Mutual Termination Agreements under Turkish Labour Law (“MTA’s”)

As a result of the “freedom of contract” principle, which is accepted in all cases except for the special restrictions in Turkish Code of Obligations no. 6098 (“TCO”), the employer and the employee may terminate the employment contract at any time with a mutual agreement. At this point, there is no difference whether the employment contract is indefinite or fixed-term.

The agreement to terminate the employment contract in this way is called "mutual termination agreement" (“MTA”) . However, this way of mutual termination is not regulated in Turkish Labour Law No. 4857. In a jurisprudence of the Court of Cassation, it was explained that “as a result of the freedom of contract, it is also possible to terminate a previously accepted legal relationship, and that the parties may terminate the contractual relationship other than the natural termination of the contract, thus, the name of this transaction was stated as “mutual termination agreement”.)

Since this way of mutual termination is a “contract”, Articles 26 and 27 of the TCO on freedom of contract and Articles 30 et seq. regulating the defective must be strictly applied.

In this case, it is not possible to apply the rights that may arise in favor of the employee due to the termination made by the employer (or employee) and the provisions with Validity of MTA’s regards to employment security rights under Turkish Labour Law No. 4857. In addition, the employee will not be entitled to unemployment insurance benefits in accordance with the provisions of The Unemployment Insurance Law No. 4447.

In the decision of the 9th Civil Chamber of the Court of Cassation numbered 6394 E., 13549 K., the following judgment was established in the same direction: "In the event that this offer is accepted by the employee, since there is a mutual termination of the employment contract, it should no longer be investigated whether the reasons for the termination of the employer's mass layoffs are valid or not. In other words, in the case of a mutual termination agreement, whether the termination is the last resort or whether the employee's choice is in accordance with objective criteria should not be subject to judicial review, and reinstatement should not be made unless there is a situation that cripples the employee's free will"“

1. Validity of MTA’s

In order for the MTA to be valid, it must meet certain conditions according to the decisions of the Court of Cassation. The validity and consequences of the mutual termination agreement differ depending on whether the offer is made by the employee or the employer.

1.1. Offer made by the Employer

In the event that the offer for MTA is made by the employer, two basic conditions are taken into consideration for the validity of the MTA in order to protect the rights of the employee:

a. Satisfying the reasonable benefit of the employee

In the condition that the reasonable benefit of the employee is met; it is required that additional payments are made to the employee together with the all legal indemnities including severance pay, payment in lieu of notice (“PILON”) and that the employee has signed the agreement without reservation. If a reservation is explicitly made by the employee in the MTA, there can be no agreement here. For the validity of the MTA, the last salary of the employee and the amount of payment to be made to the employee must be specified in gross and net terms. When the decisions of the Court of Cassation are examined, it is understood that the position, education and salary of the employee are taken into consideration when evaluating the reasonable benefit criterion. However, it is understood that it is sufficient to make an additional payment in the amount of 4 months' salary for workers who work in senior positions such as managers, directors, etc. and have a high level of education and salary.

b. The employee signs the contract with his/her free will without being under pressure

In the condition that the employee has signed the rescission agreement with his/her free will, it is required that the employee has not been pressured in any way during the signing of this agreement. While evaluating this condition, issues such as the position and education level of the employee at the workplace are also taken into consideration. The Court of Cassation has adopted the view that if the position and education level of the employee at the workplace are high, the employee will be able to better foresee the consequences of the MTA.

1.2. Offer made by the Employee

In the event that the offer for MTA is made by the employee, unlike the case where the offer is made by the employer, it is accepted that the MTA takes place provided that the employee is paid severance pay and payment in lieu of notice. In this case, there is no need to provide a reasonable benefit to the employee other than severance pay and PILON if there is an obvious written document provided by the employee. However, in its decisions regarding this situation, the Court of Cassation strictly controls whether the will of the employee has been frustrated, whether a collective rescission transaction has been made by the employer in the workplace, witness statements, whether there is a document bearing the signature of the employee stating that the offer came from himself/herself.

2. MTA’s related to type of Employment Contract & Employee’s

In practice, regardless of the type of employment contract (fixed-term, indefinite-term, full-time, part-time employment contracts) or the type of employee (blue-collar or white-collar), if the above-mentioned issues are met, it can be subject to a MTA.

In many cases, especially white-collar workers do not want their employment contract to be terminated by the employer. Termination of the employment contract by the employer may have negative consequences in terms of reference and may lead to hesitations such as "why did the previous employer dismiss you?" in the workplaces to be applied later. In such cases, the parties may terminate the employment contract, through a MTA.

