Employment contracts may be terminated by mutual agreement of the parties. The legal basis of mutual termination agreements is rooted in "freedom of contract" as a constitutional right. An employer and employee terminate an existing employment contract through a "mutual termination agreement".
Alternate ways to terminate employment contracts include where notification is exchanged between an employer and employee according to statutorily defined periods, and immediate termination on just grounds, on the death of an employee and at the end of the agreed period of employment contracts with a definite term of duration. After 2003, mutual termination agreements became widespread in practice as a means to avoid the legal and financial risks attached to invalid termination due to the "job security" provisions under the Labor Law No. 4857.
Required Actions for Preparation of a Valid Mutual Termination Agreement
A specific provision regarding mutual termination agreements is lacking from the Labor Law. However, Supreme Court decisions have pointed out several times that since mutual termination agreements are of a "cancellation agreement" nature, in terms of legal status, they are subject to the general provisions of the Code of Obligations.
The validity of the mutual termination agreement does not depend on any required specific form. Thus, a mutual termination agreement may be executed either explicitly or implicitly, orally or in writing. In absence of a required form as a prerequisite for validity, the form of the agreement is of great importance in terms of proof. Therefore, it would be beneficial to execute a mutual termination agreement in writing in order to demonstrate the common will of the parties regarding cancellation of the employment contract.
The key condition in the execution of a valid mutual termination agreement is the existence of the "reasonable benefit criteria" which has emerged as a result of court adjudication. The Supreme Court attributes the validity of the mutual termination agreement to the existence of a reasonable benefit from the employee's perspective. The main motive underlying the Supreme Court's "reasonable benefit" criteria in mutual termination agreements is the opinion that since the employee shall be granted with severance and notice payments in the employer's termination of the employment contract, preferring another method which is not more beneficial cannot be considered suitable within the ordinary course of life. Therefore, in several cases and especially when the request to execute a mutual termination agreement is made by an employer, the Supreme Court expects certain additional benefits amounting to "reasonable benefit" in addition to the statutory entitlements which would have been paid under termination by the employer, rather than through a mutual termination agreement. Several Supreme Court decisions have invalidated mutual termination agreements, rendering employment cessation equivalent to 'termination by the employer' where they lack additional payments or benefits, and accordingly, the related lawsuits for reemployment have been accepted by the Supreme Court. On the other hand, where a mutual termination agreement is demanded by an employee, the payment of statutory entitlements under a mutual termination agreement - which would not have been paid in the case of an ordinary resignation - is considered "reasonable benefit". Accordingly, mutual termination agreements executed using such method are generally deemed valid.
The Effect of Mutual Termination Agreements on Labor Rights
Regarding the Right to File a Reemployment Lawsuit
Termination of an employment contract through a mutual termination agreement leads to the employee's inability to benefit from the job security provisions under Article 18 and related articles of the Labor Law and file a reemployment lawsuit as a result of such circumstances. That said, a mutual termination agreement may be invalidated where a corrupt intention of the parties is present in the execution of the mutual termination agreement, or an employee has signed the mutual termination agreement with a reservation. Where mutual termination agreements become invalid, a reemployment lawsuit may be filed if the conditions are met for the application of job security provisions under Article 18 of the Labor Law.
Regarding Termination-Related Compensations
In principle, statutory compensation related to termination of an employment contract (i.e. severance and notice payments) do not apply to valid mutual termination agreements. Nonetheless, the parties may agree on an alternative arrangement for payment of such compensation. Additionally, the Supreme Court pays attention to the realization of compensation and additional payments as a factor bearing on the validity of mutual termination agreement when examining the "reasonable benefit" criteria.
Regarding Annual Paid Leave
Where an employment contract is terminated for any reason, any and all unused annual paid leave must be paid to the employee in accordance with Article 59 of the Labor Law. Note that "termination" is not a necessary condition in terms of granting annual paid leave. An employer is required to make payment for unused annual paid leave in any circumstances of terminating an employment agreement, including by mutual termination agreement.
Regarding Unemployment Insurance
Terminating an employment contract by mutual termination agreement is not a condition triggering entitlement to unemployment insurance, according to the Unemployment Insurance Law No. 4447. In conclusion, employees must be explicitly notified before executing mutual termination agreements, and employees' mutual and common intentions must be evidenced in order reduce risk of later challenge to the invalidity of the legal effects of the agreement. Mutual termination agreements must be executed in writing and the principle of "reasonable benefit" must be taken into account in terms of the rights to be granted to the employee. Specifically, providing certain material benefits in addition to the ordinary statutory compensation payments is crucial in terms of displaying the existence of "reasonable benefit" principle.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.