What is Termination Indemnity in All Its Aspects?
- Av. Ahmet KEREMOĞLU
- Oct 29, 2023
- 12 min read
What is the Definition of Termination Indemnity?
What is the Definition of Termination Indemnity? To define briefly, termination indemnity is a type of compensation that the party who terminates an indefinite-term employment contract without adhering to the notification periods stipulated in Law No. 4857, either the employee or the employer, must pay to the other party.
In the decisions of the Court of Cassation, termination indemnity is defined as;
"a compensation that needs to be paid by the party who terminates an indefinite-term employment contract without a justified reason and without providing a proper notification period"
(Court of Cassation 22nd Civil Chamber 2016/226 E., 2018/26029 K. and 03.12.2018 T. Decision).
What are the Conditions for Termination Indemnity?
When it comes to the conditions of termination indemnity;
1) There Should be an Indefinite-term Employment Contract Between the Employee and the Employer According to Law No. 4857.
As the contract period is defined in fixed-term employment contracts, there is no need to provide additional notification to terminate the contract. However, in indefinite-term employment contracts, where the employment relationship between the employee and the employer is not tied to a specific period, and when the termination date of the contract is not specified, a written notification must be made in accordance with the notification periods specified in the Law. Therefore, termination indemnity is only relevant in the presence of an indefinite-term employment contract.
It should be noted that, unless there is a substantial reason, if a fixed-term employment contract is made for the second time between the same employee and employer, this contract is considered as an indefinite-term employment contract according to the Law and the decisions of the Court of Cassation.
2) There Shouldn't be a Justified Termination Reason for Both the Employee and the Employer.
ustified termination reasons are regulated for both the employee and the employer in Law No. 4857. While Article 24 of the Labor Law regulates justified termination reasons for the employee, Article 25 regulates justified termination reasons for the employer. Justified termination reasons for the employee are regulated under three different paragraphs in the related article as health reasons, cases against the rules of ethics and good faith, and other similar cases, and compelling reasons. Justified termination reasons for the employer are health reasons, cases against the rules of ethics and good faith and other similar cases, compelling reasons, and cases where the employee's detention or arrest exceeds the period stipulated in the Law under four different paragraphs. If there are no termination reasons conforming to the above articles for both the employee and the employer, the terminating party will not be based on a justified reason. In this case, if the other conditions are also present, the party terminating the contract will be obliged to pay termination indemnity.
3)The Employment Contract Must be Terminated Without Adhering to the Notification Periods Specified in the Law.
It is clearly stated in Article 17 of Law No. 4857 that the party terminating the employment contract must adhere to the notification periods determined according to the duration the employee has worked. The party that does not adhere to the notification periods is obliged to pay the other party a wage corresponding to this notification period.
The purpose here is to prevent the other party from being victimized by notifying the other party in advance by the party terminating the contract. For example, if the employer is going to terminate the contract of the employee, it should tell the employee in advance so that the employee can find a new job and rearrange their life plans accordingly.
The notification periods according to the working duration of the employee and the amount of termination indemnity the employee is entitled to are shown in the table below.
Working Duration of the Employee | Notification Period | Termination Indemnity Amount |
Up to 6 months | 2 weeks | 2 weeks' (14 days) vested wage |
From 6 months to 1.5 years | 4 weeks | 4 weeks' (28 days) vested wage |
From 1.5 years to 3 years | 6 weeks | 6 weeks' (42 days) vested wage |
3 years and above | 8 weeks | 8 weeks' (56 days) vested wage |
For instance, if an employee who has worked for 4 years in a workplace has their employment contract unjustly terminated by the employer without adhering to the notification periods, the employee will be entitled to a termination indemnity of 8 weeks' vested wage.
How is Termination Indemnity Calculated
There are 2 main criteria in calculating the termination indemnity, which are the wage and working duration of the employee.