Also, it may be more difficult to prove that the MTA’s invalidity, especially for white-collar workers with a high level of education. Due to their position and education level, it can be assumed that these employees will act consciously and will not sign a contract that is against them. Therefore, employees with a high level of education and position will need to focus more on proving the termination of will in the legal process they will follow.

In an adopted decision of the 22th Civil Chamber of the Court of Cassation numbered 2012/6394 E.- 13883 K. ; "In the concrete case, it is established by the entire file that the plaintiff, who worked as a Salesperson in the defendant workplace, was offered by the employer to terminate the employment contract by MTA by paying 4 months salary  in addition to severance and PILON, and that the plaintiff accepted this offer and signed the contract and thus the employment contract was terminated. Considering the educational status of the plaintiff, his position and duty within the company, and the extra payment of four MTA under pressure is not credited. The case law of our Chamber in precedent cases is in the same direction. Since the employment contract between the parties was terminated by rescission, it was erroneous to decide to accept the lawsuit instead of rejecting it, and the judgment had to be reversed for this.”

On the other hand, since white-collar employees have higher positions, education levels and salaries, it is important to determine the reasonable benefit criterion in line with the decisions of the Court of Cassation stated above. It is understood that it is sufficient to make an additional payment in the amount of 4 months' salary for white-collar workers such as managers, directors etc.

In a specified Court of Cassation decision numbered 2016/4157- 12109 K, the following judgment was established; "In addition to the severance and notice indemnities, it has been decided that the plaintiff will be paid an additional payment of 14,724.16 TL, including 2 months of gross wages, including the remaining wage receivables. According to the established practice of our Chamber, in cases where the offer comes from the employer; in addition to the severance and notice indemnity, an additional payment must be made in an amount that will meet the reasonable benefit of the plaintiff. Although the amount of this additional payment may vary according to the characteristics of each concrete case, such as the seniority of the plaintiff at the defendant workplace, the job description and the amount of the last wage and the social and family situation of the plaintiff; it is clear that an additional payment in the amount of 2 months' wage will probably not meet the reasonable benefit.(...)"

In order to minimize the risks, we are of the opinion that it is necessary to make an additional payment of at least 4 months' salary to the employee in order to ensure reasonable benefit. What is important in the assessment to be made in terms of reasonable benefit is that, apart from all legal entitlements (severance and pilon, overtime and annual leave etc.), the additional payment should be specified separately in the payment. But, if the employee is a blue-collar, additional payment in the amount of 4 months salary may not be considered sufficient depending on the circumstances.

3. Legal Consequences of the MTA’s

Even if there is a legally valid MTA, the employee still may file a reemployment lawsuit. However, the existence of a legally valid mutual termination agreement is a strong evidence for the reemployment lawsuit to be rejected. The employee whose employment contract is ended with a valid MTA will not be able to benefit from unemployment benefits within the scope of unemployment insurance. However, the employee will be able to receive the wages of the unused annual paid leave in accordance with the provision of Article 59, paragraph 1 of the Labor Law No. 4857 "Termination of the employment contract for any reason...".

4. Notification to the Social Security Institution (“SSI”)

In case the employment contract is ended with MTA, a notification should be recommended to be made to  the SSI under the code "22-other reasons" within 10 days from the date of agreement. Otherwise, If it is notified to the SSI under other codes, here is a risk that the employee may later claim that this is not a valid MTA within this code.

5. Conclusion

In conclusion for the reasons explained above;

When the case law of the Court of Cassation and the concrete situation are evaluated together, the mutual termination agreement (“MTA”) in question may be preferred as an appropriate way in order to end the employment relationship. Regardless of the type of employment contract or the type of employee (blue-collar or white-collar), it can be subject to a MTA if the above-mentioned issues are met. Otherwise, in the event that the employment contract is terminated for a reason other than MTA, the employer will have to pay all severance and notice indemnities to the employee again, and it will be possible for the employee to file a reemployment lawsuit against the employer. In order to conclude a valid MTA, in addition to severance pay, payment in lieu of notice, overtime, annual leave and other legal receivables, in order to minimize the risk, it is seen that the MTA will be valid and will give rise to its legal consequences if an additional payment of at least 4 months' salary is made to the employee.

Tagged with: Özoğul Yenigün & Partners, Berrak Kayan, Evrim Uygur Yamaner, Labor & Employment, MTA, mutual termination agreement