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08. Restrictive Covenants
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08. Restrictive Covenants

Definition and Types of Restrictive Covenants

The employee and the employer may determine that the employee shall refrain from competing with the employer in any way after the termination of the contract, especially by establishing a competing business on his/her account, working for another competitor, or otherwise engaging in any other kind of interest relationship with the competitor.

Types of Restrictive Covenants

The prohibition of competition is valid only;

  • if the employee – employer relationship is of such nature that it provides the employee with the ability to engage information about its clientele or its productions or the business,
  • and at the same time if the use of this information would result in any cause of employer’s loss.

Such prohibition may be determined within the employment agreement or may be signed by the parties as an additional protocol. Pursuant to Article 445 of the Turkish Code of Obligations and the precedent judgements of the Court of Appeals, except for special circumstances and conditions, the non-competition clause cannot contain inappropriate restrictions in terms of place, time and type of work, in a way that endanger the economic future of the employee unfairly, and its duration cannot exceed 2 years.

In addition to the above, in the event of a potential lawsuit, the judge may limit the excessive nature of the non-competition clause in terms of scope or duration, by freely evaluating all situations and conditions and by considering the counter-action that the employer may have undertaken in an equitable manner. This is a requirement of freedom to work.

1. Non-compete clauses

  • Limit In Terms Of Location: It should be determined within the scope of a geographical region, city or business area, not exceeding the geographical area in which the employer operates. The prohibition of competition can be limited to 3 cities or 1 region in Turkey. If the parties determine a larger geographic area, in the event of a potential lawsuit, the court may remove the clause or narrow the area.
  • Limit In Terms Of Time: Principally, a prohibition of competition can be arranged for a maximum of 2 years starting from the termination of the employee’s employment contract. However, this period will vary based on the employee’s position, title and job description. Generally, the time period can be determined as 6 months for lower level employees. If the parties determine a period of time of non-competition, in the event of a potential lawsuit, the court may remove the clause or decrease the period.

 2. Non-solicitation of customers

Despite the prohibition of competition, the employee who has information about the employer’s customer environment or production secrets or the work done by the employer causes the employer’s loss by providing the employer’s customers must compensate the employer’s loss which results for this reason.

3. Non-solicitation of employees

As per Article 48 of the Constitution, everyone has freedom to work and contract in any field they wish. In this same article stated that it is also free to establish private enterprises. For this reason, principally, the employees cannot be restricted from working for other employers. However, a non-solicitation clause may be determined within the employment agreement. In other words, if an employee solicits other employees which would lead to resignations, then the employer may claim compensation. However, the employer must be able to prove that the employee is acting against the employment agreement, and that the employer is suffering damages.

Enforcement of Restrictive Covenants – Process and Remedies

The employee who violates the prohibition of competition is obliged to compensate for all the damages suffered by the employer as a result. If the violation of the prohibition is subject to a penalty and there is no contrary provision in the contract, the worker can get rid of his/her debt related to the prohibition of competition by paying the prescribed amount; however, the employee has to compensate for the damage exceeding this amount. In practice, a penal clause related to this issue is usually added to employment contracts. However, this amount of penal clause should not be exorbitant. The Supreme Court evaluates whether the amount of penal clause is exorbitant or not within the framework of “equity”. The burden of proof during claims regarding damages and/or penalty amounts will be on the employer.

Use and Limitations of Garden Leave

Garden leave is not a recognized concept under Turkish law. Therefore, an employer cannot put an employee in a leave while paying his/her salary, unless such employee accepts to be put in a leave. In this regard, if the employer wishes to put an employee in an administrative (garden) leave, the employmer must obtain the written approval of the employee. If the employee is put in a leave without his/her approval, he/she may theoretically terminate his/her employment agreement based on a just cause and demand severance payment, due to the fact that the right to work is a right protected under Turkish Constitution.

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