Notice pay is the compensation which the terminating party must pay to the other party where an employment contract of indefinite duration is brought to an end without observing the notice periods required by law. Article 17 of the Labour Act No. 4857 imposes on the party wishing to end the contract an obligation to give notice a certain period in advance. Where a termination is effected without that obligation being fulfilled, a claim for compensation in the amount of the wage corresponding to the notice period arises.
The compensation in question is the monetary equivalent of the transitional period afforded so that the employee may look for a new job and the employer may find a new person for the vacated position. It is not one-sided in nature; where the conditions are met, the employer may also claim it.
In this briefing note we examine notice pay in all its aspects, together with the conditions in which it arises, the method of calculation, the cases in which it does not apply and the court process.
For details of how notice pay is calculated on both net and gross wages, our note entitled Calculating Severance and Notice Pay may be consulted.
The Concept of Notice Pay
- Definition
Where an employment contract of indefinite duration is brought to an end without observing the notice periods required by law, the terminating party becomes liable to make a payment to the other party; notice pay denotes that payment.
The statutory basis of the institution is found in Article 17 of the Labour Act No. 4857. The legislature has made the termination of contracts of indefinite duration subject to notice periods that lengthen with seniority, and has required that, where those periods are not observed, a payment be made in the amount of the wage relating to the notice period.
The provision is mandatory in nature. The periods may be extended by contract; they may not, however, be reduced below the minimum thresholds laid down by law.
This claim is not recognised in favour of the employee alone; where the conditions are met, the employer may assert the same right.
- Purpose: protecting the regime of termination with notice
Underlying the institution is the aim of preventing the employment relationship from coming to an end suddenly and unforeseeably.
- From the employee’s perspective: affording a reasonable interval in which to find a new job,
- From the employer’s perspective: enabling preparations to be made to recruit a replacement for the departing person.
In this respect the notice period gives the employment relationship balance and predictability. Notice pay, for its part, constitutes the sanction that supports the regime of termination with notice.
By contrast, this compensation does not arise in cases of immediate termination based on just cause (for example, in situations falling within Art. 24 and Art. 25 of the Labour Act).
Notice Periods (Article 17 of the Labour Act)
The notice periods applicable to contracts of indefinite duration are graduated according to the employee’s length of service at the workplace. That graduation is set out in Art. 17 of the Labour Act No. 4857.
The periods are reciprocal for both parties. The terminating party is obliged to give notice to the other party as far in advance as the law requires. Otherwise an obligation arises to make a payment in the amount of the wage corresponding to the notice period.
Periods Graduated by Length of Service
The Act has graduated the notice periods so that they lengthen as the employee’s period of service increases. In practice this graduation determines the minimum period that must be awaited for a termination to be regarded as valid; for an employee whose service exceeds three years, for example, the statutory period is 8 weeks.
Extension of the Periods
The periods in Art. 17 of the Labour Act No. 4857 are laid down as minima. They may not be reduced below those thresholds; the periods may, however, be extended by agreement of the parties.
In practice, extension is encountered in three forms:
- By individual contract
Provisions laying down notice periods longer than the statutory ones may be inserted into the employment contract.
For instance, while the statutory period for an employee with more than 3 years’ service is 8 weeks, the contract may set that period at 10 or 12 weeks.
- By collective labour agreement
The periods may also be raised above the statutory minimum by collective labour agreement. Where the provision in the collective labour agreement is more favourable than the individual contract, it applies, and the compensation is calculated on the basis of the period in the collective labour agreement.
- The obligation of equal treatment
When the periods are extended, the employer’s obligation of equal treatment must be borne in mind. Setting arbitrarily different periods as between employees who perform work of a similar nature and have comparable seniority may breach that principle; in such a case compensation for discrimination and other rights may come into play.
On the other hand, differentiations based on an objective and reasonable ground — for example, agreeing a longer notice period for senior managers — may be regarded as lawful.
Conditions for Entitlement to the Compensation
Not every termination automatically gives rise to a claim for notice pay. Whether the claim can be satisfied depends on the conditions required by law being present together. In this respect the type of contract, the legal nature of the termination and the ground relied upon are decisive.
The Contract Must Be of Indefinite Duration
The institution operates only in respect of employment contracts of indefinite duration.
