Termination of Labor Contract with Mutual Agreement (Mutual Rescission)
The first circumstance terminating the labor contract is the expiration of labor contract of definite duration. Even if the labor contract is for definite duration or indefinite duration, the other circumstance terminating the labor contract is the death of worker. And the third is that parties agree to mutually terminate the labor contract (mutual rescission).
The mutual rescission agreement is not expressly regulated by law. This possibility is considered a “freedom of contract” both by the doctrine and adjudications. The principle for freedom of contract is based on the Constitution (article 48 of Constitution; article 26 of Turkish Code of Obligations No. 6098) and grants Parties authority to execute a contract, set the content of the contract, and finally terminate the contract. In this respect, the labor contract – whether it is for definite or indefinite duration – may be terminated with mutual agreement between the employer and employee. This agreement on termination of labor contract is practically called “mutual rescission”. The Supreme Court of Appeals uses the term “annulment agreement”. The mutual rescission, “ikale” in Turkish, is a concept of Arabic origin. It means abolishment of an existing contract by mutual agreement between the Parties. Actually, mutual rescission is a bilateral legal process; it consists of offer and acceptance. Due to such characteristic, the mutual rescission is an “annulment agreement” and therefore subject to general provisions of Code of Obligations.
As indicated, a mutual rescission agreement is regulated by the Labor Law and applicable Code of Obligations. Thus, problems related to mutual rescission are tried to resolve by adjudications. The mutual rescission relating to the labor contract was almost never practiced during the period of Labor Law No. 1475, but it has gained major importance during the process of enforcement of Labor Law No. 4857. Execution of a mutual rescission agreement on termination of labor contract has a function to prevent enforcement of provisions of job security. In cases where the labor contract is terminated by mutual agreement between the parties that sign a mutual rescission agreement, a worker may not take advantage of provisions of job security. This is why the mutual rescission agreements have become very common.
The mutual rescission of the labor contract is not considered a termination, therefore consequences for termination of labor contract cannot be implemented in the labor law in respect of mutual rescission. Indeed, termination of a labor contract by mutual rescission is not a termination because it is obvious that termination is a right that terminates the contract with unilateral declaration of intention and generates a destructive novelty, and the mutual rescission is generated by unification of two compatible mutual intentions.
Even if the mutual rescission agreement is implemented in the labor law, this will not make a difference in the duration and form of the contract. Indeed, a mutual rescission agreement is generated by unification of intentions for terminating the contract by mutual agreement of the parties whether the labor contract is for definite or indefinite duration, part-time or full time.
Characteristics of Mutual Rescission Agreement
Parties to the Agreement (Worker and Employer/Employer’s Agent)
The mutual rescission agreement may only be made by the Parties that have executed the labor contract. One of the parties to the mutual rescission agreement will be the worker with whom the labor contract is made. However, the employer may have been changed in the dynamic structure of the business life. Thus, when signing a mutual rescission agreement, the employer side may be the employer that has signed the labor contract with the worker, or the new employer that has taken over the business.
A labor contract may be made by workers of full legal age who have mental capacity and who is nor interdict or by permission of guardian of minor who is not major but is able to work pursuant to provisions of labor legislation. On the other hand, a person who is specially and expressly authorized by the worker may make a mutual rescission agreement for that party. It is not necessary to require such an authority from the employer’s agent.
Subject Matter of the Agreement
The subject matter of the mutual rescission agreement is to eliminate the previous labor contract between the worker and the employer.
Requirement as to Form
From the perspective of Turkish Law, effectivity of mutual rescission is not subject to any requirement as to form. The parties may make this agreement as they wish. Moreover, even if the labor contract to be eliminated is subject to a specific requirement as to form, the case remains the same. A mutual rescission agreement may be made verbally or in writing, expressly or implicitly. The form of a mutual rescission agreement is not important in respect of validity. However, a mutual rescission agreement is often made in writing where offer and acceptance of parties come together. The title of mutual rescission (annulment) agreement does not need to contain the word “rescission”. In practice, the mutual rescission agreement is mostly made as “protocol” and must be unambiguous to eliminate the labor contract between the parties. However, it will appropriate to make a mutual rescission in writing in terms of law of proof.
