Termination of Employment Contract on Performance in Turkey

Orçun Çetinkaya, Müge Dolay and Zeynep Alemdaroğlu - November 1, 2016

First published by Corporate Disputes Magazine (October-December 2016).

Performance evaluations are frequently used in business to determine job performance or efficiency of employees. For the success of an organisation, each employee’s individual contribution matters for reaching the organisational goals, therefore keeping track of each employee’s quality and performance have a vital importance. For decades now, economists have looked at the questions of wages and performance and identified promotions, bonuses and termination of employment based on performance evaluations as important motivational factors affecting employee performance.

On the other hand, from the lawmakers’ and lawyers’ point of view, performance evaluations are of high importance given that they are frequently used by organisations as a basis of their decision to promote their employees where performances are found satisfactory or to lay them off where they do not reach a satisfactory level. Therefore, performance evaluations concern the economic rights of employees, which must ideally be protected fairly.

In Turkey too, performance evaluations are used by the organisations for the determination of promotion of employees and the termination of their employment. The issue of termination based on poor performance was quite debatable until recently the Turkish Court of Appeals established the rules in this respect. Before delving into the details of the Court of Appeals’ recent decision, it would be better to take a look at the applicable provisions of Turkish Labor Code. With regard to the termination of employment contracts based on performance, Article 18 of the Labor Code provides certain protections and sets forth grounds for fair dismissals. Accordingly, in an organisation with 30 or more employees, the employment relationship of a person who has worked for the organisation for at least six months can only be terminated based on a valid ground pertaining to the employee’s capability or behaviour, the requirements of the organisation or the nature of the work. The same Article also lists the grounds that cannot be used as a basis for dismissal, such as union membership, gender, race, ethnicity, religion or political ideology. In a similar vein, Article 19 of the Labor Code reads that an employer is required to serve the employee a written termination notice in which the reasons for termination are stated clearly and accurately. In practice, unsatisfactory performance evaluations are stated in the termination notices as the ground for dismissal. For a long time, the Court of Appeals worked on the evolution of these principles – especially in cases involving termination of employment based on performance evaluations – in order to successfully terminate an employee’s contract. In this regard, the Court of Appeals’ recent decision shows demonstrates there is stare decisis on this subject now.

In the seminal case, the claimant/employee was working as a pharmaceutical sales representative. The defendant/employer terminated the claimant’s employment contract claiming that he could not achieve objectives that were set by the company, that there was no sign of improvement in his performance, that he lacked concentration and that his sales were insufficient regarding company standards. As a result, the claimant filed a re-employment lawsuit arguing that he was unfairly dismissed. The First Instance Court – Labor Division rejected the case and decided in favour of defendant. Hence, the employee appealed and the Court of Appeals set the decision of the First Instance Court aside.

The Court of Appeals – with respect to the termination of employment based on performance evaluations – stated that: (i) the criteria for evaluations to terminate an employment contract based on performance/efficiency evaluations should be objective; (ii) performance/efficiency criteria should pertain to the workplace; (iii) poor performance should be continuous or the results should show a downward trend; and (iii) any result that is not continuous or changeable according to other factors should not be accepted for the termination of the employment contract.

The Court of Appeals also defined the meaning of “objective performance/efficiency criteria” and ruled that such criteria: (i) should be pre-determined; (ii) should be served (in writing) to the employee; and (iii) the targets must be of a nature that can be expected from an employee after taking into account the knowledge, experience and skills of the employee, as well as the macro and micro economic conditions and the employer’s and the industry’s position. (In other words, it is important to consider an employee’s qualification, behaviour and achieved objectives within the company, as well as the employer’s position in the industry.)

Ultimately, in the aftermath of the Court of Appeals judgment, these criteria should be objectively put forward according to an employee’s job definition, efficiency, and compliance with the employer’s corporate principles and workplace rules. Performance evaluation forms should be prepared with those principles in mind. The employee should review those principles, and the employer should clarify all issues for the employee. The employee should sign performance forms so that those can be binding on him or her. The burden of proof in these cases lies with the employer. The employer must prove that termination of the employment contract is for a valid reason; in other words, rightful. Therefore, the criteria set out should be considered by any company before terminating a contract based on an employee’s poor performance.

Although the Court of Appeals successfully laid down a clear definition for substantial due process of the matter – i.e., under what circumstances the performance criteria can be used as a ground for termination of employment – we are of the opinion that the Court of Appeals still failed to identify a couple of important issues for the satisfaction of procedural due process – i.e., what kind of procedures employers should follow so that they can be sure they terminated employment by following a fair procedure. Giving employees warning and providing them with an opportunity to respond, and where possible to improve, is very important in ensuring that a fair procedure is followed. Under Turkish law, such procedural steps are not detailed in applicable labour laws and regulations. In practice, there is no consistent performance evaluation, warning or termination procedure adopted by organisations in the market. Therefore, we believe that new legal problems will arise, especially in applying the criteria that poor performance must be continuous. Generally, it will be impossible for an employer to dismiss an employee fairly for a single act of poor performance without having first warned the employee that improvement is required, and without giving him or her a reasonable opportunity to improve. However, in cases where an act of poor performance does not constitute misconduct, which can be considered as serious or gross misconduct, such as persistent lateness or unauthorised absence from work, we believe that one warning should not be sufficient to dismiss the employee fairly. In fact, the court does not make a distinction for such cases and does not mention whether such circumstances would require more than one warning to be given to the employee.

This criteria may also pose another legal problem, as the case law does not provide any legal guidance in situations where one extreme or negligent incident involving an employee has disastrous or potentially disastrous consequences to the extent that it would be considered fair to dismiss as a result of that one single incident. In such circumstances, an employee may not demonstrate any poor performance other than this single incident. We believe that employers will tend to fire such employees immediately, citing the single incident as the basis for the employee’s poor performance or lack of capability. However, in such re-employment cases, whether the employer should base its defence on the ground of poor performance or incapability remains unclear. The employer that argue that a single act of extreme or negligent conduct with disastrous consequences would constitute poor performance may be dismissed, as poor performance must now be continuous. Consequently, in borderline cases, employers should be careful about relying on poor performance when terminating employment.

 

Author Contact Details:

Orçun Çetinkaya: ocetinkaya@morogluarseven.com

Müge Dolay: mugedolay@yahoo.com

Zeynep Alemdaroğlu: zeynep.alemdaroglu@gmail.com