The Turkish Court of Cassation Unifies Precedents of Labor Law

For some time, cases relating to labor law at the appeal stage have been reviewed by two designated chambers of the Court of Cassation, the 9th and 22nd Civil Chambers. However, over time, certain precedents in the chambers began to differ from each other, giving rise to ambiguity in practice.

Recently, the 22nd Civil Chamber of the Court of Cassation was closed upon the decision of the First Presidential Assembly of the Court of Cassation numbered 173 and dated 7 July 2020. The driving force behind this closure was a significant reduction in the number of labor law cases that were taken to the Court of Cassation. The fall in the number of labor law cases is the result of relatively recent introductions to the Turkish litigation structure: compulsory mediation and regional appeal courts. A significant proportion of labor law disputes are now being resolved by mediation. According to figures released on 21 November 2020, 61% of labor disputes filed as of 1 January 2018, around 600,000 cases that would otherwise have been handled by 450 labor courts across the country, were resolved by mediation.

On the other hand, with their introduction, certain cases can only be appealed before the regional appeal courts without having the right to request a review from the court of cassation. Those are:

•             Decisions of the regional courts of appeal that do not exceed TRY 78,630.00,

•             Decisions relating to unjustified notification of termination, or termination of employment based on invalid reasons (reemployment action),

•             Decisions on the cancellation of disciplinary action based on the grounds of collective labor agreements or an employer’s internal regulations,

•             Decisions relating to the invalidity of a termination notification in respect to trade union representatives or board members of both the trade unions and their branches,

•             Decisions that determine whether a workplace meets the criteria for the formation of collective business agreements,

•             Decisions arising from the interpretation of collective labor agreements in force

•             Decisions that determine the legality of strikes or lockouts.

Following the decision to close the 22nd Civil Chamber, the new president and committee of the 9th Civil Chamber of the Court of Cassation (“the Chamber”), began to determine and unify practices by eliminating the differences in case law that have arisen from the chambers’ different interpretations. We have highlighted below some of the precedents unified by the Chamber that we believe will guide businesses and employees alike in determining their litigation strategies.

Calculating annual leave and the status of Saturdays

The former precedents differed as to whether employers could include Saturdays when calculating employees’ annual leave. The Chamber decided that if an employment contract explicitly determines Saturdays as days off, only working days can be counted when calculating annual leave. However, if a contract does not include such an explicit statement, employers can factor Saturdays into their calculations.

Furthermore, even when an employment contract considers Saturdays as days off, if it also states that Saturdays are deemed as working days in terms of annual leave, the employer can deduct Saturdays.

The impact of unsigned payrolls on claims relating to overtime

Although keeping “payroll sheets” is a requirement under Article 238 of the Tax Procedure Law, those sheets also play an important role as evidence in labor law disputes. The following understanding is accepted:

On the condition that (i) an employee signs payroll sheets that include overtime work and (ii) an employer pays salaries for overtime through a bank; an employee must present documentary evidence to prove a claim regarding working longer overtime hours than payroll sheets indicate.

If, however, payroll sheets are not signed by an employee, they can present all kinds of evidence, including witness statements, to prove their claim. It is, therefore, of great importance to have payroll sheets signed by employees to prevent any loss of rights in terms of potential disputes.

Calculating overtime payments for maritime employees

Another disagreement between the chambers concerned the applicable provision for calculating overtime pay for employees who work on vessels. The Turkish Code of Obligations No. 6098 sets out that overtime pay must be 50% more than an employee’s standard hourly wage, whereas the Maritime Labor Law No. 854 regulates this rate as 25%.

The Chamber set the precedent that Maritime Labor Law must apply to the calculation of overtime pay for maritime employees based on its lex specialis nature (i.e., the law governing a specific subject matter). In this regard, employers may determine the rate for overtime pay at less than 50%, but not less than 25% in an employment contract.

Witness statements of individuals who have filed a legal action against employers

The Chamber concluded that courts cannot justify their rulings solely based on witness statements from individuals who have taken legal action against their employers. That being said, in cases where statements are supported by secondary evidence or facts, courts may consider these statements and justify their rulings accordingly.

