Mutual rescission agreements play a significant role in the general practice of employment law. Employees and employers who come to different terms often prefer to end the professional relationship in a mutually acceptable and peaceful manner and without having to resort to litigation. This preference created and shaped the practice of mutual rescission or settlement agreements ("Agreement") under employment law which is by nature subject to different formal and essential requirements as compared to any other form of a settlement agreement that may be concluded in the context of commercial law. However, it must be kept in mind that signing of the Agreement does not abolish the right of employee to initiate a lawsuit regarding reemployment and a court would review the validity terms and conditions of the Agreement before dismissing a law suit initiated by the employee despite the Agreement.
Supreme Court decisions shape up the practice in this respect, more so than the word of law. An employee who signs the Agreement will be deprived of job security and will not be able to benefit from unemployment insurance. Therefore, when the Supreme Court examines the validity conditions of the Agreement, it first tries to find answer to one simple question: Does an employee gain any advantage or additional benefit by signing the Agreement as compared to default legal rights available to him? In other words, has the employee been deprived of statutory benefits otherwise available in return of waiving right to trial?
2. Significant Points that the Supreme Court Examines in the Agreement
In commercial law, rescission has been defined as the unwinding of a contract between parties. In employment law in a similar manner, the parties sign the Agreement in order to end the employment agreement by their mutual will.
Supreme Court decisions provide the prevailing legal guidance on the following significant points governing the Agreement:
- The Form of the Agreement: Although it is not a validity condition, in order to have a written evidence, the Agreement should be written and signed by both parties.
- Demanding Party: Signing of the Agreement can be demanded by the employee or the employer. For example, in a circumstance that the employee waits on a promotion, but the employer does not promote due to the employee's underperformance, the employee may request signing the Agreement. In this case, the employer also benefits from the Agreement because the employer does not need to evidence the employee's underperformance so as to be able to terminate the employment relation. Likewise, the employer may request for signing the Agreement with an employee whose performance is below expectations since he/she is not satisfied with his/her job.
- Will of the Parties: The employee must willingly proceed with execution of the Agreement without any duress or undue burden imposed by the employer. This is specifically investigated by courts which pay attention to any moral or financial pressure that may be effected by an employer.
- Additional Benefit: If signing the Agreement is demanded by the employer, the Agreement must provide an "additional benefit" to the employee, that is a benefit beyond what the employee would have been entitled if he/she had resorted to legal action.
Among the points explained hereinabove, additional benefit issue is subject of many court decisions. What additional benefit is and when does it apply and if so how much the additional benefit should be are complicated and debated questions that are often addressed by the Supreme Court.
3. Special Focus on the Requirement of Providing "Additional Benefit" to the Employee
As indicated hereinabove, since the Agreement is eliminating the statutory benefits of termination otherwise granted to the employee by default (except in the case of a just termination by the employer) it must contain an extra benefit scheme to the employee. Except in the case of enumerated just cause termination, the employee would receive severance payment and notice period compensation, additionally if the employee chooses to initiate lawsuit of reemployment and the employee is not reemployed although it is accepted by the court, the employee would receive payment for unused vacations, job security compensation and unemployment compensation. These payments are what the employee would receive even in case of an ordinary termination or when re-employment lawsuit is accepted by the court. Therefore, the employee who is waiving the right to go to court must be provided with benefits in addition to what she/he would normally receive without going to court.
There is no definition or exact formula as to how much the additional benefit must be. In accordance with a recent decision of the Supreme Court, for an employee who has been working for an employer for 11 years should receive a minimum amount of 4 months' additional salary as an additional benefit on top of his statutory benefits. In another decision, the Supreme Court found the additional benefit reasonable which included the total amount of notice payment, severance payment, payment for unused vacations plus 4 months of net salary. This approach of the Supreme Court indicates that only including additional benefit to the Agreement never grants validity. Fairness of additional benefit should be provided to ensure its validity which is often determined according to the seniority of the employee.
Interestingly, according to a recent decision of the Supreme Court, there is no need to include additional benefit in the Agreement in the event that mutual rescission was offered/requested by the employee. However, the employer must prove that the request for signing the Agreement was genuinely made by the employee. As per one of the precedence, although there is a written request by the employee to sign an Agreement, that was not enough to accept that the request originated from the employee first. In that case, the Supreme Court examines the termination process and tries to find answers to the following questions:
- Does the employee have a reason to request for signing of the Agreement? What was the latest condition in the workplace that would justify such a request by the employee?
- Is there any reason for the employer to terminate the employment agreement? Is it possible that the employer might have pushed the employee into singing for its own benefit?
- Is there any evidence that shows the employee signed the Agreement under pressure?
In another Supreme Court decision, it is explicitly mentioned that it should not be taken into account if the employee submitted his/her resignation letter by force of the employer.
Although it seems that mutual rescission agreements in employment law can be qualified as a peaceful end to employment relationship; the Agreement may be determined invalid at the request of the employee as seen in recent years' precedents. Behind these decisions of the Supreme Court lies the determination of employees being forced to sign the Agreement. However, in some cases, employees claim the invalidity of the Agreement before courts to get more benefit, although they were willing to sign the Agreement at the beginning. In order to prevent this, following points that are inferred from the Supreme Court decisions, should be considered.
In Case the Employee Requests to Sign the Agreement
- The request regarding mutual rescission should be written and signed by the employee,
- The written request of the employee should explicitly include the reason why the employee wanted to end the employment relationship.
- Except for notice payment, severance payment and payment for unused vacations, there should not be any payment to the employee under the name of additional benefit.
- The employer should request the employee to express his/her will towards signing of the Agreement before witnesses (other employees), since the request for signing of the Agreement which comes from the employee could be seen as an unusual circumstance.
In case the Employer Requests to Sign the Agreement
- Agreement may not contain any reservation by the employee stating that despite the terms thereof she/he preserves her/his legal rights. According to the Supreme Court, those kinds of reservations of the employee show that the Agreement was not signed as a result of the parties' mutual free will.
- In addition to the notice payment, severance payment and payment for unused vacations, an additional benefit which will be determined as per the employee's seniority should be paid to the employee.
- The employer should also consider the Supreme Court's decision regarding the job security compensation which is determined according to employees' seniorities as seen hereinbelow while offering to the employee the additional benefit.
- For 6 months - 5 years seniority 4 months of salary,
- For 5 - 15 years seniority 5 months of salary,
- For more than 15 years seniority 6 months of salary should be paid as a job security compensation in case the employer does not reemploy the employee.
Finally, an additional point concerning the validity of the Agreement that needs to be considered is the date of the Agreement. The date must be the date on which the employee's work and the employer's obligation to work, ends. The Agreement that is signed during the period in which the employee continues to work will be considered invalid.
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.