Turkish Law Blog
Legal Effects of COVID-19 on Rent Payments and Employment
The novel coronavirus (SARS-CoV-2) and the Covid-19 disease it is causing are having an unprecedented impact on business and commercial activities all around the world. The pandemic has also reached Turkey and effectively paralyzed the industry and nearly all commercial activities, except for a few select businesses. To help companies and employees navigate the complex structure of new legislations and mechanisms introduced during this period, we have prepared this Covid-19 Legal Guideline briefly reviewing the key issues and legal effects of Covid-19 on rent payments and employment.
When it became clear at the beginning of March 2020, that the pandemic had reached Turkey and that it was not possible to contain it without strict measures, the government imposed a semi-lockdown procedure. Accordingly, on March 15, the Interior Ministry issued a public mandate to all governorship offices in Turkey, ordering all public rest and entertainment venues (bars, restaurants, cafes, hotels, etc) to be closed until further notice. This mandate order is still in effect and all public rest and entertainment venues (except for hotels) are still closed pending further notice from the Ministry. Realizing that this order, together with the economic impact of Covid-19 will have a serious adverse effect on company incomes, the government also issued certain legislative changes to protect the businesses. The two key issues, which these changes try to address, are rent payments for office spaces and the salary payments of company employees.
II. Rent Payments for Office Spaces
a. Brief Review of Legislative Amendments
Following the closing down of certain businesses with the above-noted mandate, one of the first legislative changes introduced was about office rent payment obligations, which constitutes a significant portion of company expenditures for certain businesses, especially for small and medium-sized businesses.
According to the Provisionary Article 2 of Law No. 7226, non-payment of rent fees of office spaces between March 1, 2020, and June 30, 2020, cannot be used as valid grounds for termination of rent contracts and/or eviction from the property by the property owners. Therefore, if a company fails to pay the rent fees for March, April, May and/or June, these non-payments cannot be held against the company by the property owner and be used as valid grounds for contract termination and/or evictions.
However, the Provisionary Article 2 only contains restrictions for termination and eviction, and does not contain any provisions regarding the maturity of the rent fee debts. To explain it in a more simple manner, this article does not actually allows for the temporary suspension of the liability to pay these rent fees, but rather provides a layer of protection for the companies by limiting the rights of the property owners to terminate the contract and/or eviction. So, technically, these rent fees will continue to accumulate even if a company/business does not pay them and even if the property owner cannot terminate the contract or evict the company/business for these non-payments, which means they will also accrue interest during this period of non-payment.
b. Legal Ramifications Moving Forward
It should be noted at this point that the current situation is uncharted territory, and these are new provisions that are not yet tested before the courts, with no court precedents available for the new legislative changes. As a result, there are different opinions on how this new framework will be applied to different companies, especially regarding the temporary suspension of rent fee liabilities and revision of rent fee amounts due to extraordinary circumstances. Since the new framework only provides a basic protection from termination and eviction, the general provisions of the Code of Obligations will need to be reviewed in order to determine whether any of these options will be applicable to a specific situation.
As it stands, the general consensus is that, if the company is one of the businesses affected and closed by the abovementioned mandate (public rest and entertainment venues) or located within a shopping mall (which are also partially closed), then these companies will not be required to pay any rent and their liabilities regarding rental fees will be deemed to have been suspended until they are allowed to operate again (meaning they will not be required to pay any rent at all during this time, and property owners cannot claim rent fees for this period in the future). For businesses not affected by this mandate, there are two different scenarios; the first is the businesses that are inadvertently affected economically due to the pandemic and have lost a considerable percentage of their income, and the second is the businesses that have not experienced any negative impact due to their business model and/or products. It is clear that companies in the latter group (with no negative impact) will not be able to suspend their rent fee liabilities and/or request a revision of the rent fees, as they have no valid grounds for such claim. Whereas for the companies in the former group, the ones affected negatively and have suffered economic blowbacks due to the pandemic, it may be possible to claim for a temporary suspension of rent fee liabilities, or request a re-evaluation of the rent fee due adverse economic effects of the pandemic.
