Turkey: Banning The Employee From Competition And New Employer's Liability

Last Updated: 7 November 2016
Article by Hasan Özgür

In case of fulfilling all conditions mentioned in the Article 446/3 of Turkish Code of Obligations numbered 6098 ("TCO"), the employer has also the right to ban the employee from competition. As banning the employee from competition is a new legal procedure which was explicitly regulated and entered in force with TCO, there is no satisfying the Court of Appeal's decision. As per the Article 446/3 of TCO, "The employer, apart from the payment of penal clause and additional damages that could be arisen, where expressly so agreed in writing, as long as the importance of his/her violated and threatened benefits and the acts of the employee justify it, may request to end the employee's acts breaching the prohibition of competition.", there are two conditions to be fulfilled for application of banning the employee from competition.

First condition of using the right to ban the employee from competition by employer is to determine that the employer have the right to force ending employee's acts against duty of non-competition in the agreement in written and clearly. Second condition is causing significant damage on employer's side due to the employee's act against duty of non-competition, having serious consequences and periling the existence of the employer's company in case of continuing breach of duty of non-competition. The damage that the employer suffered due to the breach or monetary menace occurred by the employee's acts should be at a certain level that cannot be covered by the penal clause and compensation and nonrecoverable afterwards. In addition, the employee's breach should also constitute a contradiction with the honesty principle referred in the Article 2 of Turkish Civil Law numbered 4721 and justify the employee's specific performance. Both penal clause and the right to ban the employee from competition may be added to the agreement for the benefit of the employer.

Although the Article 446/3 of TCO grants the right to the employer to ban the employee from competition, it is prescribed that various conditions should also be fulfilled together. Therefore, usage of this right by employer was restricted in very exceptional circumstances and agreed to be applied as ultima ratio. As an example of these exceptional circumstances; making false statements against the employer and employing his/her employees afterwards, starting to work at another employer's company which may cause significant damages to the former employer, continuing to use materials which are peculiar to the former employer in such a way to misguide the former employer's customer portfolio.

Article 446/3 of TCO is not being prescribed to be applied to the new employer. In this regard, as per the Article 446/3 the courts may not render a decision against the new employer in the matter of termination of the employee's employment agreement who works at the competing company. However, the new employer could be held liable as per the Article 23 (new employer's liability) of the Labor Law numbered 4857 ("Labor Law"). In accordance with the mentioned article, in the event of the employee quits his/her job before the end of duration of the employment agreement or without respecting the notice period and starts to work with another employer and the mentioned employment agreement was terminated due to this issue, in the following circumstances as; (i) if the new employer has caused the employee to act in this manner, (ii) if the new employer employs the employee despite his/her awareness of the employee's action, or (iii) if the new employer continues to employ the employee in his/her service after becoming aware of the employee's action, the new employer will be held jointly liable with the employee. Suffering damage is not a condition for the former employer when filing a lawsuit within the context of the Article 23 of Labor Law.

Following the end of employment agreement, if the employee starts running a business independently, that business could be banned by the court if this situation breaches honesty principle heavily and perils former employer's business significantly. Although lawsuits on banning the employee from competition should be evaluated urgently in regard to essence of right and purpose of the regulation, the TCO does not provide an explicit provision on this issue. Within the framework of general principles, when conditions are fulfilled, obtaining a preliminary injunction from the court seems possible. The preliminary injunction decision which may be in the form of banning the employee to work at the competing company will cause problems in practice as this decision seems to confirm the employer's and reject the employee's claims.

Pursuant to the Court of Appeal's consistent precedent, commercial courts have competence in regard to duty of non-competition related lawsuits as evaluation of whether employees' acts made after the end of employment agreement can be regarded as breach of duty of non-competition is accepted as commercial matters. Therefore, commercial courts have competence in lawsuits filed in accordance with Article 446/3 of TCO related to the employer's right to ban the employee from competition. As competence of the court is related to the public order, judges, ex-officio, dismiss lawsuits due to lack of competence.

As a consequence, until now, there is no satisfying the Court of Appeal's decision on the regulation of banning the employee from competition. However, following the prominent scholars' opinions, evaluation of domestic courts and the Court of Appeals further analyzing, it is estimated that banning the employee from competition's scope and conditions will be clearer.


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