The regulation
The European Union introduced the 2019/1937 Directive on the protection of whistleblowers, aiming to establish a secure reporting channel for both private and public sectors. While the directive was required to be transposed into national law by December 17, 2021, Hungary and several other member states missed the deadline. However, the Hungarian Parliament passed a new Act on Complaints, Public Interest Reports, and Reporting Abuses, incorporating the provisions of the Directive and repealing the previous Act which was promulgated on 25 May 2023.
The Act comes into force on 24 July 2023 and it will introduce a three-step reporting system for whistleblowers in both public and private sectors. This system allows individuals to report abuse even after their employment relationship has ended or during the process of establishing one. The Act expands the personal scope of the previous legislation, encompassing private business entities that will be obliged to implement a whistleblower system.
The Act incorporates the rules of the Directive and covers internal abuse reporting systems within organizations, separate abuse reporting systems maintained by specific public entities, and the possibility of lawful public disclosure of abuse under certain conditions. Reports of abuse can be made orally or in writing, with the Act defining the procedures to be followed.
Layers of the system
The reporting system established by the Act consists of three layers:
1. Internal abuse reporting system:
Legal entities, particularly enterprises with 50 or more workers and entities subject to specific legislation, are required to have an internal abuse reporting system within their organization. This system can be operated in two ways:
- An impartial person or department designated by the legal entity.
- An external whistleblower protection lawyer or organization, which must also comply with the legal requirements and safeguards; reports to the internal abuse reporting system can only be made by individuals who fall within the organization.
2. Separate abuse reporting system:
The Act mandates certain public entities and authorities, such as the Hungarian Competition Authority, the Public Procurement Authority of Hungary, the National Media and Infocommunications Authority, the Hungarian National Bank, or the Directorate-General for Auditing European Subsidies, to maintain separate abuse reporting systems. There is also the possibility of extending this obligation to other entities. The separate abuse reporting system allows anyone to report abuse.
3. Public disclosures:
The Act permits lawful public disclosure of abuse under specific conditions outlined in the legislation.
Target companies
Regarding the internal whistleblowing system, enterprises with 50 or more workers and entities subject to specific legislation must establish such a system. Public entities and local governments with over 10,000 inhabitants are also required to establish an internal abuse reporting system. Organizations with fewer than 50 workers are not obligated but may voluntarily implement an internal whistleblowing system.
The operator of an internal or separate abuse reporting system is required to acknowledge receipt of the report within seven days and provide general information about the procedures and data management rules. The Act mandates prompt investigation of internal abuse allegations, generally within 30 days, with a possible extension to three months in exceptional cases. Reporting to the separate abuse reporting system follows the rules of public interest reports.
Status of branch offices
In terms of the interpretation of rules for branch office workers, Hungarian branch offices operate under different regulations compared to regular companies. As per Hungarian law, employees of branch offices are legally employed by the foreign parent company, which exercises its rights through the branch office. Consequently, in our view, the Hungarian branch office does not qualify as an employer under the Hungarian implementation of the Directive. As such, employees at a Hungarian branch office should be considered within the applicable threshold of the Directive and local rules at the parent company.
The Act does not specify its territorial and personal scope, leaving it to general legislative rules. Therefore, the Act applies only to entities registered in Hungary. The parent company of a Hungarian branch office, registered abroad, and the employer of Hungarian employees in the branch office are not subject to Hungarian law. However, the parent company may choose to utilize whistleblowing channels applicable to itself if it complies with relevant whistleblower regulations.
In conclusion, the Act will introduce a comprehensive whistleblower protection, establishing reporting systems and procedures for addressing abuse in both the private and public sectors.
