It is frequently encountered in practice that employees who have terminated their employment due to entitlement to an old-age pension subsequently seek re-employment with the same employer. In such cases, the severance and other compensation payments that employers are required to make to the employee during the termination of the employment contract become particularly significant in the event of a potential legal dispute.
Where an employee is dismissed due to retirement and subsequently re-employed, all statutory rights of the employee (including severance pay, wages, overtime payments, etc.) may be paid at the time of the initial termination by executing a release agreement.
Termination of the First Employment Period Through Payment of Rights and Receivables Earned
If full payment is made through a duly executed release agreement, the first period of employment shall be deemed settled, and in such case, the second period of employment shall not be consolidated with the first period. (For instance, Court of Cassation, 22nd Civil Chamber, 2016/875 E., K. 2016/4011, dated 16.02.2016).
Agreement on Deferred Payment of Statutory Rights at the Time of Retirement
In practice, employers may agree that severance pay accrued as of the termination date of the employment contract due to retirement will be paid at a later date by executing a transfer protocol. However, since there is a risk of facing claims seeking the consolidation of the two employment periods, it may be argued that such a transfer protocol alone is not sufficient. Indeed, whether such a protocol will be deemed valid by a labor inspector or judicial authority in the future depends on the specific circumstances of each individual case. In this respect, a transfer protocol may only be used as a supplementary instrument if payment is made through the execution of a release agreement.
Continuation of Employment into a New Period Without Payment at the End of the First Period
If no payment is made at the end of the first employment period following termination due to retirement, it shall be deemed that the previous period of employment has not been settled. As a natural consequence of consolidating the two employment periods:
a. If the second employment period ends in a manner that entitles the employee to severance pay (for example, termination by the employer based on a valid reason or termination by the employee for just cause), the severance pay shall be calculated based on the total length of service and the employee’s wage at the end of the second employment period.
b. If the second employment period ends in a manner that does not entitle the employee to
severance pay (for example, termination of the employment contract without entitlement to severance or notice pay due to the employee’s conduct contrary to morality and good faith), severance pay shall be calculated solely based on the duration of the first employment period and the wage applicable at the end of that period. Interest at the highest bank deposit rate shall be applied to this amount from the date of termination of the first employment period until the date of payment. In other words, the employee’s right to severance pay accrued up to the retirement date shall in any case remain preserved.
Exceptional Regulation Regarding Annual Paid Leave
Where the rights and receivables relating to the first employment period are settled through payment, differing views exist regarding the calculation of the employee’s entitlement to annual paid leave. According to the first view, if the first period is settled through payment, the second period should be treated as a new employment, and annual leave entitlement should be calculated accordingly. However, the predominantly accepted second view argues that the annual paid leave entitlement should be determined by consolidating both employment periods and adding them to the total length of service. This view is based on Article 54 of the Labor Law, which provides that: “In calculating the period required to be entitled to annual paid leave, the periods during which employees have worked in one or more workplaces of the same employer shall be taken into consideration collectively. Provided that the periods during which employees working in workplaces covered by this Law have spent in workplaces of the same employer not covered by this Law shall also be taken into account.” Indeed, there are established precedents of the Court of Cassation supporting this approach (Court of Cassation, 9th Civil Chamber, 2016/29801E., 2020/14939 K., dated 05.11.2020).
Conclusion
In cases where an employee is re-employed by the same employer after retirement, although the practice of deferring payment through the execution of a transfer protocol is commonly preferred, it is more appropriate for this method to be used as a supplementary measure in addition to the execution of a release agreement. Otherwise, there remains a risk of facing claims seeking the consolidation of the two employment periods. Where full payment is made through a release agreement at the end of the first employment period, severance calculations for the second period may be based on the commencement date of the second employment. With respect to annual paid leave entitlements, the view predominantly accepted in practice is that such entitlement should be determined by consolidating the two employment periods and adding them to the total length of service.
Attorney At Law Berfin Naz Ayduk