III. Salary Payments of Employees
The second key issue for companies is the position of the employees and their salary payments and other benefits. This is especially a problem for medium sized and/or large companies with high numbers of employees in their payroll, as the expenditures can quickly snowball without any significant income. To remedy this issue, numerous legislative amendments have been introduced, providing several different relief schemes for both the employees and the companies.
a. ISKUR Salary Relief (Short Term Work Allowance)
As one of the first announced, ISKUR provides some relief regarding salary payments of company employees. In order for the employees to benefit from this salary relief, the employer needs to submit an application, which ISKUR will review and if the criteria are met, will award temporary salary relief payment to the employees for a maximum of 90 days. It is important here to note that these relief payments will be paid directly to the employees and not to the company. There are separate eligibility criteria for such applications, for both the employer and the employee. Accordingly, the employer will need to show that the business and the work place is experiencing a full or partial temporary shutdown due to adverse economic affects, whereas the employees will need to be employed by the relevant employer for at least the last 60 days, and will need to be employed at least 450 days (15 months) within the last 3 years, with full payment of social security and unemployment insurance premiums.
The ISKUR payments are capped at %60 of the employees’ wage and they are also capped at %150 of the gross minimum wage. So the cap is %60 of the salary and %150 of the gross minimum wage, which means that the actual cap for these payments is TRL 4.415,50 per month (certain tax payments such as stamp tax will also be deducted from this amount).
b. Mandatory Unpaid Leave
This is another option provided to the employers, implemented with the recent legislative amendments set forth at the Law No. 7244 (published at the Legislative Journal on April 17, 2020.
Normally, for a company to send its employees on unpaid leaves, it needs to obtain specific and explicit consent from them. However, the new Law sets forth a new provision, with the temporary article 10 added to the Labor Law with article 9 of this new Law No. 7244, allowing the employers to send their employees on unpaid leaves for a duration of three months, without explicit consent. The provision also sets forth that the relevant employees will not have the right to unilaterally terminate their employment contracts based on justifiable grounds due to being sent on unpaid leaves. Accordingly, all companies and/or employers now have the right to send any one of their employees (or all of them) on temporary unpaid leaves for a duration of three months and cease all salary payments to such employees during this leave duration, without obtaining their consents to do so.
In order to protect the employees during this mandatory unpaid leave period, this new Law also introduced a provision to provide additional salary benefits to such employees. According to the Temporary Article 24 added to the Law on Unemployment Insurance No. 4447, with this new Law No. 7244, employees who are sent on unpaid leaves shall be eligible to obtain a payment relief on a rate of TRL 39,24 per day (or TRL 1.177 per month), from which stamp tax duty will also be deducted.
c. Temporary Suspension of Employment Contract Terminations
Another measure implemented to protect employee rights is the temporary suspension of employment contracts. According to the temporary article 10 added to the Labor Law with article 9 of this new Law No. 7244, employers shall not be able to terminate employment contracts for a period of three months, unless the termination is due to one of the reasons noted in Article 25/1/II of the Labor Law (which are justifiable grounds due to the violation of good faith and good morals principles by the relevant employee). Therefore, it is no longer possible for a company to terminate the employment contracts of its employees until July 17, 2020 (with the exception of the provisions noted in Article 25/1/II of the Labor Law).
As noted above, several measures and legislative changes were implemented in Turkey, which aims to protect both the companies and the employees. This, of course, is a double-edged sword, as trying to protect the interests of the employers and the employees at the same time can be tricky and requires a delicate balance. These issues aside, such measures and salary payment and allowance options will hopefully provide some relief to both sides in the business during the pandemic situation and remedy some of the legal effects of Covid-19 on rent payments and employment.