Reciprocity Principle Information Note
Turkish Code of Obligations No. 6098 (‘TCO’) does not explicitly define penalty clause, and the provisions regarding penalty clause are regulated between Articles 179 and 182. Within the scope of the provisions of the relevant article, penalty clause refers to the performance that must be paid to the creditor in case of non-performance of the principal obligation or non-performance in accordance with the contract and whose terms are agreed upon by the contract.
Although the penalty clause does not have to be reciprocal as a rule, if one of the parties to the contract is specially protected in accordance with the provisions of the law, the principle of reciprocity appears within the scope of the penalty clause. The principle of reciprocity in the penal clause is to determine the penal clause foreseen for both parties in the contract in a balanced manner for the parties.
Although the principle of reciprocity within the scope of the penal clause finds application in many contracts, in practice, it is frequently encountered in contracts dealt with within the scope of labour law and lease law.
PENAL CLAUSE IN LABOUR LAW
The penalty clause imposed by the employer, who is the strong party to the employment contract, must comply with the principle of reciprocity. Article 420 of the TCO stipulates that ‘Penalty clauses inserted into service contracts only against the employee are invalid.’ Although the established opinion of the Court of Cassation in line with the relevant article of law and the ‘principle of interpretation in favour of the employee’, which is the basic principle of labour law, is that the penalty clause added to the employment contract must be reciprocal, and unilateral penalty clauses are not binding, unilateral penalty clauses in favour of the employee are accepted by the Court of Cassation.
‘One of the most widely used areas of penal clause is labour law. Although both the abrogated Labour Law No. 1475 and the Law No. 4857 do not contain a provision on penal clause, since the Law No. 6098 is a general law, the provisions of the Law No. 6098 shall be applied in cases where there is no provision in the Labour Laws, to the extent appropriate to its nature. It should be noted immediately that the Court of Cassation has produced solutions specific to Labour Law in some aspects with its established case law. As a result of the principle of interpretation for the benefit of the employee in Labour Law, penal clauses that stipulate obligations only against the employee are deemed invalid and the established case law in this direction has been adopted in the doctrine. As a matter of fact, Article 420 of the Law No. 6098 stipulates that penalty clauses in service contracts only against the employee are invalid. In this respect, it is accepted that the penal clauses in the service contracts only against the employee are invalid, while the penal clauses in favour of the employee are valid.
Again, as a rule, it is considered valid to stipulate a penal clause in the employment contract, but it is required that the penal clause is imposed for both parties. This situation has emerged due to the fact that the employee is in an economically weak position vis-à-vis the employer during the conclusion of the employment contract and in this context, it is difficult to talk about the existence of the bargaining power and free will of the employee. Therefore, the validity of the penalty clause is subject to the condition that it is agreed upon bilaterally. Furthermore, the penal clause agreed against the employee should not be more than the one agreed against the employer.’ (Court of Cassation Unification of Jurisprudence General Assembly of Civil Chambers, decision dated 08.03.2019 and numbered 2017/10 Esas, 2019/1 Karar)[1]
It is seen that the penalty clause agreed in labour law is generally introduced in order to prevent the termination of a fixed-term employment contract without just cause, to be able to claim back the training expenses in case of non-compliance with the minimum working conditions of the trained employee or to ensure compliance with the non-competition agreement, and the issues to be considered in the reciprocity principle included in the relevant agreements are examined below:
Reciprocity Principle in Labour Contracts
A common mistake in employment contracts is the inclusion of unilateral penal clauses against the employee, and unilateral clauses are deemed invalid in the judicial process. However, it should be noted that the Court of Cassation accepts unilateral penal clauses in favour of the employee. Apart from adding unilateral penal clauses to the contract, another common mistake is that the penal clause is not determined by taking into account the economic situation of the employee.
In the case subject to the decision of the 22nd Civil Chamber of the Court of Cassation numbered E. 2018/11644, K. 2018/19715, ‘The necessity of the penal clause to be regulated bilaterally about the employee and the employer also reveals the result that the penal clause agreed against the employee should not be more than the one agreed against the employer. In other words, it is inconceivable that the penal clause determined against the employee exceeds the employer’s responsibility in terms of conditions and penalty amount. In the event of an inequality against the employee in the bilateral penalty clause, although the penalty clause is not completely invalid, the liability of the employee cannot exceed the amount and conditions for which the employer is responsible.