Unification of Common Intention of Parties
Elimination of labor contract with mutual rescission agreement is possible when the intention of the parties meshes together in this regard. If the employer and the worker have mutually agreed on non-employment, it should be considered that they have eliminated the labor contract with the mutual rescission agreement. Although express and written declaration of intention is desirable to establish the mutual rescission agreement, there is no legal requirement to expressly declare the intention. The agreement terminating the labor contract, i.e., mutual rescission may be made implicitly as well as expressly. In practice, a situation encountered frequently is that worker notifies the employer of his/her will to resign provided that severance and notice pay is paid to the worker. One of the resolutions of Supreme Court of Appeals on this issue states that such request of a worker cannot be considered a request for resignation, but an offer for making a mutual rescission agreement at the very most. Such resolution suggests a right approach in consideration of characteristics of a mutual rescission agreement. It is because a conditional resignation shall not be valid unless accepted by the employer.
A recent resolution of the Supreme Court of Appeals has agreed that the labor contract has been terminated by mutual rescission of a worker who requested termination of the labor contract provided that his rights are paid because this worker requested to do a light job due to his illness but there were no light jobs to offer; then the worker signed a protocol that labor contract was terminated by mutual intention and the worker was unable to claim and prove that he was under pressure when signing such protocol.
The moment when the labor contract terminates
In the protocol (mutual rescission agreement), the date when the obligation of worker to work and the obligation of employer to employ must be the date of signing. As required by the principle for protecting the worker, the signatures provided by the worker during his/her term of employment are not considered valid by the Supreme Court of Appeals. Therefore, unless otherwise provided in the mutual rescission agreement, the date when the agreement is made is considered the date of termination of the contract. However, the parties may agree on terminating the contract after a certain period of time.
Nullity of the Contract and “Provision of Additional Possibilities” with “Reasonable Benefit Criterion” in particular
It is obvious that such an agreement is not often concluded in the benefit of the worker because when the mutual rescission takes place, the worker cannot use the rights under the termination, for example severance and notice pay, job security, and unemployment insurance. In this respect, can be said that accepting termination of the contract by the worker with his free will is not consistent with the natural flow of life. However, -even it is rare – the worker may have also wished to terminate the contract by agreement for a certain reason. At this point, what becomes important is to determine whether the mutual rescission is based on the worker’s true intention. It is because this agreement is made to prevent workers from exercising provisions of job security in many disagreements. Therefore, the validity of mutual rescission should be assessed – in case of doubt – in favor of the worker. The purpose of labor law to protect the worker requires to be more sensitive as to validity of mutual rescission agreement that terminates the labor contract. Actually, the mutual rescission agreement will be considered valid, and the contract that aims at evasion of job security and is actually used to conceal the employer’s termination will need to be deemed null.
The free wills must be mutual and consistent to eliminate the labor contract with mutual rescission agreement. Therefore, if the intention of the parties is inconsistent or if the intention is invalid, the mutual rescission agreement should be considered invalid. Indeed, if either Party does not agree with the other Party on elimination of labor contract, the mutual rescission agreement will be invalid.
Where the labor contract is terminated by a mutual rescission agreement, it is very important to first determine whether the right to terminate the labor contract is misused and whether the employer intends to be relieved from certain obligations. The validity of mutual rescission agreement is assessed by the principles in the Code of Obligations and the principles in the Labor Law.
Assessment and Validity of Mutual Rescission Agreement for Principles in the Labor Law (to protect the worker and interpretation in favor of the worker)
Reasonable Benefit Criterion and Provision of Additional Possibilities: When a mutual rescission agreement is made, normally the worker will not receive a severance and notice pay, exercise the provisions of job security or receive an unemployment allowance because the contract is not terminated by the employer. In the natural flow of life, no workers will accept to make mutual rescission agreement without a reasonable benefit. In terms of validity of mutual rescission agreement, the employer must have paid for the material losses incurred by the worker as a result of mutual rescission agreement in order to consider that reasonable benefit has occurred in favor of the worker.
