Last week, we provided you, our valued readers, with a detailed explanation of the circumstances under which mergers and acquisitions require approval from the Competition Authority, including an overview of regulatory approvals. This week, we will focus on the fate of employees during company acquisitions, mergers, divisions, and takeovers, as well as the rights of employees and the relationships of employees with the acquiring employer.
In today’s dynamic commercial environment, the increasing prevalence of company acquisitions, mergers, divisions, and takeovers—processes that result in a change of employer—has highlighted the importance of understanding the fate of current employees during these transitions. It would be beneficial to examine this issue under four headings: the continuation of employment contracts with the acquiring employer, the employee’s right to object in the event of workplace transfers, the rights and liabilities of employees in the event of workplace transfers, and severance pay in the event of workplace transfers.
- Continuation of Employment Contracts with the Acquiring Employer
In modern labor law, processes that lead to a change of employer emphasize the importance of preserving the employee-employer relationship as much as possible, ensuring that this relationship is not terminated without a valid or just cause, and maintaining the continuity of the employee’s income. Accordingly, it is accepted that the employment relationship between the employee and the acquiring employer continues.
In Article 6, paragraph 1 of the Labor Law No. 4857 (“Labor Law”), it is explicitly stated that “when a workplace or a part of a workplace is transferred to another based on a legal transaction, the employment contracts existing at the workplace or part of it at the time of the transfer, along with all rights and obligations, shall be transferred to the transferee.” This provision makes it clear that in the event of the transfer of a workplace or a part of it, the existing employees’ employment contracts will continue with the acquiring employer.
Paragraph 5 of Article 6 of the Labor Law states, “The transferor or transferee employer may not terminate the employment contract solely because of the transfer of the workplace or part of the workplace, and the transfer does not constitute just cause for the termination of the contract from the employee’s perspective. The right to terminate due to economic or technological reasons or organizational changes required by the employer remains unaffected.” According to this provision, neither the transferor nor the transferee employers, nor the employee, shall be entitled to terminate the employment contract solely based on the reason of the transfer of the workplace or part of the workplace. Therefore, the acquiring employer must remember that when acquiring a workplace, they also acquire its employees.
- The Employee’s Right to Object in the Event of a Workplace Transfer
The employee’s right to object to a workplace transfer can be addressed by making a distinction between workplace transfers resulting from mergers, divisions, and conversions, and all other workplace transfers outside these processes.
a) The Employee’s right to object in the event of a workplace transfer Due to mergers, divisions, and conversions
Article 178, paragraphs 1 and 2 of the Turkish Commercial Code No. 6102 (“TCC”) state, “(1) In the case of a full or partial division, employment contracts with employees are transferred to the transferee along with all rights and obligations arising from these contracts, unless the employee objects. (2) If the employee objects, the employment contract terminates at the end of the statutory termination period, and both the transferee and the employee are obligated to terminate the contract by that date.” Article 178 of the TCC regulates the employee’s right to object to the transfer of the workplace due to division processes. However, by reference to Article 158 of the TCC, this provision is also applicable to mergers. Therefore, in workplace transfers resulting from mergers, divisions, and conversions, employees can object to the transfer of their employment contract to the acquiring employer. If the employee objects to the transfer of their employment contract, the contract will terminate at the end of the statutory termination period. Until the end of this period, both the acquiring employer and the objecting employee must fulfill their obligations under the employment contract.
b) The Employee’s right to object in the event of all other workplace transfers outside of mergers, divisions, and conversions
For all workplace transfers outside of mergers, divisions, and conversions, the special provision of Article 158 of the TCC does not apply, and instead, the general provision of Article 6, paragraph 5 of the Labor Law applies. According to paragraph 5 of Article 6 of the Labor Law, in all workplace transfers outside of mergers, divisions, and conversions, the employee cannot object to the transfer of their employment contract.
- The Rights and liabilities of employees in the event of a workplace transfer
As mentioned above, under Article 6, paragraph 1 of the Labor Law, in the event of a transfer of a workplace or a part of it, the employment contracts existing at the workplace or part of it at the time of the transfer are transferred along with all rights and obligations to the acquiring employer, meaning that the existing employment relationship continues. However, the transfer of the workplace does not fully absolve the transferring employer of responsibility. According to Article 6, paragraph 3 of the Labor Law, the transferor employer remains jointly liable with the acquiring employer for debts arising before the transfer and/or debts that become due within two years of the transfer, except for severance pay.
Under paragraph 3 of Article 6 of the Labor Law, the acquiring employer is also responsible for debts owed to employees, including wages for national holidays and general holidays, weekly rest day wages, overtime wages, and other employment-related receivables, which arose before the transfer. However, the acquiring employer will not be held liable for debts arising from employment contracts that terminated before the transfer.
Employees with outstanding claims that arose before the transfer can pursue both the transferor and transferee employers for up to two years after the transfer, ensuring that they have recourse in case their claims go unmet. However, after the two-year period, the transferor employer will no longer be held liable for debts incurred before the transfer.
- Severance pay in the event of a workplace transfer
Paragraph 2 of Article 6 of the Labor Law states, “The acquiring employer is obligated to take into account the date on which the employee commenced work with the transferor employer when calculating entitlements that are based on the length of service.” This provision is particularly important for severance pay. In the event of a workplace transfer, the period of employment with both the transferor and transferee employers is combined for the purpose of calculating severance pay. Therefore, the employee will not lose their entitlement to severance pay due to the change of employer. Since severance pay is not one of the debts that arose before the transfer or became due, and it is based on the length of service, both the transferor and transferee employers are jointly responsible for severance pay without any time limitation. However, each employer is only liable for their respective period of employment. The transferor employer is responsible for the severance pay accrued up until the date of transfer, and the transferee employer is responsible for the severance pay accrued after the transfer.
For detailed inquiries, you may contact Gemicioğlu Law Office.
Gemicioğlu Law Office
