justice and Home Affairs.
• The European Council: A forum made up of the President of the EU Commission and the heads
of state of the European Union. It has no formal decision making power. It is the key in defining the
major policies and discussing general issues facing the EU.
• The European Commission: It has the exclusive right in most cases to propose EU legislation. It
can also initiate proceedings against a Member State if it believes that a Member State has failed to
comply with its EU obligations.
• European Parliament: Elects the President of the Commission. The current 751 members of the
European Parliament (MEPs) are directly elected by voters in the EU Member States. The MEPs
form groups in the EP along political lines rather than on the basis of the countries from which they
stem2 .
• General features of EU law: EU can only act within the provisions of the EU Treaties, which have
been agreed by the Member States. The laws governing the European Union and the laws which they
can enforce are divided into two categories: primary legislation and secondary legislation. Primary
legislation comes from Treaties, which are debated and agreed by all EU member states. Once the
Treaties are agreed, they must be ratified by the national parliament of each member state. There
are three main types of secondary legislation: regulations (binding on each member state, and
each part of the legislation must be followed to the letter), decisions (binding on those to whom it is
addressed, like on an EU country or an individual company and is directly applicable) and directives
(written targets or objectives that the EU wants all its member states to meet but the text of the
directives does not dictate how they must be fulfilled).
• Legislation in the EU:
– Ordinary Legislative Procedure: The EU’s standard decision-making procedure (formerly:
“co-decision”). This means that the directly elected European Parliament has to approve EU
legislation together with the Council (the governments of the 28 EU countries).
– Consultation: A special legislative procedure (or even a non-legislative procedure) used in a
limited number of cases. This procedure is now applicable in a limited number of legislative
areas, such as internal market exemptions and competition law.
1 European community: Consists of the original European Communities set up in the 1950s and 1960s, whereas the European

Union refers to the entire economic and social networks of countries, which includes all 28 member states.
2 Stem (in this context): Originate in.

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 – Consent: Applicable in association agreements and agreements governing accession3 to the Eu-
ropean Union.
– Other legislative procedures: The Commission and the European Central Bank draw up
reports for the Council on the progress in fulfilling their obligations as regards economic and
monetary union of Member States with a derogation. After Parliament has delivered its opinion,
the Council on the Commission’s proposal, decides which Member States with a derogation fulfill
the conditions for adoption of the single currency on the basis of the criteria.
• Enforcing EU law: The Commission is responsible for making sure that all EU countries properly
apply EU law. The Commission will take steps if an EU country does not fully incorporate a directive
into its national law by the set deadline or might not have applied EU law correctly.
• Court of Justice of the European Union: The CJEU consists of three courts: the (European)
Court of Justice (ECJ), the General Court (GC), and the European Union Civil Service Tribunal. The
CJEU interprets EU law to make sure it is applied in the same way in all EU countries, and settles legal
disputes between national governments and EU institutions. It can also, in certain circumstances, be
used by individuals, companies or organizations to take action against an EU institution, if they feel it
has somehow infringed4 their rights. To sum it up, the main tasks of the CJEU are as follows: inter-
preting the law, enforcing the law, annulling5 EU legal acts, ensuring the EU takes action
(the Parliament, Council and Commission must make certain decisions under certain circumstances)
and sanctioning EU institutions.

2 Procedures
2.1 General features
If anyone is charged with a criminal offence, then that person has the right to a fair and public trial.
• Fair trial: A trial that is conducted fairly, justly, and with procedural regularity by an impartial judge
and in which the defendant is afforded his or her rights.
• Judicial independence: The idea of keeping the judiciary away from the other branches of govern-
ment. The main objective behind granting judicial independence is to avoid the improper influence on
the court from the other branches of government, or from private or partisan interests.
• Judicial impartiality: The principle that a judge’s decisions may not be based on bias, prejudice,
or preference.
• Procedural principles:
– The right to access to justice (legal aid, right to lawyer, right to appeal)
– The right to a fair hearing
– The right to a public hearing
– Principle of immediacy: it requires that all evidence is presented in court in its most original form
– The right to judgment within a reasonable time
– The right to enforcement of the judgment
• Jurisdiction: The territory or sphere of activity over which the legal authority of a court or other
institution extends.
• Conflict of laws: It is sometimes called the private international law, concerns relations across
different legal jurisdictions between natural persons, companies, corporations and other legal entities,
their legal obligations and the appropriate forum and procedure for resolving disputes between them.
3 Accession(in this context): The action or process of formally joining or being accepted by an institution or group.
4 Infringe:
Actively break the terms of a law, agreement, etc.
5 Annul: Declare invalid an official agreement, decision, or result.