Firstly, the wage criterion needs to be explained. The net wage refers to the actual amount the employee receives. By adding deductions like insurance premiums, tax, and union dues to the net wage, the gross wage is obtained. The vested wage, on the other hand, is the wage obtained by including additional social benefits provided by the employer to the gross wage. These benefits include meals, transportation fees, bonuses, holiday allowances, fuel assistance, child assistance, health insurance, among other rights. The vested wage obtained in this way is the wage that is taken as the basis in the calculation of the termination indemnity for the employee.
Secondly, the working duration of the employee should be determined. It should be determined how long the employee has been working in the company. The notification periods based on the working duration of the employee are taken as the basis in the calculation of the termination indemnity.
In the calculation of the termination indemnity, stamp tax and income tax are deducted from the final result.
For instance, to make a sample termination indemnity calculation with the following data:
Employee's Gross Wage | 20.500,00 TL |
Additional Social Rights Provided to the Employee | |
Transportation Support (monthly) | 1500 TL |
Meal Support (monthly) | 2500 TL |
Clothing Allowance (monthly) | 500 TL |
Employee's Vested Wage | 25.000,00 TL |
Employee's Working Duration | 01.03.2020-15.10.2023 (3 years 7 months 14 days) (Since the working duration of the employee exceeds 3 years, they are entitled to termination indemnity of 8 weeks (56 days) worth of wages.) |
Termination Indemnity | (25.000/30)x56= 46.666,66 TL |
After calculating the termination indemnity, it is necessary to deduct the stamp duty (0.759%) in accordance with the Stamp Duty Law and the income tax (The income tax rate varies between %15 and %40.) in accordance with the Income Tax Law. The Income Tax Law does not exempt termination indemnity from income tax.
Who is Entitled to Termination Indemnity?
The issue of termination indemnity payment arises for both the employee and the employer. This is because both the employee and the employer should notify each other before termination. In other words, the party terminating an indefinite-term employment contract without a justified reason and without adhering to the notification periods stipulated in the Law must pay termination indemnity to the other party. While severance pay is a compensation that can only arise in favor of the employee, termination indemnity can arise in favor of both the employee and the employer.
Example 1: Let's say Employee (A) started working for Employer (B) on 10.01.2023 and is considering resigning on 01.10.2023. In this case, according to the Labor Law No. 4857, Employee (A) must inform Employer (B) 4 weeks in advance since the working duration is between 6 months and 1.5 years. In other words, Employee (A) should say, "Dear employer, I am resigning on 01.10.2023, just to let you know." 4 weeks before termination. Otherwise, Employee (A) might have to pay termination indemnity of 4 weeks' vested wage to Employer (B). If Employee (A) had terminated the employment contract immediately for a justified reason, then there would be no need to give a notification period, hence no termination indemnity payment would be required.
Example 2: Let's say Employee (A) started working for Employer (B) on 05.07.2021, and Employer (B) is considering terminating Employee (A) on 05.05.2023. In this case, according to the Labor Law No. 4857, Employer (B) must inform Employee (A) 6 weeks in advance since the working duration is between 1.5 and 3 years. In other words, Employer (B) should say, “Dear employee, I am terminating the employment contract on 05.05.2023, just to let you know.” 6 weeks before termination. Otherwise, Employer (B) might have to pay termination indemnity of 6 weeks' vested wage to Employee (A). If Employer (B) had terminated Employee (A)’s employment contract immediately for a justified reason, then there would be no need to give a notification period, hence no termination indemnity payment would be required.
Furthermore, it should be stated that the employer can terminate the employment contract immediately by paying the wage calculated according to the notification period in advance. Termination with advance payment is a right granted by law only to the employer. There is no such right for the employee.
Requirement to Grant Job Search Leave During the Notice Period
The employer is required to grant job search leave to the employee within the notice period for finding a new job. The job search leave is regulated in Article 27 of the Labor Law. According to the article, within the notice periods, the employer is obliged to grant the employee job search leave within working hours without making any wage deduction.
The duration of the job search leave cannot be less than two hours per day. The employer determines at what hours of the day the leave will be used within the scope of managerial rights. If the employee wishes, they can use the job search leave hours collectively. However, an employee who wants to use the job search leave collectively must align it with the days preceding the day of departure from work and must inform the employer about this situation.
