The penal clause is a mechanism employed to indemnify the losses which occur or may occur when one party to an agreement does not fulfill his obligations, or to enforce a negligent party to fulfill his obligations as per the agreement. Pursuant to the principle of freedom of contract accepted in Turkish legal system, a penal clause may be stipulated in agreements and its amount may be determined by the parties. However, this freedom is not unlimited and it is possible to nullify the penal clause or reduce its amount in accordance with equity.
Penal Clauses in Employment Agreements
Since there is no explicit provision in Labor Act No. 4857 (“Labor Act”) on penal clauses in employment agreements, provisions of the Code of Obligations No. 6098 (“Code of Obligations”) and general principles of labor law shall be considered. Within this scope, a penal clause may be, in principle, stipulated in an employment agreement as a measure in favor of both the employer and the employee against the risk of termination of said agreement.
A penal clause may be stipulated to “limit the right of the employee to terminate the agreement”. Therefore, in the event the employment agreement is terminated before the determined period of time, the party who terminates the agreement unlawfully shall pay an amount as a penalty to the other party. In practice, such clauses are included mainly in agreements made with skilled employees. The purpose of such a practice is to prevent the employer from suffering a loss while seeking another skilled employee to replace the skilled employee who terminates their employment agreement. However, the termination rights which favor the employee, as stated in the Labor Act, cannot be invalidated by a penal clause.
Another type of penal clause, which may be stipulated in an employment agreement, is ‘the penal clause related to employee training costs’. In order to improve employee efficiency, the employer may pay for vocational training for the employee. As a safeguard against a loss on its investment, an employer may include a penal clause in order to prevent an employee from terminating an employment contract before the employer has been able to reap the benefits of the vocational training provided. Therefore, it is possible to include a penal clause in an employment agreement which stipulates an employer’s right to claim the vocational training costs from an employee where an employee terminates the agreement before the determined period of time, or where the employer terminates the agreement for just cause.
However, the Court of Cassation requires the establishment of an equivalence between ‘the training provided for the employee’ and ‘the amount which should be paid by the employee’ when determining the validity of a penal clause regarding vocational training costs. The employer may not claim an amount which exceeds the cost paid for the employee vocational training; and the employer may claim only the factual costs from the employee. Accordingly, the Court shall determine the penalty amount by taking into consideration the cost incurred by the employer. For instance, the decision of the 9th Civil Chamber of the Court of Cassation dated 16.12.2002 and numbered 2002/9301 E., 2002/23749 K. clarifies that the employer may request only the training expenses which could be proved and that any amount exceeding the proven expenses should be rejected.1
Another type of penal clause, which may be stipulated in an employment agreement, is ‘the penal clause restricting the termination rights of the employer’. The termination rights of the employer may be restricted by penal clauses within the scope of legal and reasonable grounds. Accordingly, it is ensured that the employer fulfills its obligations. Otherwise, the loss of the employee shall be compensated and the provisions with respect to job security shall be exercised.
Validity of Penal Clauses in Employment Agreements
The Court of Cassation has adopted in its decisions some limitations with regards to penal clauses stipulated against the employee and considers penal clauses that do not respect these limitations partially or wholly null and void. The basic requirement sought by the Court of Cassation to validate penal clauses is ‘reciprocity’. Reciprocity in penal clauses means: stipulating a penal clause for both parties and this penal clause should be equal or equivalent for both parties. The decision of the 9th Civil Chamber of Court of Cassation dated 07.05.2002 and numbered 2002/2161 E., 2002/7195 K.2 states that: “According to our Chamber’s opinion, in the event it is determined that there is no equivalence in the penal clauses for the employee and the employer, in other words in case there is a more severe penal clause against the employee, the liability of the employee cannot be heavier than that of the employer’s.”
Accordingly, the lawmaker has adopted the reciprocity principle with regards to penal clauses, and Article 420 of the Code of Obligations regulating the penal clause in service agreements states that any penal clause stipulated only against the employee is null.
Another condition along with the reciprocity principle for an employment agreement containing a penal clause is that the agreement between the employer and the employee should be a fixed term employment agreement. The expiration date of an indefinite term employment agreement cannot be determined, and it is not possible to include a penal clause which is forever binding.
Penal clauses may be stipulated in employment agreements to limit the termination rights of both employer and employee. However, the penal clause shall remain valid unless it violates the personal rights of the debtor, law or morality. Within this scope, the purpose is to prevent working conditions from being determined solely by the employer, since the employee is economically dependent on the employer. As a result, it can be stated that the freedom of contract is restricted in favor of the employee who is economically the weakest party to the agreement.
1 Özdemir, Erdem; İş Hukukunda Eğitim Karşılığı Öngörülen Cezai Şart, p. 148, fn. 23.
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