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 • Ius Curia Novit: “The court knows the law.” It means that the parties to a legal dispute do not
need to plead or prove the law that applies to their case.
• Pleadings, Discovery and Disclosure: They refer to the same thing (but used in different parts of
the world): “Requests for information directed towards the other party.”
• Burden of proof : Usually, the claimant has to prove all disputed statements on which his claim
is based, while the disputed facts underpinning the defendant’s defense have to be proven by the
defendant.
• Legal remedies: Appeals are the a reviews of the first instance decision. A cassation court has to
accept the facts as they have been established by the lower courts, and will interpret them only.
• Alternative Dispute Resolution: ADR refers to any means of settling disputes outside of the
courtroom. ADR typically includes early neutral evaluation, negotiation, conciliation, mediation, and
arbitration.

2.2 Overview of the Hungarian framework

• Special courts: Administrative and labour disputes only on first instance and the appeal from these
courts go to the ordinary appellate courts. It can comprise of a single judge or three member panels
(like in appeals): one presiding professional judge, and two lay judges.
• Level of courts:
– District (single judge, similar to special courts in importance)
– Regional (county level)
– Regional courts of appeal (five regional courts of appeal located in and named after their seat:
Budapest, Győr, Pécs, Szeged and Debrecen)
– Curia (The fourth and highest level of the court structure.)
• The administration of the courts: National Office for the Judiciary where the president of National
Office is elected by the two-third majority of the Parliament on the recommendation of the President
of the state. National Judicial Council: self-governing supervisory body of the central administration
of the courts, has fifteen members.
• Constitutional court: Creates decisions in plenary session6 , in five-member-panels, three member
panels or as a single judge. The plenary session decides on the constitutionality of statutes and in all
other cases. Its competences are as follows:
– Review of Conformity with the Fundamental Law
– Post Review of Conformity with the Fundamental Law
– Judicial Initiative for Norm Control in Concrete Cases
– Constitutional Complaint
– Examination of Conflicts with International Treaties
– Examination of Parliamentary Resolutions Related to Ordering Referendum
• Attorney: An attorney may operate as a sole (single) practitioner or as a member of a law firm, or
as a in-house7 legal counsel.
• Equal Treatment Authority: Responsible for monitoring the implementation of the principle of
equal treatment. It investigate complaints and reports filed concerning cases involving alleged discrim-
ination.
• The Commissioner for Fundamental Rights (ombudsperson): Has mandate for the rights of
children, the rights of nationalities living in Hungary, the rights of the most vulnerable social groups.
6 Plenary session: A meeting of an official body in which all of the members of that given body are present.
7 In-house: Done or existing within an organization.

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3 Business Associations
3.1 Why companies?
• Economic reasons:

– The price, or in other words the costs, that urges one to set up a firm rather than carrying out
activities via lots of individual contracts.
– Instead of ceaseless efforts to bargaining over a contractual relationship one may set up a firm.
– Some people like being employed, others prefer risk.

• Legal reasons:
– Separate assets from its owners.
– The companies are separate legal entities with separate assets and separate governance.
– A separate liability scheme which allows cheaper credit and professionalism in investment.

• Priority of claims: In case of bankruptcy, the firm’s assets are sold off, or liquidated, and the money
distributed to claimants in priority order.

