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Av. Mahmut Barlas
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Av. Ece Akbaba
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The Definition of Downsizing and the Termination Process

The employer has the right and authority to take all kinds of decisions regarding the business (işletme), within the scope of freedom of operational decisions as per Labor Law No 4857 and the relevant legislation. In order to achieve its business objectives, the employer may take business decisions within the scope of the freedom of business organisation set out in the Turkish Constitution and within the limits of the right of management.

Decisions taken by the employer to align the number of available jobs with the actual need for jobs are called business decisions, and their sources are referred to as “external” and “internal” reasons. Examples of the reasons arising from outside the business include energy problems, general stagnation in the market, lack of raw materials, an economic crisis in the country, a decrease in release and sales opportunities, and loss of foreign markets, which make it impossible to continue the business. Market events determine the non-business reasons that lead to the loss of an employee’s place in the business organisation and the termination of the employment relationship. All the reasons that the business does not have a direct impact on are external reasons. Non-operational reasons are important for termination based on business necessities only if these reasons have caused a labour surplus in the workplace. In the preamble of the same Law, downsizing of the workplace, implementation of new working methods, implementation of new technology, abolition of some types of work, and closure of some parts of the workplace are given as examples of reasons arising from within the business organisation. The employer may resort to various methods, such as downsizing, changing the object of production, and reducing production and product range, in order to maintain the competitiveness of the business organisation and increase its efficiency.

However, it should be noted that this freedom of initiative of the employer is subject to certain limitations within the scope of the constitutional duty of the state to protect employees, to support work, to create an economic environment to prevent unemployment and to ensure labour peace in order to raise the standard of living of employees and to improve working life. As a consequence of job security, terminations based on an operational decision are subject to judicial review of the lawfulness of this reason. According to the concrete case, it will be investigated whether the employer acted arbitrarily with regard to the principle of employee protection and it will be determined whether the termination constitutes a valid reason.

The limit of the employer’s management right arising from the Labor Law is determined according to the rule of honesty in Article 2 of the Turkish Civil Code (TCC). Accordingly, the employer must exercise the right to terminate for operational reasons within the scope of its management authority in accordance with the rule of good faith, and if it is determined that it has acted arbitrarily, the termination will be deemed invalid.

The court does not review the appropriateness of the operational decision, but the lawfulness of the process followed in its implementation. The criteria of the appellate court for the termination of the employment contracts of employees based on valid reasons after the downsizing decision are as follows:

  • there must be an “operational decision” that is available to review;
  • the employer must be able to prove that the termination is based on a valid reason;
  • who will be dismissed as a result of the downsizing decision must be objectively determined;
  • the downsizing must be permanent;
  • the downsizing decision must make the termination of the contract inevitable;
  • the business organisation must actually downsize;
  • termination should be considered as a last resort; and
  • the operational decision must be applied consistently.

When it is claimed that the termination was made due to business, workplace and work requirements, the court of appeal first evaluates the employer’s operational decision in this regard. It investigates the situation that prevents the fulfilment of the employment obligation. In other words, it is determined whether the situation preventing employment was created by an operational decision, whether the employer applied this decision consistently (“consistency control”), whether the employer acted arbitrarily in the termination (“arbitrariness control”) and whether the termination was inevitable as a result of an operational decision (“proportionality control” – principle of last resort).

The Litigation Procedure

The employer’s burden of proof

The burden of proof is on the defendant employer to prove that the termination was based on valid reasons as per Article 20/2 of the Labor Law. While fulfilling the burden of proof, the employer must first prove that the termination complies with the formal conditions and then prove that the reasons for termination are valid (or justified). In this context, the employer must demonstrate with concrete evidence that it has taken a decision regarding the termination, that this decision has reduced employment, that it has consistently implemented the decision and that the termination was inevitable.

In the report to be prepared by the experts, the issues of whether reduced employment occurred as a result of the operational decision, whether the employer applied this decision consistently, whether the employer acted arbitrarily in the termination and whether the termination was inevitable as a result of the operational decision, will be examined and determinations will be made.

An operational decision

The employer must concretely demonstrate the structural change in the operational process necessitated by non-operational reasons and show that this has led to a reduction in their specific line of work. In other words, the employer must present the actual data in a concrete and detailed manner, in a way that allows the courts to supervise the process.

An operational decision must be taken by the board of directors in joint stock companies and the board of managers in limited liability companies, the workers to be dismissed after downsizing must first be evaluated in other departments, the downsizing must be real and permanent, and the termination must be a last resort. Otherwise, in re-employment cases, it may be decided that the termination was invalid and the plaintiff employees will be reinstated, along with a payment of an average of eight salaries and interest for each employee.