Failure to grant job search leave constitutes a justified reason from the employee's perspective. If the employer does not grant the new job search leave or grants it insufficiently, the wage related to that period is paid to the employee. If the employer employs the employee during the job search leave, in addition to the wage that the employee would receive without working by using the leave, the employer pays the wage for the period worked with a hundred percent increase.
What is the Statute of Limitations for Lawsuits in Termination Indemnity?
The statute of limitations is a legal institution that allows the debtor to avoid paying the debt due to the non-use of the claim right within the clearly defined periods in the law. In other words, while the creditor can attain their right through a lawsuit they will initiate, the debtor can plead the statute of limitations and deprive them of this right. According to the Additional Article 3/1-a. of the Labor Law No. 4857, the statute of limitations for termination indemnity lawsuits is 5 years. That is, the party of the employment contract must file a lawsuit within 5 years from the date of termination of the contract. Otherwise, the other party can plead the statute of limitations.
Which Court is Authorized and Competent in a Lawsuit with Termination Indemnity Claim?
The competent court in a lawsuit with a termination indemnity claim is the Labor Courts. In places where there is no Labor Court, the Civil Court of First Instance will handle the case as a Labor Court.
The authorized court in a lawsuit with a termination indemnity claim is regulated in Article 6 of the Labor Courts Law. According to this, the authorized court in cases to be filed in labor courts is the court of the settlement of the defendant, whether a real or legal person, at the date the lawsuit is filed, and the court of the place where the job or transaction was performed. Furthermore, if there are multiple defendants, the court of the settlement of any one of them is also authorized.
Mandatory Mediation and Litigation Process in Termination Indemnity
In the event that the termination indemnity is not paid to the party entitled to it, the other party must go through the legally mandatory mediation process before filing a lawsuit. According to Article 3 of the Labor Courts Law No. 7036, it is a lawsuit requirement to have applied to a mediator in cases filed with the claim of worker or employer receivables and compensation based on the Law, individual or collective labor contracts, and reinstatement to the job. Additionally, in the same article, it is stated that the plaintiff must attach the original final record indicating that no agreement could be reached at the end of the mediation activity or a certified copy of it to the petition of the lawsuit; otherwise, a definite one-week period will be given to the plaintiff to complete the deficiency, and ultimately, if the mediation record is not submitted, the lawsuit will be rejected procedurally.
After the mandatory mediation process, a lawsuit with labor receivable claims should be filed. Once procedural transactions are completed in the lawsuit, the investigation process is carried out, witnesses are heard if any, the file goes to the expert, the lawsuit is amended by paying the fee if necessary after the expert report is finalized. Later, a decision is made by the court, and if applied, the legal way stages are completed, and the court decision becomes finalized.
The processes of termination of the employment contract, calculation of termination indemnity, mediation meetings, correctly identifying the competent and authorized court and filing a lawsuit, carrying out many transactions in the lawsuit (establishment of the party, submission of evidence, hearings, expert report, amendment, decision stage, legal way stage), and enforcement of the court decision can be difficult to be carried out correctly and in compliance with the law by the employee and employer, and irreversible mistakes can cause serious loss of rights and financial damages. Therefore, professional support should be obtained in labor lawsuits, and an expert attorney should be consulted.
Frequently Asked 10 Questions About Notice Indemnity
1) Can the employer claim notice indemnity from the employee if the employee leaves the job without prior notice?
The obligation of notice indemnity applies to both the employee and the employer. If the employee's departure from the job is not based on a justified reason, it is legally possible for the employer to claim compensation for the notice period from the employee.
2) Is there a ceiling application similar to severance pay in notice indemnity?
The severance pay ceiling is the upper limit that can be considered in calculating the payment to be made to the employee who has earned severance pay, and this upper limit is the maximum retirement bonus amount that the highest state official will receive for one year of service. However, there is no ceiling application in notice indemnity, and the higher the employee's wage, the higher the compensation will be without a limit.
