Turkey: A Milestone In Turkish Employment Law: Renewed Severance Compensation System

The Finance Minister of the Republic of Turkey has recently announced that the severance payment system, which is potentially the most controversial issue of recent history of Turkish employment law, is going to be structurally revised and implemented by the end of 2019. Not only has this official government announcement given a massive impetus to the final phase of these long-awaited, and much debated, revisions, but it has also re-ignited discussions on the ideal implementation of the severance compensation system. This new modification package basically introduces an establishment of a severance compensation fund to be contributed by employers, where the employees could benefit from it in order to receive a severance payment, regardless of resignation or termination.

As of today, pursuant to Turkish Labor Law No. 4857 ("Law No. 4857"), an employee is not entitled to a severance compensation if s/he willfully leaves the employment, and this rule applies for each type of resignation independent from the total seniority of the leaving employee, except those where otherwise is specified (i.e. marriage, military service) under still effective Article 14 of abrogated former Labor Law No. 1475. Put differently, an employee is entitled to severance payment, if s/he terminates the employment agreement based on a rightful reason as per Article 24 of the Law No. 4857, or if an employer terminates the employment based on a valid reason as per Article 18, or based on a rightful reason as per Articles 25/1 and 25/III of the same. Therefore, from a practical standpoint of Turkish employment law, it basically means that, if an employee quits a job, s/he gives up the full amount of severance compensation accumulated over the course of time, to which she/he would be entitled to in case of the foregoing type of terminations.

That being the case, severance payment structure explained above has been a long- criticized issue, pointing out that it is unfair and financially intimidating for an employee, mostly for veterans, who considers to unilaterally cease the employment agreement (i.e. resignation) as s/he may receive no amount saved up for many years. Therefore, an amendment package has been on the government's agenda many times, yet not to be implemented until April 2019. Along with the statement by the Finance Minister and following statements by the government authorities, some details of the amendment package have been revealed. Accordingly, the new structure proposes the establishment of a severance compensation fund by the government, where employers are obliged to deposit monthly a specific amount of money, which cannot be withdrawn by the employee before reaching the lower bound seniority. The gist of such mechanism is to allow employees to benefit from the fund as an instrument for attaining severance payment either in case of resignation or termination.

The details of this amendment package have not been made public by the government. Nevertheless, there have already been particular concerns raised by both employees and employers' representatives. To this end, one of the most uttered concerns is that being entitled to severance payment in case of resignation will presumably and significantly increase the number of resignations in a workplace, as there will no longer be a disincentive, which is typically leaving the accumulated severance payment behind, for an employee to maintain the employment relationship, knowing that the s/he will either way gain severance payment. In addition, this amendment is expected to lead to an increase of unilateral termination by employers. The fact is, employers' primary concern that dissuades them from arbitrary terminations in Turkey has always been the obligation of severance compensation payment in case of terminations other than 25/H of the Law No. 4857. However, once the new system is in place, this concern may no longer exist, as in any scenario the employee will benefit from the fund, which would already been funded by the employer. An employers' financial burden will considerably diminish, which expectedly could increase the number of unilateral termination by employers. The third and the last concern is that, no protective mechanism has been introduced by the government yet, for cases where the employers do not fulfill their obligation to contribute to the severance compensation fund. The solution of this topic has been reasonably set out by employees as a condition for the finalization of this amendment, since the mechanism will mostly deadlock if employers stop financing the fund. Therefore overall, despite the recent progress made on this issue, there is still considerable unease regarding particular areas on both employers' and employees' sides.

In conclusion, a new milestone in Turkish employment law in aspect of severance compensation matter is one step away from being realized. Since the government has accelerated the codification procedure of this amendment package, one may expect to hear soon about the official announcement of the details of the severance compensation fund, which will surely turn over a new page for termination of employment agreements from both employees and employers standpoint.

This article was first published in Legal Insights Quarterly by ELIG Gürkaynak Attorneys-at-Law in June 2019. A link to the full Legal Insight Quarterly may be found here

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.

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