The “Complaints Act” comes into effect today.
But what is it about? Do I have any obligations under the Complaints Act?
The Complaints Act for entrepreneurs – in plain language
Background:
The starting point is the fact that there is an EU Directive (Directive 2019/1937 of the European Parliament and of the Council of 23 October 2019). Entrepreneurs do not need to be aware of the regulations contained therein. What they do need to know is that a directive sets binding targets for all EU countries to achieve. However, the legal instrument with which to achieve these objectives is entrusted to each country. And what is this objective? In certain EU industry sectors (public procurement, financial services and prevention of money laundering and terrorist financing, product safety and liability, environment, food safety, consumer protection, road safety, etc.), if someone discovers a violation of the rules, they can report it anonymously, effectively and without any adverse consequences, and the report will be investigated within a reasonable time (3 months). This is essentially an anti-corruption objective.
The directive therefore has put pressure on countries to take the appropriate measures in this respect. This resulted in the "Complaints Act" (Act XXV of 2023), which entered into force on 25 July 2023.
Who does the Complaints Act apply to?
On the one hand, the public sector, which is not discussed in detail here. The second category is anyone who "employs a natural person under an employment relationship", and an employment relationship is one in which "the employed person carries out an activity for and under the direction of the employer for consideration or is self-employed". Simply put: all employers who have employees; but this includes not only employment relationships, but also agency, contracting relationships, sole proprietorships and single- or multi-member law firms. Thus, the act potentially applies to every company, sole proprietor, private sector entrepreneur!
I am sole proprietor, does the Complaints Act apply to me too?
Chances are, no, it doesn’t! As a general rule, the establishment of a mandatory whistleblowing system is for those who employ at least 50 people (including 50 contractors, subcontractors, etc.). Attention, trainees count too!
It is also compulsory for everyone who is subject to the Money Laundering Act (Act LIII of 2017 on the Prevention and Combating of Money Laundering and Terrorist Financing, “AML Act”) (not exhaustive):
- credit institution;
- occupational pension institutions;
- those carrying out activities related to real estate;
- auditors-accountants, tax consultants;
- traders in goods, if they accept cash payments of HUF three million or more in the course of business;
- attorneys at law, law firms, notaries;
- fiduciaries;
- virtual office services providers.
So, as entrepreneurs, we have to ask ourselves these questions:
- am I engaged in a special, AML Act activity? (no need to worry about this, anyone belonging in this group knows, because we have had additional obligations for years)
- do I have essentially any legal relationship with at least 50 people where I pay them?
- do I or have I ever accepted cash payments over HUF 3,000,000?
If the answer is "no" to all of the above, then there is no need to read the rest of the article.😊
But if the answer is "yes" to any of them, then it's worth reading on, because now comes the part about what exactly do I need to do, and by what deadline?
Anyone who has counted more than 250 legal relationships should take action right now, as the act applies from 07.25.2023. Those with employees from 50 to 249 can still take a breather but must comply with the following obligations from December 17, 2023.
The following main provisions should be taken into account when setting up the internal system:
- there should be a reporting system, which will not be handled by a colleague within the organization! The reporting system may be operated by a designated impartial person or department or by an external whistleblower protection attorney at law. So, the most useful thing to do is to hire an external company or person for this task, to make sure that the person/organization appointed does not have a conflict of interest, and to avoid a decision in the event of an investigation – despite all efforts – that we have not complied with our legal obligations.
- Reporting should be possible in writing or orally, including by telephone, but the conversation should be recorded in accordance with data protection rules and, in the case of both telephone and oral reporting, a written transcript should be prepared and handed over to the whistleblower. In the case of an oral report, the whistleblower must be warned of the consequences of reporting in bad faith, the procedural rules governing the investigation of the report and the fact that their identity – if they provide the information necessary to establish it – will be treated confidentially at all stages of the investigation.
- A written acknowledgement must be sent to the whistleblower within 7 days of the reporting, providing general information on the procedural and data management rules under the Act.
- The report must be investigated within 30 days.
- A report may be rejected (as in not investigated) if:
- the report was made by an unidentified whistleblower,
- the report was not made by a person entitled to do so by law,
- the report is a repeated report by the same whistleblower with the same content as the previous report, or
- the limitation of rights resulting from the investigation is disproportionate to the reported harm.
- What to do with anonymous reporting? It is up to the entrepreneur. It may be rejected, but the entrepreneur may also decide to investigate.
- In the event of a substantive investigation of the report:
- a written final document must be drawn up on the report, its investigation and the outcome of the investigation (this may be done orally, but this cannot be proven later, so it is not recommended)
- if it seems justified, a report should be filed to the police (there is no discretionary power! you may need the help of an attorney at law in this matter!)
The regulation sounds complicated, but it is actually not. You will need an initial information template, a final information document and an independent person to manage the system. And keep in mind that this is not just another administrative burden (as much as it may seem so), but the interest of all of us, and most of all of the entrepreneur (e.g.: a good system may sooner reveal if a cashier regularly takes a little for themselves or someone swiping from our stock).
And lastly, anyone who fails to comply with their legal obligations is committing an infraction under the provisions (also in force as of today...) of the Infractions Act! Possible legal consequences:
- infraction confinement
- fine
- community service
- admonition
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