The requirement for weekly days-off

According to Article 46 of the Labor Act No. 4857 (“the Labor Act”), employers must give at least 24 hours of continuous rest each week to employees. The Chamber emphasizes the mandatory nature of this provision and that employers cannot avoid giving one day of leave each week, even with an employee’s consent.

In cases where an employee does not receive a weekly day off, they must be paid 50% more than their standard daily wage for the additional day worked, even if they are compensated with an additional day off at a later time.

Burden of proof in claims relating to unused annual paid leave

Article 46 of the Labor Act entitles employees to take paid annual leave on the condition that they complete a minimum of one year at work. This provision has a mandatory nature, and employers cannot waive this right.

In the event of a dispute, an employer must prove that an employee has taken paid annual leave by presenting related documentation. If an employee claims that they have not taken annual leave for five years or more, the court must hear the employee’s statement in person and must reach its decision based on this statement.

Employers should, therefore, record all paid annual leave in a written document with employee signatures to prevent any loss of rights in potential disputes.

Public holiday salary for employees working abroad

In cases where employees working in foreign subsidiaries of companies incorporated in Turkey receive pay for public holidays under a particular country’s laws, even if they have not worked on those days, an employer can deduct such payments from the salary that employees are entitled to receive on public holidays in Turkey.

Turkish shareholders’ responsibility for monetary claims of Turkish employees working in companies incorporated abroad

To determine responsibility in this type of case, courts should assess the shareholder structure of the company incorporated abroad and combine the number of shares held by Turkish shareholders (i.e., a Turkish citizen individual or a legal entity incorporated in Turkey) with the number of other shares held by foreign individuals or legal entities.

In cases where the court concludes that a foreign individual or legal entity is a shareholder of the relevant company simply to fulfil particular requirements in order to conduct business in that country (i.e., a formality shareholder), Turkish shareholders may be responsible for monetary claims of Turkish employees working in that company.

The impact of monetary benefits brought to light in court through witness statements on total salary calculation

Under the Turkish Labor Law Regime, compensation granted to employees in certain circumstances (e.g.., payment in lieu of notice, severance pay, compensation for termination based on invalid reasons) must be calculated using the employee’s “total salary”. In comparison to regular salary, “total salary” covers salary (hourly/weekly/monthly), premiums, bonuses, health insurance, payments for food and travel, and all other monetary benefits. Therefore, the calculation of “total salary” is significant in labor law disputes.

The Chamber has decided that when calculating total salary, courts cannot consider monetary benefits that are brought up during a trial by witnesses but that have not been requested by an employee in their petition. The Chamber emphasized the principle that an “award shall not go beyond the request”, preventing courts from ruling for an amount more than requested in a lawsuit petition.

Timeline to submit documents that terminate debt

Parties can submit (i) documents showing payments such as receipts at any stage of proceedings in first instance courts, but not at the appeal stage and (ii) documents relating to the termination of a debtor-creditor relationship (such as releases or receipts for annual paid leave) at any stage of the action, including the appeal.

As is known, a release in labor law is a written agreement declaring that an employee has received all rights arising from the relevant employment contract. According to Article 420 of the Code of Obligations, a release must fulfil the following criteria to be valid: (i) it must be written (ii) it must be concluded at least one month later than the termination of an employment contract (iii) it must clearly indicate the amount and nature of an employee’s monetary claim (iv) the amount stated in the release must be paid through a bank.

Defence of the limitation period on termination and its interplay between a principal employer and subcontractor 

The Chamber has emphasized the nature of the legal relationship of the principal employer and subcontractor to reach a conclusion on this matter. Even though the Labor Act regulates that both employers have joint liability in respect of an employee’s claims arising from an employment contract or relevant law, the Chamber is of the view that such a relationship should be interpreted as a relationship between a principal debtor and guarantor. A subcontractor is the principal debtor in an employment contract, whereas, the principal employer is liable for an employee’s claims, as a guarantor has a liability to a creditor.

