Instigated in 1954, discussions over a possible severance pay fund are still ongoing. With this debate, the real question refers to the need and usage of this pay. To understand the actual debate and the proposed draft, the actual system and the past of the severance pay will be showed along with the proposed draft and the reactions from different sides of the society.
Nowadays, the severance pay system is regulated by the old Labor Act no. 1475 according to the transitional Article 6 of the new Labor Act no. 4857. The actual system is simple: there is no centralization of the severance pay system but only the duty for the employer to provide a severance pay to its employee when the criteria are met.
The actual requirements are as follow:
- Being an employee
- His/her work must have been terminated for one of the reasons indicated in the law
- Reasons explaining the rightful termination of the contract by the employee: health issues, immoral, dishonorable or malicious conduct or other similar behavior or force majeure (Article 24 of Labor Act no. 4857)
- Reasons explaining the unfair termination of the contract by the employer: reasons outside of immoral, dishonorable or malicious conduct or other similar behavior that are not supposed to lead to the termination of the contract (Article 25 of Labor Act no. 4857)
- Exceptions :
- Military service for men or marriage for women can be a reason to terminate the contract and obtain the severance pay
- Qualification to receive retirement or disability pension is a reason to terminate and obtain the severance pay
- In case of death, his/her legal heirs can obtain the severance pay
This severance pay represents the salary of 30 days of work per year.
This system is criticized by many. As it represents an important lump sum that employers must pay, it hinders job flexibility. Moreover, it increases the recourse to informal ways in order to obtain or refuse to give the severance pay. Everyone wants to change it however nobody agrees on how it must be changed.
Concerning the proposed draft, there is only a version from 2002 issued by the Ministry of Labor and Social Security which is the sole available proposal that exists until now. It foresees a system where employers must pay every month to the fund for each of the employees an amount which is not less than 3% of the salary. There will occur administrative fines in case of non-payment of the said amount.
This fund will be managed in a quite transparent manner as the certified public accountants will have the duty to audit it every three month. The fund will be independent from the Ministry, will have its own budget and a legal personality. However, the proposed draft is not only adding a fund but also changing the conditions to obtain the severance pay.
The proposed draft comprises different type of employees in its text. The ones regulated by the Labor Act no. 4857, the ones by the Sector Regulations between Press Employees and Employers Act no. 5953 and the ones regulated by Maritime Labor Act no.854.
Indeed, here are the conditions stated by the proposed draft in order to obtain the severance pay:
- Qualification by the employee to receive retirement or disability pension or a lump-sum payments from the institution he/she is subjected to.
- Termination of the contract by the employee once he/she contributed to the fund for at least 10 years.
- In case of death, his/her legal heirs can obtain the severance pay.
There are also two exceptions regarding:
- Those who were working while they had their retirement pension and that the latter stopped. If they terminate their contract to receive their retirement pension again, they can obtain the severance pay.
- Those paying the Society Security Support Contribution, they can only benefit from the severance pay in case of qualification for disability pension and death.
The employee, if entitled to receive the severance pay, will get 30 days of his/her gross salary for every year of full working time. If the employee has worked less than a year, the calculation will be in a pro-rata basis. The 30 days will be calculated according to the average obtained from his/her last year’s salary. However, the amount of the severance pay must be at least the amount of the minimum wage and maximum the retirement bonus of the highest civil servant.
The employee will be able to obtain the severance pay once he/she issued a document proving that he/she qualified for retirement or disability pension or that he/she received a lump-sum payment from the institution he/she is subjected to. If the employee is dead, his/her heirs must prove that they are his/her legal heirs. If the employee has worked 10 years or more, he/she can request it with a letter to the fund. After request, if it is not paid in 30 working days, legal interests can be added to it.
There will be 10 years of prescription period to request the severance pay from the fund otherwise it will be considered that the employee has waived his/her right to obtain this pay. Once the payment has been made, if the person starts to work again, another account will be made in the fund and the same conditions will apply all over again.
The transition is pretty simple in the proposed draft. Indeed, it recognizes that this new law will apply for all however the severance pay cumulated before the coming into force of this Act, will still be the sole responsibility of the employer. Employers can make a contract with their employees in order to take into account the old working time in the fund in order not to have to pay a lump sum along with the bonuses.
This version of the text has been fiercely opposed by many social partners including employees’ unions and employers’ unions. Some scholars explained the reasons underlying the opposition by arguing that this proposed draft is trying to shift the severance pay into a pension bonus.[1] They oppose the transformation as the system is not working well with it and as there is no large-scaled unemployment insurance that can compensate this shift. Indeed, if there were a decent unemployment insurance, the severance pay could be transformed into a pension bonus however it is not the case. Actually, the current system with a limited unemployment insurance and the severance pay is supposedly a good deal for those losing their job.
Other scholars tend to see that the main problem is the irrational fear of people towards funds. Indeed, they agree that, in the past, such funding system failed due to the mismanagement however they argue that this fund will be transparent and well managed with audits issued by certified public accountants[2]. In the preamble of the proposed draft, it is clearly written that any attempt to use the fund to fill the gap of the annual budget will be forbidden.
However, it is clear that this proposed draft limits the conditions to obtain the severance pay. Exceptions regarding the marriage of women and the military service of men are set aside and it remains only retirement, death, and contribution for ten years in order to obtain the severance pay. The ancient system allowed more people to request a severance pay. Also, the calculation did allow a very high level without limit for employees while this reform sets a maximum severance pay which is the retirement bonus of the highest civil servant. Those are the main reasons of opposition from labor unions. Also, one point of opposition from labor unions is the excessive flexibility that it would allow. Indeed, as employers will not have to pay a lump sum when they terminate the contract of their employee, they will be keener to fire.
The government which issued this draft is insisting on a wider amount of people which will really get this severance pay. Indeed, it is true that until now, bankruptcy and bad faith of the employer prevented an overwhelming majority to get their severance pay.
The government instigated this reform because of the employers. Indeed, the project was to cancel the lump sum paid by companies which was hindering their business when terminating a contract. Moreover, this bonus paid every month will be reduced from the tax assessment. However, as the employers and their unions think it is an untenable burden for them to pay every month a bonus to the fund for each employee, they are opposing this reform.. They are also afraid that the amount of the bonus to be paid can be increased. However, it remains that this reform can allow job flexibility.
To conclude, all parties agree that the system must be changed as 84% of employees did not receive any severance pay in 2015[3]. However, they are also against the proposed draft. The problem is that the Ministry wants to obtain a large consensus among social partners before passing the law through the Parliament. For this reason, it is doubtful whether this fund will be implemented or not.
[1] Ünsal Engin; Kıdem Tazminatı Fonu Kanun Tasarısı Taslağı Konusunda Bazı Düşünceler, TUHİS Cilt 21 Sayı2-3 s.34
[2] Uğur S., “Kıdem Tazminatında Fon Sistemi”, Çimento İşveren, cilt.23, ss.4-18, 2009
[3] HABERTURK (2017), Kıdem Tazminatı Fonu Kurulabilecek mi ? http://www.haberturk.com/yazarlar/omer-dincer/1565874-kidem-tazminati-fonu-kurulabilecek-mi