Reasonable Benefit Criterion: It is not possible to provide a certain criterion as to amount of reasonable benefit, but the criteria can be considered to determine it such as seniority and wage of worker, financial condition of business, whether the worker is covered by job security, and entitlement to the severance pay.
Consequences of Mutual Rescission (Annulment) Agreement (for Severance and Notice Pay, Job Security, Exercising the Right to Use Unemployment Allowance)
When a labor contract is terminated by a legal mutual rescission agreement, the worker will not be entitled to claim for severance and notice pay resulting from termination, if he/she is covered by job security they may not open a reemployment lawsuit and use the unemployment allowance if covered by unemployment insurance. However, the workers may receive the amount of annual paid leave that they have nor used based on the provision of article 59, Labor Law No. 4857, which states that “Termination of labor contract for any reason…”.
Although a mutual rescission agreement is made, the employers provide untrue statement and mark the section “termination of labor contract of indefinite duration by the employer without valid reason” with code number (04) in order to ensure that workers receive the unemployment allowance. This complicates to make a healthy assessment of reemployment lawsuits as well as causes damage to Turkish Employment Agency (ISKUR) because ISKUR is, in a sense, forced to provide inappropriate unemployment allowance. The risk is increased for opening a recourse lawsuit by ISKUR against the employers that provide misstatement. Actually, since the objective is to protect the worker and the mutual recession agreements are not reduced, the alternatives to statement made to SSI may include the “mutual rescission agreement” as the reason for employee withdrawal. Then, with a new legal arrangement in the Law No. 4447, termination that entitles to unemployment allowance may include the termination by mutual rescission agreement.
The mutual rescission is defined as elimination of an existing contract by mutual agreement of the Parties. The mutual rescission agreement means termination of a previous labor contract executed between the employer and the worker by mutual agreement of the Parties, and is not expressly regulated either in Turkish Code of Obligations or Turkish Labor Law. Therefore, the rules for mutual rescission agreement are generated by the decision of High Court. The mutual rescission agreement is established in accordance with provisions of Constitution (article 48) and Turkish Code of Obligations (No. 6098 and article 26) concerning the “Freedom of Contract”. The mutual rescission is a bilateral legal process and consists of offer and acceptance.
The mutual rescission of labor contract is not a termination and the provisions for termination of labor contract are not applicable to the mutual rescission. The critical legal consequence of making a mutual rescission agreement is elimination of provisions of job security for the worker. This is why a mutual rescission agreement that was not very common in the period of former Labor Law No. 1475 have become very common in the period of Labor Law No. 4857. It is not important whether the labor contract is for definite or indefinite duration, part-time or full time to establish a mutual rescission agreement.
The mutual rescission agreement is established by unification of mutual intensions of the parities, whether in oral or in writing, express or implicit in order to eliminate the previous labor contract by the worker and the employer/employer’s agent that have capacity to act and power of disposition on the eliminated assets and liabilities pursuant to the Civil Law. Although the doctrine is debated in respect of making the mutual rescission agreement in verbal or in writing, it will be quite appropriate to make this agreement in writing in terms of both validity and law of proof. The labor contract will be terminated upon entering into a mutual rescission agreement. Despite debated doctrine, the parties may have agreed on termination of labor contract on a future date by mutual agreement.
For the validity of mutual rescission agreement, first there must not be invalidity of intention as described in Turkish Code of Obligations; the mutual rescission must initially provide a reasonable benefit to the worker in particular, and an additional benefit must be provided for the workers under the job security in addition to severance and notice pay and other legal labor rights. This where the workers must be informed about the consequences of the mutual rescission. In my opinion, the worker whose labor contract will be terminated by the mutual rescission agreement must be notified in writing that they will not be able to enjoy the provisions of job security or the unemployment allowance, and exercise other rights resulting from termination. It is not possible to provide a certain criterion as to amount of reasonable benefit, but the criteria can be considered to determine it such as seniority and wage of worker, financial condition of business, whether the worker is covered by job security, and entitlement to the severance pay.
Upon establishment a legal mutual rescission agreement, the provisions concerning the severance and notice pay will not apply, which is the indemnity resulting from termination of labor contract, the worker may not use the job security or receive unemployment allowance, however, other labor claims will be paid, particularly unused annual paid leaves.