CONTROVERSY BETWEEN THE TURKISH LABOUR LAW AND THE TURKISH COMMERCIAL CODE WITH RESPECT TO BUSINESS TRANSFER
The transfer of an establishment organised as an economic entity with its tangible and/or intangible assets along with the employees through a legal transaction constitutes one of the most significant subject matters of social law. The Turkish Labour Law No: 4857 (“LL”) clearly regulates the business transfer under Article 6 parallel to the regulations set out in the European Union Council Directive numbered 77/187 and 2001/23.
In terms of the LL, the business transfer can be defined as the transfer of an establishment organised as an economic entity with its tangible and/or intangible assets along with the employees through a legal transaction. Thus, in order for a legal transaction to be regarded as business transfer in terms of the LL, economic activity (e.g. a separable part of a business) which is transferred should preserve its economic identity meaning that; it should be able to achieve the same or similar economic function following the transfer. Taking over of sufficient number of key employees engaged in that activity, even if this constitutes a portion of the workforce, can still be deemed a transfer.
Pursuant to Article 6 of the LL, in case of a business transfer, employment contracts existing in the establishment shall pass on to the transferee with all the rights and obligations on the date of the transfer. In the calculation of all the entitlements based on the employee’s length of service, the transferee employer must act, in regard to the transactions concerning the employee, according to the date on which the employee had started work under the transferor employer. In a business transfer, the transferor employer and transferee employer shall be jointly liable for the obligations which have materialised before the transfer and which must be defrayed on the date of the transfer. The liability of the transferor employer is limited, however, up until the two years period following the date of the transfer.
As per the LL, the transferor or the transferee employer is not authorised to terminate the employment contract solely because of the business transfer. Similarly, employees are not entitled to terminate the contract for just cause. The right of the transferor or the transferee employer to terminate the employment contract for reasons necessitated by economic, technological or organisational changes or the right of the employers and the employees to terminate the employment contract for just cause are reserved.
On the other hand, the Turkish Commercial Code No: 6102 (“TCC”) has also brought protection to employees against the side effects of structural changes in terms of division (split-up or spin-off), merger (taking over one or more companies by a legal entity or establishment of a new company by way of merger of two or more companies) and conversion under Article 178.
According to Article 178 of the TCC, employment contracts executed with the employees shall be transferred to the transferee employer with all the rights and obligations arisen thereby until the day of the transfer provided that the related employees do not raise any objection to the transfer of their employment contracts. If the employee objects to the transfer of the employment contract, the employment contract will be terminated at the end of the legal notice period and the transferee employer and the employee shall be liable for fulfilment their contractual obligations during the term of the legal notice period. Unless decided otherwise or it is evident from the circumstances, the employer cannot transfer the rights arisen from the employment contract to a third party. Furthermore, employees can request securing their due receivables and their receivables which will become due as set forth in Article 178.
The division, merger and conversion which are regulated under the TCC are also deemed as business transfer in terms of the LL. Therefore, there are two separate laws regulating the division, merger and conversion and each law sets forth different provisions in this respect. Due to this reason, there are different opinions defended in the legal doctrine regarding the applicability of the provisions of the TCC. However, by taking into consideration the preamble of the TCC drafted by the commission; although division, merger and conversion can be deemed as business transfer in terms of the LL, since these procedures are specifically regulated under the TCC based on its commercial law aspects, the relevant provisions of the TCC should apply.
In light of the foregoing, in case employees object to the transfer of their employment contracts, the employment contract shall terminate at the end of the statutory or contractual notice period and the transferee and the employee are liable for fulfilment of the employment contract until that date.
Since employees have the right to object to the transfer of the employment contract, the transferor employer is required to notify the division, merger or conversion to its employees in advance. The notification should be made to employees within a reasonable time period.
On the other hand, although TCC sets forth a joint liability for the transferor and the transferee employer parallel to the LL, since the former employer ceases to exist as a result of a division, merger and conversion, it will not be necessary to look for a specific provision with respect to joint liability of the former employer with the new employer.
It is not regulated under the provisions of the TCC whether employees, who object the transfer of their employment contract in case of a division, merger of conversion, shall be entitled to the severance payment due to the termination of the contract. However, it is generally accepted by the legal doctrine that the employees should be entitled to severance payment in such case basing on the fact the refusal to transfer of employment upon merger should be regarded as just cause basis termination from employee standpoint.
Since the TCC entitles employees the right to object to the transfer of his employment relationship to another employer in case of division, merger or conversion; it is claimed that this new regulation is likely to bring about many problems in working life. The supporters of this opinion further explained that changes in the corporate status of the company throughout division, merger or conversion do not solely result in essential change in working conditions of the employee, in other words the status change do not solely considerably worsen the employment conditions of the employee. Therefore, it is claimed that the objection right granted to employees by this provision does not appear to be reasonable and seems to set barriers for maintenance of employment relationship.