The increasingly competitive market environment and changing demands of consumers and the public at large trigger more business transfers and reorganizations. Whether within the framework of a reorganization or a strategy to consolidate its market position, certain circumstances may lead to workplace transfers. This then raises legal problems. In this article we will review the transfer process from a labor law perspective, focusing on the severance pay and annual paid leave rights of employees of the transferred workplace.
The former Labor Code No. 1457 did not contain detailed provisions concerning the partial or full transfer of workplaces. Only some minor provisions regarding annual paid leave rights and severance pay were set forth under different articles (Article 14, 53) with respect to workplace transfers. The matter was tackled within the framework provided by the precedents of the Court of Appeals. However, following the introduction of the new Labor Code No. 4857 in 2003 (“New Labor Code”), explicit provisions are set forth in accordance with the Court of Appeals’ practice and harmonization with European Union legislation. Article 6 of the New Labor Code sets out the principles to be applied in workplace transfers.
The preamble of Article 6 of the New Labor Code states that the provisions regarding transfer of workplaces are enacted as part of the harmonization process with EU legislation, namely the European Council Directive 2001/23. Article 1(a) of the said Directive states that "the Directive shall apply to any transfer of an undertaking, business, or part of an undertaking or business to another employer as a result of a legal transfer or merger." Article 3 of the Directive concerning the transfer of the rights and obligations of the transferor employer to the transferee, (Article 3 - The transferor's rights and obligations arising from a contract of employment or from an employment relationship existing on the date of a transfer shall, by reason of such transfer, be transferred to the transferee) and Article 4 regarding transfers not constituting grounds for dismissal of the employment contract (Article 4 - The transfer of the undertaking, business or part of the undertaking or business shall not in itself constitute grounds for dismissal by the transferor or the transferee) have been translated almost identically and set forth under Article 6 of the New Labor Code.
Although Article 6 itself does not clearly define the scope of such transfers, according to the preamble, all workplace transfers (apart from those resulting from the death of a real person employer and transfer of the workplace under inheritance provisions) or part of a workplace to another employer as a result of a legal transaction, fall within the scope of the New Labor Code. On the other hand, similarly with definite and permanent transfers such as those resulting from a sale contract, transfer of a workplace or part of a workplace for a temporary and limited periods such as those resulting from lease contracts are within the scope of this Article.
In light of the EU regulations, Article 6 introduces significant provisions regarding the purpose of protecting employees’ rights upon transfer of a workplace. Under the circumstances set out under Article 6, upon transfer of a workplace in part or in whole, labor contracts of workers shall be transferred to the transferee together with all outstanding rights and liabilities. Furthermore, these labor contracts shall not be terminated, because as explicitly defined by Article 6, neither the parties of the transfer nor the employees can terminate the labor contract solely on the ground of the transfer. Moreover, the transferor and transferee are jointly liable for the rights and liabilities that arise from events dated prior to the date of transfer. However, such liability of the transferor is limited to two years following the transfer date.
As a result of the transfer of a workplace, employees’ rights, notice period compensation, overtime payments, social rights and especially severance pay and annual paid leave rights constitute a substantial liability, and hence should be correctly evaluated. Although labor contracts of workers shall be transferred to the transferee together with all outstanding liabilities and receivables, in light of the Court of Appeals’ precedents, only the transferor shall be liable for salaries, overtime payments and social rights accrued at its terms. Moreover, the transferee shall solely be liable for such payments accrued after the transfer.
Annual paid leave rights are also transferred to the transferee, since the labor contracts do not terminate by virtue of the transfer. In this regard, the annual paid leave rights shall not constitute a due receivable on the date of the transfer and hence shall be subject to the two-year liability. Therefore, following the two-year period only the new employer (i.e., the transferee) shall be liable for the annual paid leave rights of employees.
Although Article 6 refers to this issue considering the annual paid leave rights, severance pay is governed by a special provision. Article 14 of the former Labor Code is the only provision that has not been abolished and, thus, severance pay is still governed by Article 14 of the Former Code. Accordingly, upon the transfer of a workplace, as the labor contracts do not terminate, the transferor’s liability for severance pay shall not arise. However, both the transferor and the transferee shall be liable for severance pay accrued after the transfer. The transferor’s severance pay liability is limited to the term during which it had employed the relevant workers and based on the most recent wage level paid to them. This liability for severance pay is not limited to two years. Furthermore, as defined by Court of Appeals in its precedent, Article 14 is a mandatory provision. Therefore, the transferor and the transferee can neither make a contract contrary to this provision nor cease their liability thereunder.
In practice, in order to finance the expenses arising from the transfer, the transferee mostly demands the severance pay to be paid at the time of transfer. However, as the labor contracts do not terminate, technically it is not possible to either pay severance pay or circumvent severance pay liability. On the other hand, severance pay liability accrued until the transfer date may be calculated and a payment titled “severance payment” could be made. However, such payment shall not technically constitute a severance pay and when the employee’s contract is terminated in the future, severance pay shall be calculated starting from the employee’s commencement of employment. The payment made by the transferor under the title “severance pay” shall be deemed as an advance (partial) payment and deducted from the actual amount of severance pay to which the worker is entitled.
Should the employee’s labor contract be terminated after transfer and if the employee files a lawsuit to return to his/her job, then the sole addressee (defendant in possible lawsuit) shall be the transferee. As the labor contracts of workers would be transferred with all outstanding liabilities and receivables to the transferee, workers’ lawsuit for returning to their jobs can only be claimed from the new employer, i.e., the transferee.
In conclusion, it could be argued that when Article 6 of the Labor Code is considered with its preamble and the European Council Directive 2001/23, the workplace transfer issue is fully harmonized with the corresponding EU legislation. Thus, the lacuna in Turkish labor law concerning transfer of workplaces has been overcome. With a consistent approach to be adopted by the Court of Appeals, there will be sufficient precedent and as a result the employment relations will be better protected.
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.