Therefore, the Chamber has decided that the defence of a termination of the limitation period for contractual claims of an employee:

•             If raised by a subcontractor, the principal employer would also benefit from this defence even if they had not raised it and would thereby be released from responsibility,

•             If raised by the principal employer, the subcontractor would not benefit from this defence unless they had also raised it in their response petition.

Employers’ claims on the invalidity of fixed-term employment contracts due to lack of an objective condition

According to Article 11 of the Labor Act, to conclude a fixed-term employment contract, either the employment term must be finite, or the end of the contract must depend on an objective condition such as the completion of a particular job or the occurrence of an event.

However, in cases where an employment contract does not fulfil the criteria of an objective condition, an employer cannot assert this before the courts. In such cases, the courts will need to regard an employment contract as fixed-term. This precedent has three important outcomes:

•             An employee can claim salary for the remaining period of the employment contract,

•             If an employment contract has a penalty clause for unjust termination by an employer, an employee can claim the penalty amount,

•             The court may not consider an employer’s claims regarding compensation for a notice requirement.

Termination of “fixed-term” employment contracts and severance pay

A fixed-term employment contract terminates automatically at the end of the term if the parties do not make notification of their intentions to renew. In such cases, an employee is not entitled to receive any severance pay. If, however, the fixed-term employment contract is concluded due to legal requirements, an employee can receive severance pay following the automatic termination at the end of the term.

That being said, an employee who works under a fixed-term employment contract is granted severance pay in cases where (i) termination of the employee is based on justified reasons (ii) termination by the employer is based on unjustified grounds (iii) termination of a male employee due to military service (iv) termination of a female employee due to marriage.

Termination of an employee due to qualifying pension requirements

Well-established case law suggests that in cases where an employee who meets the conditions for a pension, such as contributions made but not the age requirement, terminates his/her employment contract he/she will be entitled to receive severance pay.

The Chamber concludes that such employees can subsequently work for another employer without affecting their claim for severance pay against their former employer. Even entering into a new employment contract before terminating the existing one would not be considered an abuse of this right. An employee, however, can only receive severance pay in this manner once.

Fixed-term employment contracts with foreigners in Turkey, and Turkish citizens abroad

The fact that a foreigner qualifies for a temporary work permit in Turkey or a Turkish citizen has a temporary work permit to work abroad does not categorize their employment contract as fixed and does not constitute an “objective condition” under Article 11 of the Labor Act. To meet the requirements for an objective condition, the work must be project-based and subject to a particular time period.

The legality of fixed-term employment contracts under which coaches and trainers work

Employers can conclude fixed-term employment contracts when employing coaches and trainers and such contracts are fully legal.

Cases where a working period leads to overtime without fulfilling a weekly threshold

According to Article 41 of the Labor Act, overtime is work time that exceeds 45 hours a week. That being said, it is also where (i) work time during a single day exceeds 11 hours or (ii) in respect of dangerous or heavy work, worktime during a nightshift that exceeds 7.5 hours. These exceeding hours must be deemed as overtime and the salary for these extra hours must be 50% more than the standard hourly rate.

Impacts of premiums on the calculation of overtime payments

•             If a salary consists only of the premium, overtime pay for each hour is 50% more than the hourly premium,

•             If entitlement to a premium depends on reaching a particular target or quota, overtime pay for each hour is calculated by increasing the hourly salary by 150%. In other words, such premium payments are not considered in the calculation of overtime pay,

•             If an employee is entitled to receive premium payments depending on sales volume, the number of products produced, the number of trips or kilometers traveled, the salary for each extra hour is the sum of two amounts: (i) the amount calculated by increasing the hourly fixed-salary by 150% and (ii) the amount calculated by increasing the paid premium amount by 50%.

Applicability of income tax incentives provided under free zones

Free zones provide manufacturers or investors with an incentive in terms of the payment of income taxes depending upon certain export thresholds. This income tax exemption, however, does not apply to employees of those companies, this was also emphasized in Additional Provision No. 3 added to the Law No. 3218 on Free Zones in 2017.