Validity of Penal Clauses in Minimum Term Employment Contracts

A minimum-term employment contract is a type of contract in which the employee undertakes the performance of work and the employer undertakes the payment of wages for a period not less than a certain period. In practice, it is generally agreed that the terminating party shall pay a certain amount of penalty if the agreement is terminated before the expiry of the minimum term, save for the cases where the right of immediate termination for just cause as set out in Articles 24 and 25 of the Labor Law No. 4857 (“Labor Law”) are used. In this respect, the penal clause is a kind of employment security for the employee and manpower security for the employer.

The provisions regarding penal clauses are mainly regulated in the Turkish Code of Obligations No. 6098 (“TCO”). Since there is no specific provision regarding penal clauses in the Labor Law, the penal clause provisions in the TCO shall be evaluated together with the specific principles of labor law. To that end, penal clauses may also be determined in minimum-term employment contracts. Nevertheless, in accordance with the principle of interpretation in favor of the employee, which is a manifestation of the socio-economic justice necessities, it is required that penal clauses be reciprocal. Indeed, Article 420 of the TCO, which provides a legal basis for the principle of reciprocity in penal clauses, is as follows:

“A penal clause in service contracts that is imposed against only the employee shall be invalid.”

Another consequence of the principle of reciprocity is that the determined penal clause against the employee shall not be more disadvantageous than the one against the employer.

When the minimum term expires, the minimum-term employment contract changes its legal form into an indefinite-term employment contract. From this point on, the parties may terminate the employment contract in accordance with the provisions of the Labor Law.

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