Melek Onaran Yüksel İsmail Emrah Karadağ June 27 2012 New Code of Obligation regulates termination of employment contracts YükselKarkınKüçük Attorney Partnership | Employment & Immigration - Turkey Melek Onaran Yüksel, İsmail Emrah Karadağ Employment & Immigration Expiration of contractTermination of contractCompensationThe provisions regulating the termination of employment contracts under the new Code of Obligations, which will enter into force on July 1 2012, comprise a number of remarkable changes and new approaches, not only for employees who work within the scope of the code, but also for those who work within the scope of the Labour Law.Expiration of contractUnder the previous Code of Obligations, which is still in force, when a fixed-term employment contract is implicitly continued, the employment contract will be deemed as prolonged for the same period, but for a maximum of one year. Under the new code, unless agreement is made to the contrary, the fixed-term employment contract will be terminated upon expiration. Where such contract is implicitly continued, it shall become an flexible-term period employment contract. The same consequence will apply where it is determined that the contract is to be terminated with a notification, but none of the parties terminates the contract.Furthermore, under the new code the execution of consecutive fixed-term employment contracts is conditioned on the presence of an essential cause. Since there is a special provision in the law, this provision will not apply to employment relationships that are subject to the Labour Law. However, the regulation of the law is the same as that of the new code.Termination of contractOn death of partiesUnder Article 440 of the new code, on the death of an employee, the employment contract will be terminated. However, the employer must pay an amount equal to one month of the employee's wages to the spouse, children and any dependants of the employee. Where the employment relationship had continued for more than five years, the payment amount will be equal to two months' wages.This regulation will apply to those relationships that are subject to the new code. However, it is questionable whether this provision will also apply to those employment relationships that are subject to the Labour Law, where the employer must pay severance payment following the death of an employee. As the new code is not currently enforced, it is not possible to conjecture how it will be applied. However, according to legal doctrine, it is expected that the provision will be applied to those employment relationships that are subject to the law, in addition to the severance payment.The new code regulates that a contract will be terminated on the death of the employer only where the employer is the basis of the contract. Otherwise, the employer's successors will take his or her place in the contract. This regulation is a reflection of the principle of universal succession. The provision further regulates that the transfer of an employment contract due to business transfer will be applied while determining the obligations of successors.Fixed-term employment contracts Article 435 of the new code regulates that each party may terminate the employment contract with a written termination notification, based on just cause without notice. It further regulates that all circumstances and conditions under which the party cannot be expected to continue the employment relationship, within the framework of good faith, are just causes. For employment relationships that are subject to the Labour Law, the termination notification must also be in written form, since it is not regulated under the law.Neither the code nor the law regulate the legal consequences of termination of a fixed-term employment contract when not based on just cause. However, the new code establishes new principals regarding this subject that apply to all employment relationships.Under Article 438 of the new code, where the employer terminates a fixed-term employment contract without notice and without basing such termination on just cause, the employee may request compensation equal to the amount that he or she could have acquired until expiration of the contract. However, the earnings that the employee has acquired or refrained from acquiring from another job may be deducted from the compensation.On the other hand, where the employee does not start work or leaves the job instantly without just cause, the employer may request compensation equal to one quarter of the employee's monthly wage. The employer also reserves the right to request additional compensation for damages that cannot be compensated with the above-mentioned amount. Where the employer's loss is lower that such amount (or the employer does not suffer a loss), such compensation may be reduced. The employer must make such requests for compensation within 30 days.Flexible-term employment contractsThe new code sets forth variable notice periods, depending on an employee's seniority, as follows:two weeks for employees whose seniority is less than one year;four weeks for those whose seniority is between one year and five years; andsix weeks for those whose seniority is greater than five years.However, since the Labour Law specifically regulates notice periods, the provision of the new code will not apply to employment relationships that are subject to the law. Furthermore, the notice periods may be prolonged by the contract, provided that the notice period remains the same for both parties.The above-mentioned provisions of the new code regulating the termination of a fixed-term employment contract based on just cause will also be applied for flexible-term employment contracts. However, the provisions cannot be applied to employment relationships that are subject to the law, since Articles 24 and 25 of the law are special provisions.CompensationBad-faith compensationUnder Article 435 of the new code, where an employer abuses its right to terminate the employment contract, the employer must pay bad-faith compensation equal to three times the amount of the employee's notice period payment. The same provision is regulated under the Labour Law, but only for those employees who are not within the job security provisions of the law. Therefore, the new code will not apply for employment relationships that are subject to the law. This provision also applies for terminations brought by employees.Termination compensation Under the new code, where an employer terminates the employment contract without basing such termination on just cause, the judge may decide that the employer shall pay compensation to the employee, provided that the amount of the compensation does not exceed six months of the employee's wages. In determining the amount of compensation, the judge must consider conditions such as the seniority of the employee, the gravity of the illegal termination, whether the employer terminated the contract by abusing its right and the economical situation of the parties.This provision shall further apply to flexible-term employment contracts. Therefore, this regulation may be problematic in application. Hence, where the employee is within the scope of the law, the employee will receive compensation in addition to a severance payment and wages for the period that he or she did not work.Notice paymentThe notice periods for flexible-term employment contracts are set forth under the new code. Employers may terminate the contract without giving the above-mentioned notice period by paying the wage of the employee corresponding to the notice period. For employment relationships that are subject to the law, notice periods shall be determined under Article 17 of the law.The new code is ambiguous regarding the compensation that can be requested by the employer when an employment contract is terminated by the employee. However, a provision of the new code that states "in case the employee does not start to work or leaves the job instantly without basing on just cause, the employer may request compensation equal to one quarter of the employee's monthly wage" will also be applied to those flexible-term employment contracts that are not subject to the law.For further information on this topic please contact Melek Onaran Yüksel or İsmail Emrah Karadağ at YükselKarkınKüçük by telephone (+90 212 318 05 05), fax (+90 212 318 05 06) or email ([email protected] or [email protected]).