3) Do employees who retire, give birth, get married, go to the military, heirs of deceased employees, and those receiving disability pensions qualify for notice indemnity?
Notice indemnity is the compensation that must be paid by the party terminating the indefinite term employment contract without adhering to the notice period to the other party. Therefore, notice indemnity can be claimed for the other party, not for the party terminating the contract. Thus, the aforementioned groups of employees cannot qualify for notice indemnity even if they are justified as they terminate their employment contracts themselves.
The Court of Cassation has also answered this question. According to the decision of the 9th Civil Chamber of the Court of Cassation dated 10.02.2014 with the file number 2011/54410 E., 2014/3699 K., "Since the notice indemnity is a compensation that the party terminating the employment contract must pay to the other party, it is impossible to qualify for notice indemnity even if the termination is based on a justified reason by the party terminating the contract. There is no right to claim notice indemnity in case the employee terminates the employment contract due to retirement, active military service, marriage, etc., according to the provisions of Article 14 of Law No. 1475. In the aforementioned terminations, the employer also cannot claim notice indemnity."
4) Can an employee qualify for notice indemnity in the presence of unjust termination by the employer during the probation period in the presence of a probationary employment contract?
In the presence of a probationary employment contract, there is no need to pay notice indemnity to the employee due to unjust termination that occurs within the probation period. However, if there is no probation period, even if the employee works for even 1 day, notice indemnity must be paid to the employee in case of unjust termination by the employer without adhering to the notice periods.
5) Can the employer deduct the notice indemnity he/she deserves from the employee's salary?
Absolutely not. The employer must pay the employee's salary in full. If the employer thinks that the employee has terminated the employment contract unjustly without adhering to the notice period, he/she can sue the employee for this, but cannot deduct from the employee's salary.
6) Which payments are included in the gross wage when calculating notice indemnity?
Notice indemnity is calculated based on vested wage. In determining the vested wage, additional social rights such as transportation fee, meal fee, fuel aid, clothing aid, ticket, Sodexo card are taken into account. The same direction is given in the decision of the 9th Civil Chamber of the Court of Cassation dated 10.02.2014 with the file number 2011/54410 E., 2014/3699 K., "In the calculation of notice indemnity, in addition to the wage written in Article 32 of the Law, money or monetizable benefits provided to the employee are also taken into account."
7) Can there be notice indemnity in fixed-term employment contracts?
The notice periods specified in Article 17 of Labor Law No. 4857 are regulated for indefinite term employment contracts, and notice indemnity cannot be earned in fixed-term employment contracts.
8) How is the notice indemnity calculation made?
The calculation of notice indemnity is based on two main factors. Firstly, the wage of the employee is determined. The vested wage is found by adding additional social rights to the employee's gross wage. Secondly, the duration of the employee's work period is determined. If the employee's working period is up to 6 months, it is 2 weeks; if it is between 6 months and 1.5 years, it is 4 weeks; if it is between 1.5 years and 3 years, it is 6 weeks; and if it is more than 3 years, it is calculated as 8 weeks' worth of wages as notice indemnity.
9) Are the notification periods in the Turkish Labor Law definitive?
The notification periods specified in the law are mandatory as a minimum. These periods can be extended through individual and collective labor agreements.
10) Is it possible to use the notification period in increments?
Notification periods are indivisible and cannot be used in increments. In such an application, the entire notification period should be considered when paying the notice indemnity. Similarly, the decision of the 9th Civil Chamber of the Court of Cassation, with case number 2011/54410 E., decision number 2014/3699 K., and dated 10.02.2014 states: "According to our chamber's established practice, if the employment contract is terminated with a notice period, the contract is considered terminated at the end of the notice period. If the termination occurs before the end of the notice period, it is considered as if no notice period was given, and thus the party terminating the contract must pay the full amount of wages corresponding to the notice period to the other party as indemnity. The principle of indivisibility of the notice period cannot be applied differently regarding the notice periods stipulated in the law or the contract. The notice period, including the time extended by the contract, represents a whole and cannot be applied in increments."
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