Severance payment disputes comprise almost half of the employment law disputes in Turkey. Severance payment is generally a compensation that employers are required to provide to their employees whose employment contract is terminated due to listed reasons under the Turkish Labor Law No. 4857, for their past commitment and loyalty to the employer. Since severance payment disputes make up a significant part of the cases before the labor courts, the system of severance payments and the relevant legal proceedings on such claims need to be restructured. To that end, the Turkish government has recently announced the new amendment package that will enter into force regarding the severance payment model.
The proposed severance payment model is generally similar to an insurance premium model, which will provide employees with a certain amount of severance payment even in the event of resignation, in addition to the termination of their contracts by their employers. In the current regulation, it is not possible for employees to request severance payment when they resign from their positions. This aspect is the most criticized part of the current severance payment model because it forces employees to retain their positions merely due to not being able to collect their well-earned severance payments, which they may have accrued over a long period of time. To remedy this problem, a brand-new severance payment funding structure is introduced by the proposed new model.
According to the proposed new model, each employee will have a severance payment fund, established by the government, into which employers will be obliged to deposit a monthly severance amount. The new severance payment method is planned to be integrated with the individual pension fund system. The severance payment deductions to be made from employers will be collected in the severance payment fund, which will be integrated with the individual pension system, and will be ready and available to be paid in cash. Employees will not be allowed to withdraw the deposited amounts unless their total number of years of service reaches a certain level. The most significant aspect of the new model is that the fund will be paid to the employees regardless of the reason for termination of employment, provided that certain conditions are met. Furthermore, when an employee changes jobs, the severance fund of the employee will be transferred to the new employer.
The most advantageous part of the proposed model is that payments under the model will be guaranteed by the government. Even if an employee resigns from her/his position, their severance payment rights will be preserved, since the funds will have already been paid into her/his severance payment account. In the event that an employer goes bankrupt or falls into financial hardship, the employees will still receive their severance payments from the severance payment fund. As per the new model, the employees will be entitled to severance payments even if they work less than one year, which is not the case under the current system. Accordingly, employees will no longer be deprived of any earned remunerations for their work. Particularly in certain sectors, such as cleaning services or security services, where employees change employers frequently due to the nature of the industry, the entitlement to severance payments will continue to benefit the employees.
With this new system, employers and employees will no longer have to litigate or mediate extensively for severance payment claims. However, even though the proposed changes are aimed at diminishing or eliminating a vast amount of the claims that arise from severance payment disputes, the new system may have unintended consequences and create new legal issues. Under Turkish employment law, one of the most significant motivations that deter both employees and employers from unilaterally terminating the employment agreement is the existence of the severance payment. Employees often steer away from terminating their employment agreements because they do not want to be deprived of their severance payments, and they seek to ensure that they will be able to collect the amount that has accumulated throughout the years when they quit their jobs. On the other hand, the employers, too, may refrain from terminating employment agreements to avoid the financial burden of making lump-sum severance payments. With this new severance payment model, neither side will have such concerns or incentives any longer, and accordingly, resignation and termination rates might rise, leading to a more unstable national job market.
Nevertheless, details of the transition from the current model to the new severance payment model, as well as the minimum requirements for entitlement to severance payments, are still controversial and hotly debated. Aside from the advantages and disadvantages of the new model, it is clearly evident that the new model will create a new era for Turkish employment law. However, it should be noted that since the new severance payment amendments (which were expected to be put in place by the end of 2019) have not been officially announced, the new severance payment model might be further amended before coming into effect as well.
This article was first published in Legal Insights Quarterly by ELIG Gürkaynak Attorneys-at-Law in March 2020. A link to the full Legal Insight Quarterly may be found here
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