Compensation for Material Damage Caused by an Employee to the Employer

In employment relations, there may be cases where an employee causes material damage to the employer while performing their work. In such cases, in addition to the termination of the employee's employment agreement for just cause or valid reason, the compensation of the material damage incurred by the employer also comes into question. In this article, we examine the compensation of material damage caused by the employee towards the employer while performing work.

Termination of the Employment Agreement for Just Cause Due to Material Damage Caused by an Employee to the Employer

As part of their duty of loyalty, employees must act with diligence in carrying out their responsibilities under their employment agreements and take all necessary steps to protect the employer's interests. Due to these duties, Article 25/II-ı of Labour Law No. 4857 (the “Labour Law”) states that an employee's employment agreement may be terminated with just cause if, through their own actions or negligence, they jeopardise workplace safety, cause damage or loss to equipment, installations or other items that belong to the workplace or are available for use there, to the extent that they are unable to cover the cost of the damage with thirty days' wages.

Two different grounds for termination are mentioned in Article 25/II-ı. One of the grounds for termination with just cause is when an employee, intentionally or by negligence, puts the safety of the workplace in jeopardy. Even in situations when there is no risk to the workplace's safety, the same subparagraph states that an employee’s employment agreement may be terminated for just cause if they cause damage to the point that they are unable to pay for it with thirty days' wages.[1]

Based on the decisions of the Court of Cassation, if an employee destroys or misappropriates equipment, installations or other items that belong to the workplace or are available for use there, to the extent that the damage cannot be covered by thirty days' wages, the employment agreement can be terminated regardless of whether the employee's actions causing the damage were intentional or careless.

The Labour Law does not say whether the employee's thirty days’ wages should be calculated using the gross or net wage. The principle of “interpretation in favour of the employee” dictates that the gross salary must be considered, as per the decisions of the Court of Cassation. Again, the Court of Cassation notes that the “wages” mentioned in Article 25/II-I should be taken into consideration in its narrow sense. This means that bonuses, premiums, overtime pay and similar payments should not be considered within the thirty days’ wages. Furthermore, the employer’s right to terminate the employment agreement for just cause is not affected by whether the employee has paid or will pay the damages immediately. The fact that the employer has not demanded the compensation of damage from the employee has no negative effect on the right of termination either.[2]

Compensation of Material Damage Suffered by the Employer in Accordance With the General Provisions

In addition to terminating the employment contract with reasonable cause, the employer may also pursue reimbursement for any significant loss experienced by claiming compensation in line with the general provisions. Article 26 paragraph 2 of the Labour Law reserves the right of the employer to claim compensation against an employee whose employment agreement has been terminated with just cause.

On the other hand, while Article 396 of the Turkish Code of Obligations No. 6098 (the “TCO”) states that the employee must perform the work undertaken with due diligence, the specific level of necessary diligence is not specified. The employee is liable for any damage that they cause to the employer, as stated in Article 400 of the TCO. In the second paragraph of the same article, it is mentioned that, in determining the liability, the employee’s abilities and qualifications, as well as whether the work is dangerous or not, and whether it requires expertise and training, should be taken into account. It is undisputed that both the subjective and objective characteristics of the employee will play an important role in determining their liability, in addition to the nature of the work.

Accordingly, pursuant to both the Labour Law and the TCO, the employee may be obliged to indemnify the employer for any material damage caused by their fault, as well as the termination of the employment agreement without being entitled to any compensation. The action for the compensation to be filed for the reimbursement of the material damage an employee causes to an employer while performing work is handled by the labour courts.

Unilateral reports and witness statements are insufficient to assess the damage an employee has caused to the employer. Instead, the damaged tools and the scene of the occurrence should be examined by experts to ascertain the exact amount of damage.[3]

Another examination should be conducted to determine whether the employer shares responsibility for the damage incurred. The employer must assign the worker to a position that is appropriate for their level of expertise, offer the equipment and supplies needed for the job, give the right directions and instructions, and ensure that the work is organised and performed without errors.[4]

Deduction of the Amount of Material Damage Incurred by the Employer From the Employee’s Wages

Pursuant to paragraph 2 of Article 407 of the TCO, an employer is not allowed to set-off an employee’s debts from the employee’s wages. To collect the debt, the employer should file a lawsuit or initiate enforcement proceedings against the employee.

However, wages can be automatically and lawfully deducted where the employee has given their written consent.

Another situation envisaged by the TCO, which enables the employer to compensate for the financial damage by deducting the employee's wages, is the existence of debts resulting from damage that an employee wilfully caused, as established by a court. In such a case, however, the deduction to be made by the employer from the employee's wages should not exceed one – fourth of the wages in a month, in accordance with Article 35 of the Labour Law.