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In this article, we have examined the conditions of the fixed-term employment contract. We have compiled for you the decisions holding that the penalty clause remains valid even where the fixed-term employment contract does not satisfy these conditions.
The type of employment contract that is frequently encountered in practice and preferred in particular by companies is the fixed-term contract. Here, the aim is, in particular, to eliminate or limit the employee's intention to terminate before the agreed period. Indeed, although the parties have reciprocal obligations, when the fact that the employee is taught the job is taken into account, it is not desired that the employee leave the job immediately after completing his or her training. Efforts are made to train qualified employees who have become accustomed to the way the business operates, for the continuity of the work performed.
However, certain conditions are required in order to conclude a fixed-term employment contract. Article 11 of the Labour Law No. 4857 reads: “Where an employment relationship is not entered into for a specified period, the contract is deemed to be of indefinite term. An employment contract made in writing between the employer and the employee, in jobs of fixed duration or depending on objective conditions such as the completion of a specific job or the occurrence of a specific event, is a fixed-term employment contract.”
The objective conditions required under Article 11 of the Labour Law for a fixed-term employment contract to be concluded are as follows:
1- What is to be understood by a job being of fixed duration is that the start and end dates of the work to be performed are specified.
2- What is to be understood by the completion of a job is, rather than the duration of the job, that the nature of the job (for example, the construction of a building, a project, etc.) is such that it is completed once it has been carried out.
3- What is to be understood by the occurrence of a specific event is the emergence of a new job owing to a new and short-lived event which is not of a continuing nature in the workplace.
When the conditions required by the law are met, a fixed-term employment contract may be drawn up. As can be seen, the law lists three different conditions, and the existence of any one of them is sufficient on its own for a fixed-term employment contract. In addition, the period agreed between the parties is valid as long as it is in writing.
However, in fixed-term employment contracts, which are preferred in particular by large companies with many employees, contracts drawn up without the objective conditions required by the law being met will not become valid and, in the event of any dispute, will be deemed to have been indefinite-term employment contracts from the outset.
Even If the Nature of the Contract Changes, the Penalty Clause Will Not Become Invalid
Although fixed-term employment contracts are prepared, termination by notice is not provided for in such contracts by law. The parties may terminate the contract only where there is just cause. Upon expiry of the term, the contract ends automatically. Nevertheless, provisions requiring the employee to pay a penalty in the event of termination without just cause are inserted into the fixed-term employment contracts prepared by employers.
In legal doctrine, a penalty clause (cezai şart) has been defined as a separate performance of monetary value that must be paid where an existing obligation is not performed or is performed defectively. (Tunçomağ, Kenan: Türk Hukukunda Cezai Şart [The Penalty Clause in Turkish Law], İstanbul 1963).
Although the Labour Law contains no provision on how a penalty clause is to be drafted, the principle that a penalty clause in employment contracts must be reciprocal has been accepted in the light of the Code of Obligations and the decisions of the Court of Cassation (Yargıtay). In this case, for a penalty clause to produce a valid effect, it must first of all be reciprocal. Consequently, penalty clause provisions relating to termination in fixed-term and indefinite-term contracts are valid provided that they are reciprocal.
However, disputes arise between the parties as to the legal status of these penalty clauses in cases where a contract prepared as a fixed-term contract is deemed an indefinite-term contract because it does not satisfy the objective conditions mentioned above.
Indeed, a change in the nature of the employment contract does not affect the validity of the penalty clause included in the contract. In fact, even where a contract prepared as a fixed-term contract is deemed an indefinite-term contract because it does not satisfy the objective conditions, the penalty clause will remain valid. In order to prevent debate on the subject, the Grand General Assembly for the Unification of Case Law of the Court of Cassation (Yargıtay İçtihatları Birleştirme Genel Kurulu) settled this matter by its decision No. 2019/1 dated 08.03.2019. (1) Accordingly, the penalty clause that was determined will continue to remain valid for the term of the contract originally made as a fixed-term contract.
Clearly, if an employee employed under a fixed-term employment contract, or the employer who is a party to the contract, terminates the employment contract before the specified period without just cause, he or she is obliged to pay the agreed penalty, regardless of whether the contract is accepted as a fixed-term contract. The penalty clause referred to here is not the right to compensation arising by law upon termination of a fixed-term contract, but an amount separately agreed by the parties.
However, according to Article 182/3 of the Code of Obligations and the settled case law in practice, where a penalty clause agreed to the detriment of the employee is excessive and would cause the employee's economic ruin, a reduction will be applied to the amount of the penalty determined. In disputes concerning the amount of the penalty clause, the judge must make a reduction in proportion to the periods worked and the periods that should have been worked. In this regard, there is the decision No. 2019/18334 of the 22nd Civil Chamber of the Court of Cassation dated 07.10.2019. (2)
In Conclusion
When fixed-term employment contracts are prepared, attention must be paid to the existence of the objective conditions required by the law. Indeed, even where the conditions required by the law are not met, the contract will not be invalid; it will merely change its nature and be deemed an indefinite-term employment contract. Even in that case, however, the penalty clause included in the contract will not become invalid. Where the contract is deemed an indefinite-term contract, the agreed penalty clause will be valid for the length of the term of the contract originally prepared. Nevertheless, it should be borne in mind that, where an excessive penalty clause is imposed to the detriment of the employee, the judge will apply a reduction.
1- Decision No. 2019/1 of the Grand General Assembly for the Unification of Case Law of the Civil Chambers of the Court of Cassation of the Republic of Türkiye, dated 08.03.2019: “In accordance with these explanations, where an employment contract is concluded as a fixed-term contract by the employee and the employer and a “penalty clause for termination without justification before the end of the term” is provided for in the contract, even if the contract is deemed to be an indefinite-term employment contract because the objective conditions are not met, the sanction of partial invalidity must be applied here pursuant to the second paragraph of Article 27 of the Turkish Code of Obligations (TCO) No. 6098, priority must be given to the intentions of the parties, and it must be accepted that the “penalty clause for termination without justification before the end of the term” remains valid for the agreed term.”
2- Decision No. 2019/18334 of the 22nd Civil Chamber of the Court of Cassation of the Republic of Türkiye, dated 07.10.2019: “The final paragraph of Article 161 (182) of the Code of Obligations, in turn, provides that an excessive penalty clause must be reduced by the judge. In the practice of labour law, the importance of the subject is further heightened in respect of penalty clause arrangements to the detriment of the employee. Having regard to the relationship between the condition and the penalty, solutions must be adopted that will not cause the employee's economic ruin. In respect of penalties tied to the condition that the employee work for a certain period, a reduction must be made by establishing a ratio according to the periods worked and the periods that should have been worked under the contract.”
Attorney at Law Selenay Kaküllü