In both definite and indefinite labour contracts, provisions containing penalty clauses are valid as a rule, provided that the principle of reciprocity exists. However, in order for the penal clause to be valid, the labour contract between the parties must be for a definite term. It is also possible to include the same provisions in minimum-term employment contracts. In the examination made in terms of the concrete case, it is understood that the defendant employee terminated the employment contract without just cause. According to Article 5 of the employment contract between the parties, it is regulated that the one who terminates the employment contract without just cause will pay compensation in the amount of 4 times the last gross wage if he is an employee, and if he is an employer, he will pay the rights and compensations arising from the Law, and it is clear that there is no reciprocity in this regulation. Penal clause arrangements that do not have the principle of reciprocity are not valid.’
Similarly, in the case subject to the decision of the 22nd Civil Chamber of the Court of Cassation numbered E. 2017/26725, K. 2020/185, ‘the principle of reciprocity in the penalty clause in the employment contract as a result of the appointment of a teacher (employee) working as a music teacher in a private school by the Ministry of National Education has revealed how the principle of reciprocity should be. In the provision of the employment contract concluded between the parties regarding the penalty clause, it is recorded that the defendant employee cannot terminate the contract ‘for whatever reason’ within the contract period and the contrary is subject to penalty clause sanction, while this obligation is only specific to the dismissal ‘without any reason’ for the defendant employer. Accordingly, it means that the employer is not obliged to pay a penalty clause to the employee in the event that the employer terminates the plaintiff’s employment contract ‘for just cause’ within the contract period. Since these opportunities granted to the plaintiff employer to terminate the employment contract without having to pay a penalty clause are not granted to the employee, it cannot be said that equal conditions and opportunities are provided to the parties. Since the article regulating the penalty clause of the employment contract concluded between the plaintiff and the defendant parties is contrary to the principle of equality of the parties in the penalty clause, the decision to partially accept the case instead of rejecting the case without considering that the penalty clause cannot be ruled in favour of the plaintiff employer is found to be inappropriate and the decision is reversed’.
The Principle of Reciprocity in Contracts of Employment in Return for Training
Employers may send their employees to qualified vocational trainings in Turkey or abroad in order to train qualified employees. In these cases, the training expenses are covered by the employer, and the employee undertakes to work under the employer for a certain period of time in return for the training received. As we frequently encounter in practice, this relationship between the employer and the employee is subject to a penal clause, and the employee is usually required to pay the training expenses if he/she terminates his/her contract before the term of the contract.
In the decision of the Court of Cassation General Assembly of Civil Chambers numbered E. 2015/2885, K. 2017/2033; ‘The penal clause agreed upon depending on the condition that the employee works for a certain period of time in return for the training given to the employee cannot be considered unilaterally. The provision of penal clause in return for training is valid within the specified limits, as the penal clause is equivalent to the cost of the training provided to the employee.’
According to the decisions of the Court of Cassation, the duration of the training given to the employee and the duration of the employee’s commitment to work in the contract must be proportional. In the decision of the 9th Civil Chamber of the Court of Cassation numbered E. 2020/2679, K. 2020/10344, it was ruled that ‘it is understood that there is equivalence/reciprocity between the parties’ for the commitment letter stating that the defendant unconditionally accepted 3 years of compulsory service in return for 8 months of training. Pursuant to the case law, the minimum work commitment period of the employee in return for the trainings provided by the employer must be determined in accordance with equity. In this context, the penal clause foreseen against the employee in the employment contracts should be proportional to the variables such as the quality of the training provided to the employee, the training costs and the duration of the training. For this reason, it cannot be said that a penal clause that exceeds the training investment made by the employer for the employee is valid.
Reciprocity Principle in Non-Competition Agreements
Non-competition agreements are agreements that aim to prevent the employee from engaging in a business that competes with the employer, working in a competing business or entering into an interest relationship with a competing business after the termination of the employment contract.
Since non-competition agreements do not qualify as service contracts, the provisions stipulating that a penal clause will be applied in case the employee does not fulfil his/her contractual obligation can be unilaterally included in these agreements; therefore, Article 420 of the TCO, which regulates that the penal clause imposed only against the employee in service contracts will be invalid, does not find an area of application.