Since fixed-term contracts come to an end automatically upon expiry of the agreed term, notice periods do not as a rule come into play and no compensation arises. Where, however, a fixed-term contract is renewed successively without an objective ground and a continuous working relationship is in fact created, the contract may be regarded as one of indefinite duration; in that event the notice provisions apply.
Termination Without Observing the Notice Period
The claim can arise only where the statutory notice period has not been observed. Where the terminating party;
- has brought the contract to an immediate end without allowing the period to run at all,
- or has allowed only part of the period to run,
it becomes liable to make a payment in the amount of the wage corresponding to the notice period.
The point to note here is that the period begins to run from the moment the declaration of termination reaches the other party. Severing the employment relationship in fact without any notice being given produces the consequence of compensation.
It is also open to the employer, instead of allowing the period to be worked, to end the contract immediately by paying the wage relating to that period in advance. On this route the period does not run in fact; the compensation is nonetheless regarded in law as having been paid.
Absence of Immediate Termination for Just Cause (the Art. 24–25 Exception)
This compensation does not come into play in cases of immediate termination based on just cause. That exception covers the situations governed by Articles 24 and 25 of the Labour Act No. 4857.
- Where the employee has terminated for just cause within the framework of Art. 24, no compensation may be claimed, since the employee has exercised the power of immediate termination.
- Where the employer has proceeded to terminate for just cause within the framework of Art. 25, no obligation to make a payment to the employee arises.
The real debate in practice, however, focuses on whether the ground relied upon truly amounts to just cause. The court reviews the justification by weighing the gravity of the ground put forward and the circumstances of the case. If just cause cannot be proved, the termination is deemed to have been made without observing the notice period and compensation comes into play.
Termination During the Probationary Period
Where a probationary clause has been inserted into the contract, the parties may bring the relationship to an end during that period without observing the notice period and without paying compensation. No notice pay therefore arises on terminations made before the probationary period expires.
On terminations made after the probationary period has passed, the general provisions come into play. Once the period is exceeded, the contract takes on the character of a contract of indefinite duration continuing with all its consequences.
Cases in Which No Compensation Arises
Since notice pay is the sanction supporting the regime of termination with notice, no claim arises in situations where that regime is not operated or cannot in law be operated. The principal cases assessed within this scope are as follows:
- Immediate termination by the employee for just cause
An employee who exercises the power of immediate termination within the scope of Article 24 of the Labour Act No. 4857 may not claim this compensation. On termination for just cause the contract is ended instantly within the framework of an exceptional power conferred by law; the notice period is not applied, nor is the failure to apply it unlawful.
In practice the most intense debate again concerns whether the ground put forward is justified. Where the ground cannot be proved, the termination may be regarded as unjustified and a claim for compensation may arise.
- Immediate termination by the employer for just cause
Nor does this claim arise where the employer proceeds to terminate within the scope of Article 25 of the Labour Act. Since termination for just cause constitutes the exception to the system of termination with notice, failure to observe the period does not amount to unlawfulness.
If, however, the ground relied upon by the employer is not found justified by the court, the termination is deemed to have been made without observing the notice period and the employee may become entitled to compensation. At this point the allocation of the burden of proof and the content of the notice of termination are decisive.
- Fixed-term contracts
Since under fixed-term contracts the relationship ends automatically upon expiry of the agreed term, the regime of termination with notice does not come into play. Where the relationship ends with the expiry of the term, no compensation arises. By contrast, the notice provisions may apply to chain contracts concluded without an objective ground which are in reality of indefinite duration.
- Death
The contract comes to an end automatically upon the death of the employee. This is not a termination but an objective ground of extinction arising from the law; no notice period or compensation is therefore in issue. Death on the employer’s side is addressed according to the nature of the work performed. If the work is strictly personal in character, the contract may come to an end; otherwise the relationship may continue with the heirs.
- Special terminations such as retirement and military service
Where the employee ends the contract by exercising the right to retire or by reason of compulsory military service, that is a termination effected by the employee. In such terminations entitlement to severance pay may arise; notice pay, by contrast, may not be claimed. This is because that compensation is a sanction attached to a failure to observe the notice period and does not come into play for the party who ends the contract of its own volition.
- Resignation not based on just cause
An employee who resigns without just cause may not claim this compensation. Moreover, where the employee leaves without observing the notice period, it is the employer who may this time claim compensation in the amount of the wage corresponding to the period. The obligation is reciprocal; it is not a one-sided employee right.
