Our note below provides guidance on some of the key questions you may have regarding the impact of the novel coronavirus (COVID-19) outbreak on your business in Turkey.
COVID-19 has rapidly become a global outbreak and was announced as a global "pandemic" by the World Health Organization on March 11, 2020. As COVID-19 is highly contagious, many governments around the world have taken measures to slow down its rate of spread. The Turkish government's response has so far been mainly in the form of temporarily shutting down public gathering places such as schools, mosques, cafes, gyms, and movie theatres, and banning international flights to and from 20 countries including China, Italy, Germany, France, Spain, UK and UAE.
We know that many companies in Turkey have to take actions to cope with the consequences of both the COVID-19 outbreak and the Turkish government's response to it. We provide below some general guidance on what businesses will want to consider to ensure their actions comply with the relevant laws and regulations applying in Turkey.
Our summary examines the legal impact of the COVID-19 outbreak in the following four areas:
3. Data Protection
4. Competition Law
a. Does COVID-19 outbreak constitute a force majeure event?
The COVID-19 outbreak and the measures taken by the authorities can significantly affect the performance of obligations under a contract but is it sufficient to excuse a party from performance. Usually, a party that is prevented from performing its contractual obligations due to an external event claims that such event constitutes a force majeure to avoid liability for non-performance. If the matter is not regulated in a force majeure clause under the relevant contract, the general law will apply.
Turkish law does not provide a precise definition of force majeure. Force majeure claims are considered on the basis of the provisions of the Turkish Code of Obligations on the impossibility of performance. As per those rules, a party is excused from performing its obligation to the extent that such performance has become impossible due to an event that cannot be attributed to that party.
The Turkish Supreme Court has provided in its various decisions a general outline which helps to identify a force majeure event. As such, a force majeure event usually has the following elements:
(i) It is unforeseeable at the time of execution of the contract,
(ii) It occurs after the execution of the contract,
(iii) It causes impossibility of performance, and
(iv) It occurs outside the control of the parties.
A force majeure event with these elements can be either the occurrence of the factual event itself (such as the COVID-19 outbreak's direct effect on an individual or a community) or a legal act (such as the public measures adopted by the authorities in response to the COVID-19 outbreak).
However, under Turkish law, the COVID-19 outbreak would not necessarily constitute a force majeure event excusing a party from the performance of its obligations. The performance should become impossible as a consequence of the COVID-19 event. The impossibility may have an objective nature (affecting everyone) or a subjective nature (affecting only the obliged party).
Turkish rules on impossibility of performance and force majeure are default rules. The parties to a contract may agree on an entirely different treatment of force majeure events. Therefore, the parties should first review the relevant clauses of their contracts. If the contract is silent with respect to a force majeure event, the COVID-19 outbreak or the public measures taken by the authorities in response must make the performance of obligations actually impossible for the relevant party in order to be excused from performance and released from liability. It would not be sufficient for such party to claim force majeure if the performance of its obligations has only become more onerous or expensive as a result of COVID-19 outbreak (in such circumstances, the adaptation of the contract may be relevant as described below).
b. What are the consequences of force majeure on the contracts?
Unless the parties agree otherwise, the force majeure event that causes impossibility of performance may have one of the following consequences on the contract, depending on the nature of obligations and the purpose of the contract;
- parties may be released from the performance of their obligations entirely or partially;
- parties may terminate the contract if the event has a permanent effect; or
- if temporary, the performance of obligations may be suspended during the force majeure event.
c. Would it be possible to request adaptation of the contract to the change of circumstances arising from COVID-19?
Whilst not causing impossibility of performance, the COVID-19 outbreak may alter the circumstances that existed at the time of contracting such that the obligations thereunder become costlier or more onerous than originally envisaged. If the parties have not agreed on a specific mechanism to adapt the contract to the new circumstances and/or their renegotiations for that purpose have been unsuccessful, the adaptation of the contract to the new circumstances can be requested from the court under Turkish law. This is an exceptional measure under Turkish law.
As per the provisions of the Turkish Code of Obligations, a party may make such a request from the court provided that there has been an event which:
- the parties had not or could not reasonably be excepted to have foreseen at the time of execution of the contract,
- it occurs for a reason not caused by the relevant party, and
- changes the circumstances existing at the execution of the contract to the detriment of the relevant party so that the request of performance would be contrary to the rules of good faith.
If the adaptation of the contract is not possible, the relevant party is entitled to terminate the contract under Turkish law.
As the Turkish Code of Obligations refers to the rules of "good faith" for the adaptation or termination of the contract under such circumstances, a significant disruption must occur in the balance of obligations between the parties due to the change of circumstances after execution of the contract, in the sense that the request of performance would be in violation of the principle good faith. In this context, whether the COVID-19 outbreak has caused such a change of circumstances can only be analysed on a case by case basis by reference to the specific facts.
d. What is the procedure for termination of the contract due to force majeure?
If not specifically regulated in the contract, the Turkish Code of Obligations provides that in the event of permanent impossibility of performance due to force majeure, the relevant party is not liable against the other party for such non-performance and is released from the relevant obligation. However, the relevant party is required to notify the impossibility of performance to the other party without delay and promptly take the necessary measures to prevent any increase in loss resulting from non-performance. Otherwise, the relevant party would be liable for compensating such increase in loss.
In a bilateral contract, the party which is released from performance due to impossibility is liable for any value already received from the other party pursuant to the provisions on unjust enrichment.
Technically termination of the contract due to force majeure occurs by operation of law so no further notice is required. However, it would still be advisable for the affected party to issue a termination notice to the other party if the purpose of the contract becomes unattainable or it is clear that the parties would not have executed the contract without the relevant obligation that has been extinguished.
