Turkey: New Severance Payment Model: What To Expect?

Last Updated: 6 November 2019
Article by Murat Soylu, Tuğcan Akalın and Salih Kartal

Introduction

Severance payments are clearly one of the most controversial and delicate subjects of employment law in the Republic of Turkey. As the vast majority of cases brought before employment law courts are related to severance payments, it was beyond dispute that the current severance payment system was in dire need of restructuring. Fortunately, the Turkish government had previously announced this year that the long-awaited restructuring of severance payments was being reviewed and an amendment package was expected to enter into force by the end of 2019 (the "Proposed Model"). Needless to say, although such restructuring was highly anticipated by all Turkish employment law stakeholders, it has also given rise to solid discussions and questions regarding whether the Proposed Model would be able to refresh the current model. This article aims to indicate what we can expect from the Proposed Model and to compare the Proposed Model with the current severance payment model.

The Proposed Model

Generally speaking, the Proposed Model basically introduces a severance payment model that is similar to an insurance premium model, which intends to provide employees with a certain amount of severance payment even in the event of resignation and/or termination by their employers.

Currently, under Turkish Law, in the event of resignation, employees are not entitled to any amount of severance payment regardless of their years of service, save a few exceptions provided for by law (i.e. termination of the employment agreement for just cause, marriage, military service or application to the Social Security Institution as per certain provisions of the previous Labour Law No. 1475 which have not been abolished with the new Labour Law No. 4875 etc.). Such regulation is the most criticised aspect of the current model as it jeopardises the financial security of employees and forces them to maintain their positions due to them not being able to collect their well-earned severance payments which accrued over many years.

In order to prevent such inconsistencies, the Proposed Model introduces a brand new severance payment funding structure. Accordingly, each employee will have their own severance payment fund established by the government into which employers will be obliged to deposit a monthly severance amount. The employees will not be able to withdraw such deposited amounts unless their years of services reach a certain level. The most ambitious aspect of the Proposed Model is that the fund will be distributed to employees regardless of the reason for their termination or resignation provided that certain conditions are met. Furthermore, in the event an employee is hired by a different employer, the severance fund of the employee will be transferred to the new employer.

Potential Issues

Although the Proposed Model aims to compensate for the negative aspects of the current model, it may also create new issues. In Turkish employment law, one of the most important motives for both employees and employers for not electing a unilateral termination of the employment agreement is the severance payment. Employees do not terminate their employment agreements as they want to collect the amount saved up throughout the years whereas employers also refrain from terminating employment contracts to avoid the financial burden of severance payments. However, if the Proposed Model enters into force, it would not be far-fetched to expect that the number of employment agreement terminations by both parties would increase. . The mechanics of the transaction from the current model to Proposed Model and the minimum requirements for entitling the severance payments are still a matter of discussion.

Conclusion

In conclusion, regardless of its possible advantages and disadvantages, it is certain that Turkish employment law is about to enter into a new era, socially speaking and in practice. That being said, since the details of the amendment package have yet to be disclosed to the public, the Proposed Model may be subject to further amendments before officially entering into force.

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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