Principles of Calculation
The compensation is calculated on the amount of wage corresponding to the notice period determined by length of service. The accuracy of the calculation depends on correctly identifying the type of wage to be taken as the basis and the items to be added to it. The great majority of disputes in practice arise on precisely this point.
The Wage to Be Taken as the Basis
The amount to be taken as the basis of the calculation is the last gross wage at the moment of termination. Not only the bare wage but also benefits provided to the employee on a regular basis and measurable in money enter into the calculation. For this reason, in many cases the calculation is made on the basis of the “composite gross wage”.
- Last gross wage
As a rule, the monthly gross wage at the date of termination is taken into account. Where the wage has been increased but that increase has not yet been entered on the payroll, the actual position is taken as the basis.
- Composite wage
The composite wage is the total gross amount arrived at by adding to the bare gross wage those fringe benefits which are continuous and measurable in money.
This concept plays a decisive role in particular in calculations of severance and notice pay.
Items Included in the Calculation
Benefits which are continuous and paid regularly are taken into account in the calculation.
Where the conditions are met, the items included in the composite wage are as follows:
- Bonus: if paid regularly and continuously on the basis of performance.
- Travel allowance: if paid in cash or measurable in money.
- Meal allowance: if it is in the nature of a cash payment or constitutes a measurable benefit.
- Regular gratuity: if paid consistently at set intervals during the year.
By contrast, payments that are incidental in nature, made on a one-off basis or lacking continuity are not taken into account.
The data for a sample calculation table may be framed as follows:
- Notice period: 6 weeks (42 days)
- Monthly gross wage: TRY 40,000
- Regular monthly bonus: TRY 5,000
- Travel and meal allowance in cash: TRY 3,000
Working Out the Period and Payment in Advance
The notice period is a transitional stage in which the contract has been terminated but has not yet come to an end. During this interval the mutual rights and obligations of the parties continue. Two routes are open to the employer: allowing the period to be worked in fact, or paying the wage relating to the period in advance and ending the relationship immediately.
The matter is addressed within the framework of Art. 17 and Art. 27 of the Labour Act No. 4857.
• Termination with the period worked
The employer may allow the notice period to be worked in fact. On this route:
- The contract remains in force throughout the period.
- The employee continues to perform the work.
- Wages and fringe benefits continue to be paid as before.
- Social security premiums continue to be paid.
Upon expiry of the period the contract comes to an end automatically. Since the notice period has been observed, no compensation arises under this method.
- Termination by payment in advance
The employer is not obliged to allow the period to be worked. The law permits the contract to be ended immediately by paying the wage relating to the period in advance. On this route:
- The employee does not work during the notice period.
- The wage relating to the period is paid as a lump sum.
- The contract comes to an end at the moment payment is made.
The critical point here is that the amount paid must cover the full wage equivalent of the notice period. Any shortfall may be claimed separately.
- Granting leave during the notice period
Whether annual leave may be taken during this period is frequently debated in practice. As a rule:
- The employer may not set off the notice period against annual leave without the employee’s consent.
- The notice period and annual leave are separate legal institutions.
Where the parties have expressly agreed to that effect, however, annual leave may be taken during the notice period.
Apart from this, the employee must be granted at least 2 hours of job-search leave per day throughout the notice period (Art. 27). If work is required without that leave being granted, the wage for the periods concerned may be claimed at the increased rate.
The Court Process
This claim is a monetary employment claim arising from the ending of the employment relationship. The process must therefore be conducted with the rules of both employment law and procedural law in view. Below we address the basic stages of the action.
Mediation as a Procedural Requirement
Since the claim is in the nature of an employment claim, recourse must be had to mandatory mediation before an action is brought.
The source of that requirement is Art. 3 of the Labour Courts Act No. 7036.
- An action brought without applying to a mediator is dismissed on procedural grounds for want of a procedural requirement.
- The final minutes must have been drawn up as recording a “failure to agree”.
- The statute of limitations is suspended throughout the mediation process.
The most frequent error in practice is a failure to list the heads of claim expressly in the application.
The Courts With Jurisdiction
Subject-matter jurisdiction: The court with subject-matter jurisdiction is determined by the Labour Courts Act No. 7036; accordingly, the dispute is heard by the Labour Court.