3.2 The conflicts of actors in the law of business associations

• The agency problem: The shareholders’ interest would not necessarily fit or harmonize with the
management’s interest. In case of a conflict, therefore, the management can use its leverage to promote
its own interest at the expense of the shareholders.
• The problem of motivation: This is the problem arising from the separation of ownership from
governance. A possible solution is to provide share options to the managers after certain period of
time working at the company or, if necessary, the withdrawal of the management by the shareholders’
meeting.
• The problem of under-capitalisation: The management is rather risk averse as opposed to the
rather risk-taking shareholders. Shareholders may diversify their investment, so even a bankruptcy or
winding-up would be a better solution for them. Managers, on the other hand, are better off with the
going on of the business as usual because they can keep their job with less efforts.
• Other stakeholders:
– Share holders
– Employees
– Creditors
– Suppliers
– Consumers
– Authorities, government

3.3 The definition of the business associations

• Definition: Business associations are legal persons established for the pursuit of business operations
with financial contribution provided by its members, where each member has a right to a share of the
profit and an obligation to participate in covering the losses.

• Allowed forms of a firm: A business association may operate in the form of a general partnership,
limited partnership, private limited-liability company or (public) limited company.
• Permissive rules: A set of rules providing that actors “may” engage in particular conduct or activity.

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 • Imperative rules: A set of rules of action imposed upon mere by some authority which enforces
obedience to it. In other words it is a command that actors have to comply with and enforced by some
superior power either physically or in any other form of compulsion.
• Laws on the legal entity:

– Civil Code of Hungary

– Company laws
– Bankruptcy laws
– Competition law
– Securities Market
– Accounting and Taxation
– Labour law (Labour Code)

3.4 The formation of the company

• Legal personality: Its existence comes from the law. It has a legal capacity to obtain rights and
undertake commitments under its name, such as to acquire property, conclude contracts, and to sue
and to be sued. But there are some limits which come from the nature of artificial persons such as not
being able to adopt a child.
• Own features of a legal personality (e.g. of a company):

– Own company name: Every company has a name which distinguishes it from other companies.
– Own company patrimony8 : Every member should give a contribution to the company in order to
be member in exchange for a company share.
– Own company liability: If the company breached the contract passed by its management it is the
company who would be liable for that.
– Own company structure/organization: Every legal person, the company also, should have an own
organisation which may be called as the “body” of the corporate entity.
– Birth by incorporation: In order to get legal personality the company should be incorporated into
a Register taken by the State via its administration.

• Foundation of the company: Memorandum of Association is need to be undersigned by every

member personally or via representative.

4 Introduction to Labour law

• Generally speaking, laws regulate either a sort of a legal relationship containing work or a certain topic
thematically. There are two types of legal regulations: laws and decrees.
• Source of the labour law: The Labour Code which is supported by the Civil Code.
• Decree: An official order that has the force of law and it implements certain parts of the law in details.
The authorization of making decree may arise from the Labour Code itself or from the thematic law.
There are two main type of decrees: Government decree and Ministerial decree.
• Collective agreements: These are concluded by the trade union(s) and if such exists at an employer
or at a sector, this represent a regulatory level above the individual employment contracts.
• Work agreements: Concluded between the worker’s council and the employer on cooperation rules.
8 Patrimony: Valued things passed down from previous generations; heritage.

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 • Employment regulations: Consists of legal regulations (law and decrees) and “quasi-laws” (collective
and work agreements).
• Labour Code is basically unilaterally (for the benefit of the employee) dispositive (relative dispos-
itivity) but also contains a set of rules from which derogation is forbidden, even if the parties could
agree in it or would serve the employees benefit.

• Parties to employment relationship: The employer who is a person having the capacity to
perform legal acts, can be natural person as well or an organization, who employs employees under
employment contract and the employee who is a natural person, always a human who works under an
employment contract. In case of an organization as employer, the employer and the person exercising
employer’s rights surely differ.

• Exercising the employer’s rights: The person exercising employer’s rights shall be entitled to make
legal statements on the employer’s behalf. The rules for exercising employer’s rights shall be laid down
- within the framework of law - by the employer.
• Under employment contract: The employee is required to work as instructed by the employer.
The employer is required to provide work for the employee and pay wages.

• Working time: The period of time that a person spends at paid labour. It can be either full time (8
hours daily - general principle for full-time daily employment) or part time (less than eight hours/day).
• Duration (term): The time during which the employment continues. It can be fixed-term (not exceed-
ing five years and the employment relationship can be extended, or another fixed-term employment
relationship may be concluded) or indefinite.
• Employment agreement: The parties must specify in the employment contract the employee’s
personal base wage and job function, moreover, for an employment agreement to be valid, it has to
be in written form. The duration of the relationship, the workplace and the working hours has to be
determined and mentioned in the agreement as well.

