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Corporate Downsizing and Layoff Processes

Economic fluctuations, technological developments, market conditions, and certain strategic changes in the business world may necessitate companies to decide on downsizing and accordingly, result in layoffs. In this article, we will provide information about Corporate Downsizing and the related layoff processes in companies.


1. Right to Termination Due to Corporate Downsizing


The Labor Law No. 4857 specifies two main categories for the termination of employment contracts by the employer: termination with just cause and termination with valid reason. Termination with just cause gives the employer the right to dismiss immediately and without compensation; however, the reasons for this termination are listed in the law, and downsizing does not fall within this scope. In the case of downsizing, the employer must resort to termination with a valid reason.


2. Correct Presentation of the Downsizing Reason


The employer must present the downsizing reason accurately and concretely, and use objective criteria in determining the employees to be laid off. In this process, it is mandatory to grant or pay the notice periods to the employee and provide severance pay. An employee dismissed due to downsizing can file a reemployment lawsuit or claim bad faith compensation if the conditions are met.


3. Compliance with Supreme Court Criteria


The Supreme Court has established certain criteria for the validity of layoffs due to downsizing:


3.1. Proof of Valid Reason for Termination: The employer is obliged to prove that the termination is based on a valid reason.


3.2. Business Decision Subject to Review: There must be a business decision to evaluate the validity of the termination. This is usually a board of directors' decision.


3.3. Permanence of the Downsizing Decision: The downsizing decision must permanently and definitively eliminate the employee's working opportunity.


3.4. Real Downsizing: The downsizing decision must be realistic and demonstrate the genuine need for downsizing due to economic, technological, or structural changes. It is important to show that the company is reducing its workforce sustainably.


3.5. Termination as a Last Resort: The employer must evaluate all other alternatives before termination. For example, eliminating overtime, reducing working hours, adopting flexible working arrangements, transferring employees to other departments, or retraining employees to avoid termination.


3.6. Objective Determination of Who Will Be Laid Off: Employees to be laid off must be selected based on objective criteria. For example, selection should be made according to transparent criteria such as those on probation, those nearing retirement, or those who have received disciplinary action. No discrimination should be made, and a fair process must be followed.


3.7. Consistency of Business Decision: The decision must be applied consistently and permanently. For example, new hires should not be made immediately after a downsizing decision. Hiring should be halted first, and layoffs should be considered after a reasonable period if necessary.


3.8. Resignation Letters: Forcing employees to write resignation letters during the downsizing process can be viewed unfavorably against the employer. Compelling employees to resign is legally problematic and can be contested by employees.


4. Mass Layoffs


Mass layoffs are subject to regulations that require terminating a certain number of employees. According to Article 29 of Labor Law No. 4857, it is considered a mass layoff if at least:


- 10 employees in workplaces employing between 20 and 100 employees,

- 30 employees in workplaces employing between 101 and 300 employees,

- 30 employees in workplaces employing 301 or more employees are dismissed within a one-month period, either on the same or different days.


In this context, the employer must notify workplace union representatives, the relevant regional directorate, and the Turkish Employment Agency at least thirty days in advance. If no notification is made, an administrative fine may be imposed on the employer.


Conclusion


To prevent future grievances and legal disputes, it is crucial for employers to fully comply with legal regulations when implementing downsizing decisions, carefully manage the termination processes with valid reasons, and sincerely protect employees' rights. Ensuring that terminations are based on a valid reason, protecting employees' rights, and considering alternative methods are critical for managing the process healthily. It is important to seek legal consultancy for conducting downsizing and other related processes.

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