Workers may be replaced from Asia: will there be wage tension and fluctuation in Hungary?

It has become easier to recruit workers from third countries, including from Asia, through certified temporary-work agencies. In addition to the fact that labour shortages in some sectors and the uncertain economic outlook make it increasingly advantageous for employers to hire workers, the new regulation may also have negative consequences for the labour market: wage tension and fluctuation may increase due to third-country workers.

At the end of June, a new government decree[1] came into force which makes it far easier for temporary-work agencies to recruit employers not only from neighbouring countries but also from the Asian region. The new regulation could further stimulate the temporary-work agency market, while employers facing a shortage of human resources will be able to access labour force more easily and flexibly. However, the new regulation may not only provide some relief from labour shortages, but also raise new problems.

Temporary agency work has many advantages, one of the most important is that the various administrative burdens of employment are not borne by the user enterprise (i.e. the „borrowing company”), but by the temporary-work agency. The Regulation sets out the conditions for registration as a certified temporary-work agency, which are stricter than those for „normal” temporary-work agency, nevertheless, the legislation is short again of eliminating or solving a number of problems. A recent case in Curia has once again highlighted that the Labour Code[2], in force since 2012, does not in practice protect temporary agency workers, since it considers the temporary-work agency as the employer, who can dismiss the employee at any time without justification. Therefore, if the temporary agency work is terminated, the temporary-work agency (i.e. the lender of work force) can rely on this circumstance alone to terminate the employment relationship with the temporary agency worker. Nevertheless, it is precisely this possibility that makes temporary agency work attractive for employers.

In the increasingly uncertain economic climate, this type of employment may become even more popular in the future, as the user enterprise (i.e. the hirer of work force) has the flexibility to adapt the number of workers to its current needs and, in the event of redundancies, temporary agency workers will be the first to be laid off. The Hungarian legislation limits the maximum duration of temporary agency work up to 5 years, which is nowadays no longer considered a short period spent in one workplace and is close to the average of 8.9[3] years spent by workplace in Hungary. On this basis, it can be stated that temporary agency work is not tending towards short-term, temporary employment. If the user enterprise (i.e. the hirer of work force) is satisfied with the employer, he can employ him for long term with slight labour law guarantees, while he can dismiss him at any time without giving any reason.

Question marks around wage tension, fluctuation, and collective disputes

While the new legislation could benefit companies in many ways, it also raises many questions about its implications. On the one hand, it could lead to wage tensions between workers due to lower pay requirements by third-country workers. The fluctuation is also a question: in sectors where there has already been high fluctuation of workers, could this problem be solved by hiring third-country nationals or, on the contrary, could the tension between workers in different employment relationships lead to an increase the number of leaving workers employed in employment relationship. Inappropriate use of temporary agency work could therefore lead to more workers leaving by the end of the year than can be replaced by temporary agency workers, while recruitment continues. Another potential source of tension is that third-country workers will obviously not be aware of the cornerstones of national labour law or may simply be dismissed in the event of conspiracy. This in turn could lead to the erosion of the working conditions and labour law guarantees that workers have fought for or that have been established by judicial practice.

When appropriately applied, temporary agency work can not only help employers to reduce the costs of the labour organisation, but also provide great flexibility. However, to make an effective use of all this, employers would need to consider proper preparation, HR management and other factors. At the same time, it is already clear that the current regulation of temporary agency work puts employers in a more advantageous position vis-à-vis workers who are not protected by guarantee-provisions. Thus, currently, both temporary-work agencies and user enterprises face less risk than in the case of a ‘normal’ employment relationship when it comes to the legality of employer’s measures affecting temporary agency workers, such as termination of employment, for example.

[1] Government Decree 226/2022 on the registration and activity of certified temporary-work agencies

[2] Act I of 2012 on the Labour Code – “Labour Code”

[3]statistic of OECD, 2020 (