Any notices between companies relating to default, termination or rescission must be served through a notary public, by telegram or registered mail or by e-mail with secure electronic signature.
a. What are the main obligations of the employer within the context of the COVID-19 outbreak?
As per the Law on Occupational Health and Safety, employers must ensure the occupational health and safety of its employees. In relation to the COVID-19 outbreak, the main obligations of the employer relate to informing the employees about the COVID-19 outbreak, providing a sufficient number of hygiene products such as soap, cologne and hand sanitizer in the workplace, regular cleaning of the workplace and ensuring adequate air ventilation in the workplace.
b. What are the employer's obligations with respect to remote work arrangements?
Adopting a policy that encourages or mandates the employees to work from home is one of the measures that an employer needs to consider in order to protect employees and public health.
If a work-from-home policy is adopted, employees will continue to be entitled to their full salaries without any deduction and the employer is required to provide its employees with the necessary technical equipment to work from home.
c. Would an accident while working from home be considered as an occupational accident?
An accident not only in the workplace but also outside of the workplace can be considered as an occupational accident under Turkish labour law if it occurs during working hours. Therefore, a potential accident affecting an employee whilst working at home may constitute an occupational accident. That said, it would be unreasonable or impossible for the employer to take all security measures at its employees' residence. For that reason, the cause of the relevant accident would play an important role and those occurring due to the employee's gross fault or actions would not be considered as occurring within the scope of work.
d. What would be the effect of workplace shutdown due to the COVID-19 outbreak on the employment contracts?
Pursuant to Turkish labour law, where a force majeure event causes the shutdown of a workplace, the employer is allowed to pay the employee who cannot work half of his/her salary for each day for a period of one week. If the force majeure continues for a period of more than one week, either the employee or the employer may terminate the employment agreement for just cause. In such a case, the employee shall be entitled to all of his/her legal rights (e.g. severance pay, overtime, unused vacation etc.).
e. What to do if employees prefer not to come to work due to the outbreak?
The option for shortening working times/part time working may be considered. However, as per Labour Law, changes to working hours must be notified to the employee and approved by the employee in writing. If the employee does not approve such change in writing within 6 business days, the employer cannot adopt such change.
f. Can the employee have paid or unpaid leave of absence?
In case of force majeure, the employer may be entitled to request that employees use their paid annual leave for continuity of business and to mitigate the effects of such force majeure. The imposition of unpaid leave of absence by the employer should be considered as a material change of working conditions. Thus, the employer is required to notify the employee in writing and the employee must accept it in writing within 6 business days.
3. DATA PROTECTION
a. When would the processing of personal data regarding the outbreak become an issue?
In the context of health measures taken due to the COVID-19 outbreak, employers have been requesting information about medical conditions, personal contacts or latest trips of their employees and/or visitors to the workplace including through scanning methods or measuring employees' body temperatures. Accordingly, health data which may cause identification of possible patients may have been obtained and processed by the employers and the implications under privacy law should be assessed.
b. How would health data be lawfully processed?
As per the Law on the Protection of Personal Data, health data constitutes sensitive personal data. Processing of sensitive personal data without the explicit consent of the respective individuals is prohibited, subject to some specific exceptions regulated under article 6(3) of the Law on the Protection of Personal Data. Whilst not clear from the relevant exceptions, it is likely that obtaining non-invasive health data (such as temperature checks) from employees by the workplace doctor for the purpose of ensuring a safe workplace in the context of this outbreak may be possible without separately obtaining their explicit consent. However, the explicit consent of non-employees (such as visitors) should be obtained in order to process their sensitive personal data whilst a case-by-case based analysis might be necessary.
c. When can health data be processed?
It is very important that the employers initially determine whether the targeted measures can be taken with other methods before processing the sensitive personal data. Therefore, a detailed assessment should be made before processing sensitive personal data. Such assessment should be made to minimize data collection and processing to what is necessary and proportionate to the purpose.
4. COMPETITION LAW
a. Does the outbreak increase risks under competition law?
The fundamental competition law risk in crisis periods originates from the possibility of increase in the incentive to enter into potentially restrictive agreements and concerted actions between undertakings and restrict competition or protect markets.
It is very important to remember that the COVID-19 outbreak would not affect the continued application of competition law rules. Additionally, breaches of competition law are often in practice made by employees under pressure to achieve their targets. Therefore, undertakings are encouraged to remind their employees to comply with competition rules even in these difficult times.
b. Would companies be exempt from the application of competition law during the outbreak?
Application of competition law does not change or become disapplied during a crisis period. However, some agreements that may help fight the outbreak may result in the increase of consumer welfare. Thus it can be argued that agreements that create efficiencies specifically under the COVID outbreak scenario may benefit from the exemption regulated under Article 5 of the Law on the Protection of Competition (or under Article 101(3) of the Treaty on the Functioning of the European Union).
For example, some mutual supply or distribution agreements for providing food, medicine, health service to consumers during the outbreak or a horizontal collaboration agreement for developing a vaccine against COVID-19 may fall within this scope. However, it should be noted that a detailed assessment should be made for each specific agreement on whether it benefits from the exemption. Additionally, it could be appropriate to file a negative clearance/exemption application to the Competition Board in order to bring legal certainty.
c. Would the Competition Board be impelled with respect to the excessive increase of prices due to the outbreak?
Excessive increases in the price of goods and services, described as the existence of unreasonable differences between the economic value and price of a product, constitute an infringement within the context of abuse of dominant position under Turkish Competition Law as well as EU Competition Law. However, it is not very clear whether instant price increases constitute excessive pricing behaviour. Rapid price increases among competitors might trigger a competition law investigation, as we have seen in past cases for example for meat producers and hazel nut producers. Additionally, imposing high prices for a product which serves as an input material for another market may be assessed as the abuse of dominant position by way of de facto refusal to supply or discrimination.