In its decision numbered E. 2021/477, K. 2023/179, the General Assembly of Civil Chambers stated that, considering the independent nature of the competition agreement from the service agreement between the parties and within the framework of Article 446 of the TCO, which is a special provision regarding the penalty clause that may be foreseen in competition agreements, it is not possible to apply Article 420 of the TCO. 420 of the TCO will not be applicable, in case of breach of the non-competition agreement between the parties, only the penalty clause imposed against the employee will be valid, and the fact that no performance obligation of the employer is stipulated in the agreement in return for the said penalty clause will not affect the validity of the penalty clause imposed against the employee.
Similarly, in the decision of the 11th HD of the Court of Cassation, E. 2023/283 K. 2023/1189, it was stated that ‘The case is related to the claim for penal clause arising from the breach of the non-competition agreement. The Court of First Instance decided to dismiss the case by resisting the decision of reversal on the grounds that the provision regarding the non-compete clause in the service contract concluded between the parties stipulates a penal clause only against the employee, and therefore it is invalid pursuant to Article 420 of the Law No. 6098. In cases where there is a non-compete clause in the service contract, it should be accepted that the contract contains both a service contract that is valid during the continuation of the service relationship and a non-compete agreement that stipulates obligations after the termination of the service contract. In this case, Article 420 of the Law No. 6098, which stipulates that only the penal clauses against the employee in the service contracts are invalid, cannot be applied to the non-competition agreement concluded between the parties.’
PENAL CLAUSE IN LEASE LAW
Pursuant to Article 346 of the TCO, which is regulated as a special rule, lease agreements may not include an agreement that a penalty clause will be paid in case the rent is not paid on time. As a matter of fact, if the parties have agreed on a penalty clause despite the prohibition, this provision is deemed to be invalid.
The prohibition on the imposition of penalty clauses under the lease agreements is only related to the non-payment of the rent on time, and it is possible to impose a penalty clause in the contract in case of early evacuation of the leased workplace.
Regarding the subject, the 3rd Court of Cassation, in its decision numbered E. 2017/260, K. 2017/112, stated that ‘The principle of adherence to the contract, which dominates the contract law, has also been accepted in our law. Pursuant to the principle of adherence to the contract, the parties are bound by the term of the contract and, as a rule, it is not possible to terminate the contract before its term. Otherwise, the party who terminates the contract without a justified reason is obliged to compensate the damage of the other party. However, the right of early termination may be granted in favour of the lessee in the contract. In this case, the termination must be in accordance with the conditions agreed in the contract. In the concrete case, in the lease agreement between the parties, the tenant is not entitled to early termination without paying any fee or compensation. The tenant company that evacuates the leased premises early before the end of the lease term is obliged to pay all rents until the end of the lease term in accordance with Article 4/3 of the contract. In the evacuation protocol dated 07.05.2015 between the parties; the plaintiff lessor has reserved its receivables within the scope of Article 4/3 of the contract, and the receipt of the key by the plaintiff cannot be interpreted as a waiver of the penal clause claim. For this reason, while the court should make a decision considering that the tenant is responsible for the rent until the end of the contract period as a penal clause according to the provision of Article 4/3 of the contract, it is not correct to decide to dismiss the case in writing.’
CONCLUSION
As seen in the decisions of the Court of Cassation and the relevant articles of the TCO, penal clauses may be included in employment contracts or annexes thereof by the parties, and in order for the penal clause added to the employment contracts to be valid, as a rule, it must be mutual, equitable and in accordance with the law, morality and personal rights. In both fixed and indefinite-term employment contracts, the provisions containing penalty clauses are valid as a rule in the presence of the principle of reciprocity, but in order for the penalty clause to be valid, the employment contract between the parties must be of a definite term. On the other hand, in non-competition agreements, Article 420 of the TCO, which stipulates that penal clauses imposed against the employee are invalid, is not applicable, and in this respect, the penal clauses in non-competition agreements differ from the principle of reciprocity in the TCO; in contracts of employment in return for training, the penal clause must be proportional to the training fee given to the employee; and in lease agreements, in accordance with Article 346 of the TCO, penal clauses cannot be included in case the rent is not paid on time.
