Evaluation Of Closing Of Workplaces From The Employees’ Perspective

For various reasons, such as economic fluctuations, technological developments, corporate mergers, or an employer’s decision to completely cease business operations, workplaces may occasionally cease operations entirely and close down. Although this situation constitutes a business decision from the employer’s perspective, it has significant legal and economic consequences for employees regarding job security, severance rights, and future plans. For this reason, the closure of a workplace is a process that must be carefully evaluated not only in terms of its commercial consequences but also in terms of the legal consequences it entails under labor law.

1. The Employer’s Right to Close a Workplace

Although Turkish law grants the employer the right to close a workplace, the fact that this decision has been made does not eliminate the employer’s obligations under labor law. In other words, while a workplace may be closed, the employer must fully fulfill its legal obligations toward employees.

Article 18 of the Labor Code No. 4857 stipulates that reasons arising from the necessities of the business, the workplace, or the work may constitute valid grounds for termination. A genuine and permanent closure of a workplace is generally accepted in practice as a valid ground for termination. However, the employer’s statement regarding the closing of the workplace is not sufficient on its own; the closure must have actually and permanently occurred, and the decision must be genuine.

The Supreme Court has specifically emphasized this point in its decisions. In its decision dated March 20, 2006, Case No. 2006/2990 E., Decision No. 2006/6997 K., the 9th Civil Chamber of the Supreme Court stated: “Under Article 18 of the Labor Code No. 4857, it is stipulated that an employment contract may be terminated by the employer for a valid reason arising from the necessities of the business, the workplace, or the work itself. It is clear that the closure of the workplace or the suspension of operations constitutes a valid reason arising from the necessities of the workplace. However, the closure of the workplace or the suspension of operations, which constitutes a valid ground for termination, must be genuine and permanent. In other words, if the closure of the workplace or the suspension of operations is fraudulent or temporary in nature, the termination based on such grounds cannot be deemed to be based on a valid reason. This is because if the workplace has been closed or operations suspended in a fraudulent manner, it cannot be considered a genuine closure or suspension of operations. A workplace closure or suspension of operations that is genuine and permanent must be accepted as a valid reason for terminating the employee’s employment contract if the employer does not have another workplace or if there is no possibility of reassigning the employee to another workplace. Furthermore, if the closure or suspension of operations is temporary in nature, measures such as paid leave, unpaid leave with the employee’s written consent, or the suspension of the employment contract must be taken prior to termination.”

Another key consideration in the Supreme Court’s case law is determining whether the employer’s grounds for termination are genuine and sincere. In some cases, employers have been observed to ostensibly close their workplaces to circumvent employment security provisions, only to resume the same or similar activities shortly thereafter through a different employer or company. In such disputes, courts consider not only whether the workplace has been officially closed but also whether the employer’s commercial activities are actually continuing, any changes in the organizational structure, and whether the termination was carried out in accordance with the principle of termination as a last resort. In particular, when the employer operates other workplaces, investigating the possibility of reassigning the employee to a suitable position is considered a requirement of the principle that termination must be a last resort.

2. The Difference Between Organizational Changes and the Closure of a Workplace

One of the problems frequently encountered in practice is the confusion between the actual closure of a workplace and organizational changes. For example, a factory completely ceasing its production activities does not have the same legal consequences as relocating production to a facility in another province. However, if the employer solely transfers its operations to a different workplace and employees have the opportunity to continue working, each specific case should be evaluated separately, taking into account the particular circumstances of the situation.

In particular, in cases of corporate mergers, the transfer of a workplace, or the continuation of operations under another company, a change in the organizational structure alone does not, by itself, imply that the workplace has been completely closed.

However, the transfer of a workplace to another employer gives rise to different legal consequences than the closure of the workplace. Pursuant to Article 6 of the Labor Code No. 4857, in the event of a workplace transfer, employment contracts are, as a rule, transferred to the acquiring employer along with all rights and obligations, and an employment contract cannot be terminated solely due to the transfer.

3. Rights of Employees and Employer Obligations Due to the Closure of a Workplace

One of the most fundamental financial rights of employees whose employment contracts are terminated due to the closure of the workplace is severance pay. When an employment contract is terminated by the employer due to the closure of the workplace, employees with at least one year of seniority are entitled to severance pay, provided that the other conditions set forth in Article 14 of the repealed Labor Code No. 1475, which remains in effect, are also met.

With regard to notice pay, however, a different assessment applies. When terminating an employment contract, the employer may either comply with the notice periods or terminate the contract immediately by paying the notice period wages in advance. The fact that the workplace has ceased operations does not eliminate this obligation. In addition, claims such as unused annual leave pay, overtime pay, and pay for national holidays and general holidays, as well as unpaid wages, become due on the date the employment contract ends. Therefore, it is not possible to accept that the employer has fulfilled all legal obligations merely by paying severance pay. All employee entitlements arising from the termination of the employment contract must be settled in full.

A significant portion of the disputes encountered in practice stems not so much from the legal aspects of the closure decision as from the manner, in which the process is managed. Failure to adequately inform employees, failure to issue the termination notice in accordance with proper procedure, or failure to pay employee entitlements on time can lead to many disputes that are, in fact, preventable. However, a well-planned closure process will both reduce legal risks for the employer and significantly prevent employee hardship.

4. Evaluation of the Matter in Terms of Collective Dismissal

It should be noted that the closure of a workplace may also trigger the provisions regarding collective dismissal. Pursuant to Article 29 of the Labor Code No. 4857, if a certain number of employees are terminated, the employer is obligated to notify the Turkish Employment Agency, the relevant union (if an authorized union exists at the workplace), and the Ministry of Labor and Social Security. In the event of the complete and permanent closure of the workplace, the employer is also required, pursuant to Article 29 of the Labor Code No. 4857, to notify the Turkish Employment Agency of the situation at least 30 days in advance. Whether the collective dismissal procedure applies must be assessed separately based on the nature of the workplace and the number of employees.

5. Conclusion

In conclusion, while the closure of a workplace is a legitimate decision falling within the employer’s managerial discretion, it cannot be said that this decision eliminates the employees’ rights. In the event of a genuine and permanent closure, employment contracts may be terminated for valid cause; however, severance pay, notice pay, annual leave pay, and other employee entitlements must be paid in full.

Furthermore, judicial authorities carefully examine whether the closure has actually taken place and whether the employer is continuing its operations under a different structure. For this reason, it is in the best interest of both employers and employees to evaluate the process not only from a commercial perspective but also from the standpoint of labor law. Conducting the process in accordance with relevant legislation and judicial precedents can significantly prevent disputes between the parties.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.