Settlement Agreements offer the quickest solution to the problem of termination by eliminating the risk of litigation.

Although settlement agreements are not regulated under the Turkish Labor Code, they are among the most frequently preferred options by the employers to terminate an employment relationship. Furthermore, when in compliance with the conditions that have been set for settlement agreements through established precedent at the Court of Appeals, employment termination through execution of a settlement agreement with the employee will be deemed valid by the labor courts and former employees will not be entitled to claim any receivables beyond those set out in the agreement.

As per established precedent of the Court of Appeals, the below-listed conditions must be fulfilled in order to achieve a valid settlement:

Employee Initiation & Receivables

Termination of employment through the execution of a settlement agreement must be in favor of the employee. For this reason, the Court of Appeals states that the settlement process should be initiated by the employee and not the employer to be valid. When faced with potential litigation, the labor courts will have the discretion to determine whether the settlement agreement is in favor of the employee based on the specific case facts. When making this determination, the Court of Appeals will not only look at who made the first offer for settlement but will also consider the additional benefits provided to the employee by the employer through the settlement agreement. If the employee receives benefits or payments through the settlement agreement in addition to the statutory employment receivables, it is likely that the labor court would rule that the settlement is in favor of the employee.

No Postponement

When the settlement agreement has been executed, the last day of employment for the employee should be the same day as the execution date of the settlement agreement. In other words, the enforcement date of the settlement agreement should not be postponed. 

The Agreement was Signed Freely

When faced with potential litigation, the labor courts must determine whether or not the employee executed the settlement agreement at his or her own will and without any pressure from the employer. To that effect, a written statement from the employee stating that the employee requests termination of the employment relationship with the employer through a mutually agreed and executed settlement agreement as of a certain date is preferred. This works in favor of the employer in terms of providing evidence that the agreement is in favor of the employee as well.

Resignation Letter

On top of the foregoing, one of the most essential factors taken into consideration by the Court of Appeals while deciding the validity of a settlement agreement is the existence of a letter of resignation written by the employee. In cases where an employer receives a letter of resignation from an employee while simultaneously executing a settlement agreement, the Court of Appeals is inclined to rule that the employee was not acting of his or her own will, and therefore, the letter of resignation and settlement agreement were signed by the employee under duress. Accordingly, the Court will likely deem the settlement agreement invalid.  

It should be noted that the Turkish Labour Courts review the conditions of settlement agreements terminating employment relationships in an employee friendly manner. The Courts evaluate whether the employee could be reasonably expected to sign such an agreement rather than filing a reinstatement lawsuit.

Distribution of Receivables

Amount to be Paid

As noted above, one of the most essential factors of a settlement agreement is the additional benefits offered to the employee in addition to the statutory employment receivables (such as unused annual leave, unpaid salaries and bonuses, unpaid overtime, car allowance, other benefits, etc.). When executing a settlement agreement, the employer should pay all statutory employment receivables to the employee as if it were a regular unilateral termination by the employer. With that being said, precedent has shown that the payment of statutory employment receivables is not enough and an additional compensation payment should also be paid to the employee for the Court to view the settlement as valid.

The established precedent of the Court of Appeals is the road map to determine the amount of additional compensation to be paid, and the Court of Appeals will likely find that an employee does not have reasonable interest in executing a settlement agreement if the additional compensation payment is less than his or her four months’ salary.

Although four months’ salary is the minimum acceptable amount for a valid settlement agreement, in some cases the Court of Appeals may require the payment of an additional compensation exceeding four months’ salary depending on the reason behind execution of the settlement of employment agreement, length of employment, and sectoral practice (for example, in the pharmaceutical sector, the minimum additional payment amount is 8 months’ of salary). The Court of Appeals precedents allow employers to determine the minimum amount of additional compensation payment based on length of employment of the employee as show in the below chart:

Length of Employment

Amount of Additional Compensation Payment

from 6 months up to 5 years

4 months’ salary

5 years between 15 years

5 months’ salary

More than 15 years

6 months’ salary

It should be noted that these additional payment amounts only act as a guideline for employers, and the employers may opt for offering a greater payment regardless of the length of employment to ensure a bulletproof settlement agreement. Although additional compensation is not a standalone condition for the settlement agreement’s validity, it is safe to say that the payment amount plays an important role in terms of determining validity of a settlement agreement.

Timing of Payments

On another note, timing of the payments under the settlement agreement is of importance as well. In that respect, the Court of Appeals’ precedents rule that the statutory employment receivables should be made on the execution date (last day of employment) at the latest, and the additional compensation payment may be made at a later date. 

Conclusion

Although settlement agreements have a deterrent impact on employees to initiate a reinstatement lawsuit in practice, one should also bear in mind that the execution of a settlement agreement does not fully prevent the employee from claiming reinstatement and thus claiming further compensation by arguing that the settlement agreement was executed under duress. As labor courts in Turkey generally render their decision in favor of the employees, there is always a risk that the court may hold under certain conditions that the settlement agreement is invalid.