• Probation (trial period): During probation period, employment contract may be terminated by either
party. Justification and notice are not compulsory.
• Fundamental obligations of the employer:
– To employ.
– To provide the necessary working conditions.
– To implement occupational safety and occupational health requirements.
– To reimburse9 certain expenses.
• Fundamental obligations of the employee:

– To appear at the place and time specified by the employer, in a condition fit for work.
– To be at the employer’s disposal in a condition fit for work during their working time for the
purpose of performing work.
– To carry out work.
– To conduct in a way that’s in accordance with the trust necessary for carrying out the job.
– To cooperate with co-workers.

9 Reimburse: Repay, compensate, refund

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 • The “rubber rules” of labour law:
– To act as generally expected in the given circumstances.
– Employee and the employer must act in the manner consistent with the principle of good faith
and fairness, and they shall be obliged to cooperate with one another.
– The employer has to take into account the interests of the employee.
– There is an obligation to inform each other concerning changes which are considered essential
from the point of view of employment relationships.
– Neither of the parties can abuse of their rights.
– It is forbidden for an employee to jeopardize the legitimate economic interests of the employer,
even out of working hours.
– An employee must not express his/her opinion in a way so that it can lead to a serious harm to
the employer’s reputation or legitimate economic and organizational interests.
– An employee has to maintain confidentiality of business secrets obtained during the course of work
(even after the termination of employment).
• Cessation and termination of an employment contract: It can be done with mutual consent,
with notice or without notice. A termination can come into effect because...
– ...the employee dies.
– ...the employer gets dissolved10 without having a legal successor.
– ...the fixed-term expires.
• Requirements for valid termination:
– Must be in writing.
– Must contain a reasoning that is clear (not too general, specific)
– The reasoning has to be substantial (real).
– The reasoning also has to be authentic: true and valid.
• Type of terminations:
– Termination with notice of employment contract for indefinite term
∗ The employee is not required to justify.
∗ The employer is obliged to give a justification.
– Termination with notice of employment contract for indefinite term for reasons in relation to the
employer’s operations
∗ A change in the organizational structure (reorganization) → Cessation of a job function
∗ A consequence of a reorganization but not necessarily → Downsizing
– Termination with notice of employment contract for indefinite term for reasons relating to the
behaviour or the ability of the employee
∗ Not proper behaviour
∗ Not adequate abilities: with or without medical conditions
– Termination of fixed-term employment contract with notice
∗ Employees are required to give reasons (such as the impossibility of the employment relation-
ship or an unreasonable hardship) for terminating their fixed-term employment relationship
∗ The employer is allowed to terminate the employment relationship if: there are undergo-
ing liquidation or bankruptcy proceedings; for reasons related to the employee’s ability; the
employment relationship is no longer possible due to unavoidable external reasons
10 Dissolve: Close down or dismiss an assembly or official body.

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 – Termination without notice:
∗ For validity, it must be within a period of fifteen days of gaining knowledge of the grounds
therefore, in any case within not more than one year of the occurrence of such grounds
∗ If the other party intentionally or by gross negligence commits grave violation of any sub-
stantive obligations arising from the employment relationship
∗ In the case of not giving reason for termination, the employee shall be entitled to absentee
pay due for twelve months, or if the time remaining from the fixed period is less than one
year, for the remaining time period
• Legal consequences of wrongful termination by the employer:

– The employer shall be liable to provide compensation for damages resulting from the wrongful
termination
– The employee has to prove his/her damage
– Compensation for loss of income from employment payable to the employee may not exceed twelve
months’ absentee pay

• Legal consequences of wrongful termination by the employee:

– The employee shall be liable to pay compensation in the sum of absentee pay due for the notice
period
– The employee shall be liable to pay compensation in the sum of absentee pay due for the time
remaining from the fixed period, up to three months’ absentee pay at most
– The employer shall be entitled to demand payment for damages if such are in excess of the amount
described above