Mutual Termination Agreement (İkale) and Release (İbraname)

Apart from termination, an employment relationship may also be ended by mutual agreement of the parties. The agreement by which the parties end the employment contract by consent is referred to as a mutual termination agreement (ikale). A release (ibraname), by contrast, is a separate legal act aimed at extinguishing the employer's obligation in respect of certain receivables of the employee. While the mutual termination agreement is not specifically regulated by statute, the release is subject to strict validity requirements under Article 420 of the Turkish Code of Obligations (Türk Borçlar Kanunu). Distinguishing between these two documents and drafting them to fit the specific case is important for preventing disputes that may arise later.

Contents

• What is a mutual termination agreement and what is its legal basis?
• Why is the mutual termination agreement subject to strict judicial review?
• What does the reasonable benefit criterion require?
• What are the consequences of a mutual termination agreement for the employee?
• What should a mutual termination agreement contain?
• What is a release?
• What are the validity requirements of a release?
• What is the effect of an invalid release?
• What are the most common mistakes in practice?
• Conclusion

What is a mutual termination agreement and what is its legal basis?

A mutual termination agreement (ikale) is a contract by which the employer and the employee end the employment relationship on a specific date through mutual and corresponding declarations of intent. It is not expressly regulated in the Labour Law (İş Kanunu) and is based on freedom of contract under Article 26 of the Turkish Code of Obligations. As a rule, it is not subject to any particular form requirement for validity; however, concluding it in writing is of great importance for evidential purposes and for judicial review. Its validity is assessed within the framework of the general provisions of contract law, the employee-protective purpose of labour law and the mandatory provisions applicable in the specific case. Since a mutual termination agreement is not a termination, the notice periods attached to termination, severance pay and payment in lieu of notice, as well as job security and reinstatement consequences, do not arise automatically. Nevertheless, wages, overtime pay, annual leave pay and similar receivables accrued up to the date of the mutual termination agreement do not lapse unless they are separately paid or validly settled.

Why is the mutual termination agreement subject to strict judicial review?

Since a mutual termination agreement may cause the employee to lose rights linked to termination, in particular job security and unemployment benefit, it is subject to strict review by the courts. In this review, not only the text of the agreement is examined; the courts assess together from which party the offer actually originated, the negotiation process, the time for reflection granted to the employee, the employee's education and position, the payments made, and whether there was any pressure, threat, error or deception. A pre-drafted “employee request” or a clause in the agreement stating “I signed of my own free will” is not decisive on its own. If the mutual termination agreement is held invalid, the ending of the relationship may be characterised as a termination by the employer; where the employee meets the job security requirements, reinstatement and the other consequences of termination may come into consideration.

What does the reasonable benefit criterion require?

In assessing the validity of a mutual termination agreement, the employee's “reasonable benefit” (makul yarar) is one of the fundamental criteria. This criterion is applied according to the party from which the offer actually originated and the circumstances of the specific case:

• If the proposal genuinely comes from the employee, providing an additional benefit is not mandatory in every case, provided that there is no defect of consent. Payment of the severance pay that the employee would not receive in the event of resignation may, depending on the specific case, be regarded as a reasonable benefit.
• If the proposal comes from the employer, granting the employee only the severance pay and payment in lieu of notice that would in any case be payable by law or upon a possible termination by the employer, together with accrued receivables, is as a rule not sufficient. A genuine and measurable benefit must be provided in addition to these.

For employees covered by job security, case law takes as an important threshold an additional payment in the amount of four months' wages, which is the lower limit of the compensation for non-reinstatement. Nevertheless, there is no fixed statutory amount for a mutual termination agreement; the source of the offer, the employee's length of service, position, job security status, prospects of finding new employment, loss of unemployment benefit and the package as a whole are assessed together in each specific case. For this reason, a particular payment amount does not on its own guarantee the validity of a mutual termination agreement.

What are the consequences of a mutual termination agreement for the employee?

A mutual termination agreement produces consequences that differ from those of ending the employment contract by termination. The employee should therefore carefully assess the rights and benefits granted before signing the mutual termination agreement.

• Severance pay and payment in lieu of notice: Since the employment contract ends by mutual termination agreement, statutory entitlements to severance pay (kıdem tazminatı) and payment in lieu of notice (ihbar tazminatı) do not, as a rule, arise. However, the parties may agree on these payments in the mutual termination agreement.
• Unemployment benefit: Ending the employment contract by mutual termination agreement is not one of the forms of ending that give entitlement to unemployment benefit. Therefore, even if the employee fulfils the other requirements, as a rule the employee cannot receive unemployment benefit because of the mutual termination agreement.
• Reinstatement: Since there is no termination by the employer in a valid mutual termination agreement, reinstatement cannot be claimed. If the mutual termination agreement is invalid, it is assessed whether the ending constitutes a termination by the employer and whether the employee meets the job security requirements.
• Tax consequences: Under Article 25/1-(7)(b) of the Income Tax Law (Gelir Vergisi Kanunu), the portion of the total of the compensation paid under a mutual termination agreement and the severance pay that does not exceed the maximum retirement bonus payable to the highest-ranking civil servant, calculated by reference to the employee's length of service, is exempt from income tax; the excess is taxed as wages. For this reason, the nature, gross/net amount and applicable deductions of each payment item should be set out separately in the agreement.

What should a mutual termination agreement contain?