The existence of operational reasons for downsizing

In cases of operational reasons, if the alleged operational reason actually exists and eliminates the possibility for the employee to continue working, the employer may terminate the employee for valid reasons within the meaning of Article 18 of the Labor Law.

The existence of an operational reason and its direct impact on the labour needs of the business organisation are fully reviewable by the courts. The court will determine whether the non-operational reason affects the amount of work in the business organisation, and if so, to what extent, and thus whether it affects the number of workers in the business organisation, and if so, to what extent. If the employer relies on the existence of an operational reason for the termination, it is bound by this reason. Therefore, in the reinstatement case, the employer must prove that the operational reason actually existed to the extent and degree claimed by the employer.

The employee’s burden of proof

It is sufficient for the employer to demonstrate convincingly, with appropriate evidence, that the reason for termination was valid (or justified) in order to have fulfilled its burden of proof. However, this is not sufficient to resolve the dispute, because the legislator has provided the employee with another possibility. If the employee claims that the termination was not based on the reason relied upon by the employer and convincingly demonstrated by the employer with appropriate evidence, but on another reason, the employee is obliged to prove this other reason. If the employee claims that the employment contract was terminated for reasons other than those stated in the employer’s defence, for example, for union reasons, in violation of the principle of equality, or arbitrarily, the employee must prove this situation in accordance with the general rule of proof. The employee can prove their claim with any evidence, including witnesses.

Potential risks

According to the established case law of the appeal court, in the six months preceding and six months following the termination of the employment contract, there must not have been any recruitment in the same or equivalent category of departments with the same or similar job position as the terminated employee. In addition, it is important to support with evidence that the terminated employees were evaluated in the newly recruited department and had no opportunity to work. Otherwise, it may be concluded that the termination is invalid on the grounds that the principle of last resort has not been complied with.

If the employee wins the reinstatement case, the employee will be paid for the idle time and, if not reinstated, will receive compensation for non-reinstatement. The employee will be paid a maximum of four months’ gross wage for the idle period. Since the four-month idle period is added to the service period, annual leave pay and severance pay, additional notification must be made on behalf of the employee before the Social Security Institution (SSI) for the four-month idle period. Since four months of idle time is added to the length of service, the employer is required to make annual leave pay, severance pay and additional notification to the SSI on behalf of the employee for the four-month idle time. Interest on wages for the idle time will be charged at the highest interest rate applicable to deposits, which is a special type of interest regulated under Article 34 of the Labor Law.

In addition, depending on the seniority of the employee, the employee will be paid their gross wage on the date of the lawsuit. If the employee has worked for the employer:

  • for between six months and five years, they will get four months’ gross wage;
  • for between five years and 15 years, they will get five months’ gross wage; and
  • for 15 years or more, they will get six to eight months’ gross wage.

The type of interest to be applied to non-employment compensation is not regulated in the Labor Law. Legal interest will be applied to the non-return to work compensation in accordance with the general provisions.

Conclusion

The employer’s right of management under the Turkish Constitution and the Labor Law is subject to certain limitations in line with the state’s duty to regulate working life. The basis of this is the rule of honesty in Article 2 of the TCC, within the framework of which, the employer must make operational decisions. This is because, in order to protect and strengthen working life, the employer should not use the right of management arbitrarily and should carry out the process of termination for operational reasons such as downsizing in accordance with the judicial authority’s supervision and established jurisprudence. The judicial authority does not check whether the operational decision is right or wrong, but determines whether the downsizing process is carried out in accordance with the law regarding employees dismissed due to downsizing.

Consequently, in the reinstatement case, the employer must prove that there are indeed business reasons to the extent and degree claimed by the employer and that there is a connection between the business reasons and the reduction of the number of employees in the workplace; that the employees who should be dismissed was determined in advance; that the employees were evaluated in other departments and that termination was the last resort. Therefore, the board decision and the fact that an employee was evaluated in other departments in line with how long they have worked, their professional skills and their experience in the business is extremely important.

Even the hiring of a new department can change the course of the case. Former employees in the same situation may testify against the employer together during the litigation process. If it cannot be concretely proved that the employees were evaluated in the new department and if the expert report and witness statements taken by the court regarding the implementation of the downsizing decision are unfavourable, the business will be at risk of losing the lawsuits.


Av. Mahmut BarlasAv. Ece Akbaba
Published :
Categories: Employment