Territorial jurisdiction: As regards territorial jurisdiction, the claimant is afforded a choice. Accordingly;
- the court of the respondent’s domicile,
- the court of the place where the work is performed
have jurisdiction. The jurisdiction rule is not of a mandatory nature; if no objection is raised in time, jurisdiction becomes settled.
The Route of an Action for an Unquantified Claim
Although notice pay is a claim based on calculation, it may often not be capable of precise determination by the employee. For this reason the action may be brought in the form of an action for an unquantified claim.
The following points must not be overlooked, however:
- Where the wage and seniority data are clear and capable of calculation, the court may conclude that the conditions for an unquantified claim are not met.
- Opting for an action for an unquantified claim may afford advantages as regards the commencement of interest and the opportunity to amend the claim.
The litigation strategy must therefore be framed according to the data of the particular file.
The Burden of Proof
The essential matters to be proved in the proceedings are as follows:
- the type of contract, that is, whether it is of indefinite duration,
- the date on which termination took place,
- the employee’s length of service,
- whether an allegation of termination for just cause has been raised,
- whether the notice period was observed.
As a rule;
- the party alleging termination for just cause bears the burden of proving that allegation,
- where the employer contends that it observed the period or made payment in advance, it must document that contention.
In practice, whether the notice of termination was given in writing, and its content, play a decisive role.
Court Fees and Litigation Costs
The proceedings are subject to a proportional fee.
- On filing, an advance fee is paid on the basis of the amount claimed.
- In actions for an unquantified claim a fixed fee is charged at the outset; an additional fee arises for the portion by which the claim is subsequently increased.
Attorney’s fees and litigation costs are left to the account of the losing party.
Interest
Since the claim is in the nature of an employment claim, statutory interest applies as a rule. As regards the commencement of interest:
- the date of termination may be taken as the date of default,
- the date on which the employer was put in default may be assessed separately,
- interest may be claimed from the date of the action.
Note: The type of interest and the moment from which it runs must be expressly indicated in the statement of claim.
Statute of Limitations
Since notice pay is an employment claim arising from the ending of the employment contract, the limitation period is determined within the framework of the rules specific to employment law.
- The five-year period
The claim is subject to a 5-year statute of limitations pursuant to Additional Article 3 of the Labour Act No. 4857.
That period is the general limitation period laid down for the majority of employment claims. The claim must therefore be asserted within 5 years from the date of termination.
The expiry of the period does not extinguish the claim; the claim is dismissed, however, once the debtor party raises the plea of limitation.
- Commencement of the period
The limitation period begins to run on the date the employment contract ends. Whether the bringing of an action or an application for mediation interrupts the period is assessed separately.
- Interruption and suspension
In some situations the period is interrupted or suspended. The principal cases are as follows:
- Application for mandatory mediation: the limitation period is suspended throughout the process.
- Bringing an action: the limitation period is interrupted when the action is brought.
- Acknowledgement of the debt: the debtor’s acceptance of the claim may interrupt the limitation period.
Where the limitation period is interrupted, it begins to run afresh.
Independent Legal Assessment
Two axes determine the outcome in notice pay disputes: whether the termination was based on just cause, and whether the wage to be taken as the basis of the calculation has been correctly identified. On the first axis the burden of proof lies with the party relying on the ground; on the second, bringing regular off-payroll benefits into the file may change the calculation markedly.
The reciprocal nature of the claim is also frequently overlooked. The fact that the employer may direct the same claim against an employee who leaves without observing the notice period means that the decision to terminate must be taken in a planned manner by both parties.
In a concrete file we recommend that the following points be addressed first:
- Documenting the date on which the declaration of termination reached the other party and the commencement of the notice period
- Examining whether the statutory periods have been extended by contract or collective labour agreement
- Assessing whether items such as bonuses, travel allowances, meal allowances and gratuities satisfy the criterion of continuity
- Verifying, where payment has been made in advance, whether the amount covers the full wage corresponding to the period
- Setting out all the heads of claim in full in the application for mediation
- Diarising the date of termination and any grounds of interruption for the purposes of the five-year limitation period
Independent Legal provides advisory services and conducts proceedings throughout disputes arising from the ending of the employment contract, from pre-termination risk analysis to the litigation and enforcement stages.