A carefully drafted mutual termination agreement should in particular regulate the following matters:

• From which party the offer of mutual termination came, the mutual agreement of the parties, the termination date and the negotiation process evidencing free will
• Wages, overtime, weekly rest day pay and pay for national holidays and public holidays, pay for unused annual leave, bonuses and similar receivables accrued up to the date of the mutual termination agreement, the amounts corresponding to severance pay and payment in lieu of notice, and the additional benefit for the mutual termination to be shown separately from these
• The calculation method, gross/net amount, tax and other deductions, payment date and bank account for each item, and the fate of the company car, telephone, private health insurance and other fringe benefits
• The return of company assets and documents, the employment certificate, confidentiality and secrecy obligations and, where applicable, the scope and continuation of a non-compete obligation
• The settlement of receivables accrued up to the date of the mutual termination agreement and, if a separate release is to be drawn up, a provision stating that the requirements of Article 420 of the Turkish Code of Obligations will be observed

The employee should be given sufficient time to review the text, assess its consequences and, if desired, obtain legal advice. A general release clause signed on the same day as the mutual termination agreement or added to its text does not constitute a valid release extinguishing the employee's receivables if it does not meet the requirements of Article 420 of the Turkish Code of Obligations.

What is a release?

A release (ibraname) is a written document containing a declaration of release by which the employee aims to discharge the employer from its obligation in respect of one or more receivables of the employee against the employer. In other words, the release (ibra) is legally a contract, and the ibraname is the written text of that contract. The release contract concerning the employee's receivables from the employer is specifically regulated in Article 420 of the Turkish Code of Obligations. A release contract or release document that does not meet all of the statutory requirements is absolutely null and void.

What are the validity requirements of a release?

Under Article 420 of the Turkish Code of Obligations, a release relating to employee receivables is valid only if the following requirements are met cumulatively:

• The declaration is made in writing
• At least one month has passed from the end of the employment contract as at the date of the release
• The type and amount of the receivable subject to the release are clearly specified
• Payment is made in full in accordance with the amount due and through a bank

The one-month period is intended to prevent the employee from waiving receivables while under the dependency and pressure existing at the time the employment ends. This period applies only to the conclusion of the release contract; there is no need to wait one month for the payment of receivables that have fallen due, such as wages and, where applicable, severance pay, payment in lieu of notice and pay for unused annual leave.

What is the effect of an invalid release?

A release that fails to meet any of the requirements of Article 420 of the Turkish Code of Obligations is absolutely null and void and does not have the effect that the employee has waived the receivable. Release contracts that do not reflect payment of the actual amount due, or other payment documents containing a declaration of release, have the effect of a receipt only for the amount stated in them, provided that the payment was made through a bank. The fact that a document does not have the effect of a release does not eliminate the performance effect of a payment actually made; however, the burden of proving that the payment was made and to which receivable it relates lies with the employer asserting it. General statements without type and amount, such as “I have received all my receivables”, do not have the effect of a release.

What are the most common mistakes in practice?

• Having the release signed together with the mutual termination agreement or on the last working day, and disregarding the one-month period under Article 420 of the Turkish Code of Obligations
• Drawing up a standard employee request letter although the offer of mutual termination actually came from the employer, or failing to document the source of the offer and the negotiation process
• In a mutual termination agreement concluded on the employer's offer, failing to provide an adequate additional benefit separate from the amounts corresponding to severance pay and payment in lieu of notice
• Failing to show separately the consideration for the mutual termination, the accrued employee receivables, the amounts corresponding to severance pay and payment in lieu of notice, and the taxable and tax-exempt amounts
• Not giving the employee sufficient time to assess the mutual termination agreement and obtain advice; exerting pressure or threats, or creating the impression that “if you do not sign, your receivables will not be paid”
• Assuming that a general release clause in the text of the mutual termination agreement will extinguish all receivables before the one-month period and the other requirements under Article 420 of the Turkish Code of Obligations are met
• Reporting a false reason for the ending of employment to the Social Security Institution (SGK) in order to secure unemployment benefit despite the mutual termination agreement, or failing to explain to the employee the effect of the mutual termination agreement on unemployment benefit
• Failing to make payments on the agreed date and through a bank, or failing to itemise the payments in the descriptions on the bank transfer receipts

Conclusion

The mutual termination agreement and the release are legal instruments with different functions and validity requirements. The mutual termination agreement ends the employment relationship by mutual agreement, whereas the release aims to extinguish the obligation in respect of certain employee receivables. For the mutual termination agreement, the decisive factors are free will, the genuine source of the offer and, particularly where the employer makes the offer, the reasonable benefit provided to the employee; for the release, they are the written form, the one-month period, the clear specification of the type and amount of the receivable and full payment through a bank in accordance with the amount due, as required by Article 420 of the Turkish Code of Obligations.

Both documents need to be drafted separately according to the circumstances of the specific case, the payment items need to be shown transparently, and it needs to be documented that the process was genuinely based on negotiation. Standard templates for mutual termination agreements and releases should not be used without taking into account the parties' situation and current legislation and case law.

GEMS Schindhelm advises employers and employees on the negotiation and structuring of mutual termination agreements and releases, on determining appropriate separation packages, and on the defence and pursuit of related claims. This article is for general information purposes only and does not constitute a legal opinion or legal advice; each dispute must be assessed separately according to the circumstances of the specific case and the legislation in force.