Termination of Employment Contracts and Collective Dismissals as a result of Mergers in Turkey

Date: 15/09/2012
Att. Levent Cengiz  

Termination Of Employment Contracts And Collective Dismissals As A Result Of Mergers In Turkey

While mergers and acquisitions have considerable advantages in terms of efficiency, they may also lead to significant employment issues and carry potential liabilities for the merging parties, especially when they involve large group of employees. The parties can reduce the risk of claims and detrimental effects of such mergers by addressing the issues in the negotiation process.

This article aims to provide our legal advice on how to manage such mergers in Turkey by analyzing the decisions of the Court of Cassation (“Supreme Court” or “Court”) regarding this matter.

Termination of Employment Contracts
Article 18 of Labor Law No. 4857 states that the employer who terminates the employment contract of an employee must depend on a valid reason for such termination based on the operational requirements of the establishment. As “the operational requirements of the establishment” is a general concept and the facts and circumstances of the cases are different from each other, a case-by-case analysis is required for each merger. For this purpose, the summaries of Supreme Court decisions are examined below, as they provide guidance on this issue. However, before analyzing those decisions, the main principle in Labor Law should be emphasized: Termination of an employment contract is applied as a last resort (ultima ratio). In this respect, the Court examines whether the employer’s actions are consistent with the termination and whether the termination is proportionate. The defense of the employer based on employment surplus (“surplus defense”) is accepted as a valid reason by the Court provided that there is no less harmful option such as removing overtime work of other employees, offering the employee flexible working hours or providing him a proper training to employ him in another department. In addition, the burden of proof is on the employer.

One of its decisions,[2] the Court did not accept the surplus defense after a merger, because the employer hired other employees with the same qualifications as the one whose contract was terminated. The Court also indicated that the employer did not consider employing him in another department. It was clear that the termination was not the last resort. The Court rejected the surplus defense for the same reason in another case regarding an acquisition of a retail store chain.[3] Although the employer stated that the new employees were hired in the retail stores and not in the headquarters, the Court specified that the employee was not offered to be employed one of those retail stores. However, in another case,[4]the Court accepted the surplus defense, because the employer had sought all other remedies apart from the termination in order to keep the employee, who was a department manager, in the workplace. After the merger, another employee was employed in that position and it was clear that only one employee was needed for such position. The employer then employed the manager in another department; however, after 9 months, it had become clear that a manager with those qualifications was not suitable for any position in the workplace.
 In other words, the termination was inevitable.

The Court made a detailed examination in its 4 decisions[5] regarding the same bank merger. In these cases, the board of directors representing the merging parties issued a regulation indicating the new structure, departments, positions and job definitions. It also prepared a reorganization scheme stating that some of the departments had been abolished or downsized. Accordingly, the number of employees in the plaintiff’s department, who was working as a guard before the termination, had been reduced and no guard was needed in that department any longer. However, the Court scrutinized the matter and decided that although it was proved that the employee’s position was not needed in the new organization scheme; given that the workplace is a bank, the employer did not attempt employing him in another department considering his skills and education. To this end, the Court concluded that a legal expert specialized in the relevant sector should have been appointed to determine whether the employee could have been employed in another department of the bank. Only then, whether the termination was applied as a last resort could be determined. 

A similar matter arose in another case regarding a merger of two associated companies belonged to the same group company. One of the merging companies, which was the company that the plaintiff was working for, was established to conduct the logistic services of all other companies in the group; however, it was decided 4 months before the merger that the logistic services would be conducted by separate units within each company in the group. The Court stated that although it was clear that there was employment surplus in that case, considering that (i) the employee in question was employed in and transferred to other associated companies in the past pursuant to the personnel regulation of the group company and (ii) the logistic services were continued to be carried out, termination of the employee’s contract was not the last resort, as employing the employee in other associated companies had not been considered.[6]

It appears that, if the employer is a large organization like a group company or a bank, the Court strictly examines whether the employee could have been employed in another department.

One last issue regarding this matter is the abolishment of some of the departments and the procurement of those services from a subcontractor. In another case, although the Court ruled that the termination of the employment contract was not the last resort considering the facts of the case; it stated that, in principle, employment surplus caused by a duly established relationship between the principal employer and subcontractor who undertakes to carry out work in a certain section of the main activity is accepted as a valid reason to terminate an employment contract.[7]

Collective Dismissal
In case the merger requires the termination of the contracts of a large number of employees, the merging parties should handle the transactions delicately, as the legal consequences of the collective dismissal may be highly disruptive for the new organization. In this sense, the notifications and consultations should be performed pursuant to Article 29 of Labor Law. In addition, if there are some criteria indicated in a collective agreement or provided by the employer himself on how the elimination of the employees should be conducted, the employer should comply with such criteria. If there is not a collective agreement or any other document that binds the employer, it is on his discretion how to do such elimination.[8] 

Conclusion – Legal Advice
As it is seen above, the facts and circumstances of the cases are different from each other and a case-by-case analysis is required for each merger. However, considering the Supreme Court decisions provided above, the author is of the opinion that, in general, the merging parties should take the following steps:
1) A corporate resolution regarding the procurement of some of the services from a subcontractor, abolishment of a department, etc. issued by the authorized body such as board of directors may be useful in case of a conflict. The economic reasons of the decision should also be clearly specified.
2) A reorganization scheme along with a permanent staff (norm staff) study based on the corporate resolution should be issued.  The scheme should clearly show the employment surplus and indicate how many employees are needed for each department. In addition, the qualifications required for each employee should be specified, especially when the merging parties intend to adapt their new organization to the latest technological developments.
3) The merging parties must seek less harmful remedies such as removing overtime work of other employees, offering the employee flexible working hours or providing him a proper training to employ him in another department.
4) Finally, Article 29 of Labor Law should be observed in case of a collective dismissal. If there is a collective agreement indicating the criteria on how to do the elimination, the employer must comply with those criteria. Otherwise, it is on his discretion how to conduct such elimination.

[1] Published on Güncel Hukuk (Journal of Contemporary Law), March 2012, pp.56-57
[2] 9th civil chamber of the Court of Cassation (Supreme Court), decision dated 07/02/2005 and numbered 2005/3279. See also decision dated 11/10/2004 and numbered 2004/22808.
[3] Decision dated 18/03/2008 and numbered 2008/5313.
[4] Decision dated 02/05/2005 and numbered 2005/15432.
[5] Decisions dated 15/10/2007 and numbered 2007/30227; dated 15/10/2007 and numbered 2007/30228; dated 19/11/2007 and numbered 2007/34394; dated 19.11.2007 and numbered 2007/34396.
[6] Decision dated 02/11/2009 and numbered 2009/29704.
[7] Decision dated 14/04/2008 and numbered 2008/8687. See also decisions dated 18.1.2010 and numbered 2010/171; dated 14/10/2004 and numbered 2004/23187.
[8] Decisions dated 18/01/2010 and numbered 2010/171; dated 16/06/2008 and numbered 2008/16020; dated 22/06/2009 and numbered 2009/17161; dated 14/04/2008 and numbered 2008/8359.