Introduction

In labor law practices, the employer is granted the right to compensation in the event of the employee's unfair termination of the employment contract or violation of the non-competition clause. Within this scope, certain obligations may be imposed on the employee by the employment contract or a separate non-competition agreement drawn up between the parties, and a penalty clause may be agreed upon in the event of violation of these obligations. These agreements include non-competition clauses aimed at protecting the employer's legitimate interests. Situations such as the employee establishing relationships with the employer's customers after leaving the job and operating in the same sector are considered as violations of the non-competition clause. Penal clause regulations come into play as sanctions for such violations. In practice, many legal elements such as the validity of the penal clause, its exorbitance, the will of the parties, and whether the employer has suffered damage are subjects of debate. In this study, the legal basis of the penal clause, the terms of the non-competition agreement, and the legal bases for collecting penal clauses from the employee due to violations of the non-competition clause and the decisions of the Supreme Court will be discussed.

1. Legal Nature and Limits of Penal Clause

A penal clause is a pre-agreed compensation that the debtor is obliged to pay in the event of a breach of contract. According to the Turkish Code of Obligations:

Article 179 of the TCC: “An agreement that imposes an obligation on the creditor to perform or behave in the event that the debtor does not perform his/her debt at all or properly is called a penal clause.”

The limits of penal clause in labor law are clearly stated in Article 420 of the TCC:

Article 420 of the TCC: “The penal clause to be paid by the worker in the event of a breach of his/her obligations cannot exceed four weeks’ wages. A penal clause exceeding this limit is null and void.” This provision aims to protect the economic future of the worker. In addition, whether the penal clause is excessive or not can be assessed by the Courts.

The non-competition clause included in employment contracts or non-competition agreements is regulated by Article 444 of the Code of Obligations No. 6098 (“Code of Obligations”):

‘‘An employee with legal capacity may undertake in writing to refrain from competing with the employer in any way after the termination of the contract, particularly from opening a competing business on his own account, from working in another competing business or, apart from these, from entering into any other type of interest relationship with the competing business.’

‘‘The non-competition clause is only valid if the service relationship provides the employee with the opportunity to obtain information about the customer circle or production secrets or the work done by the employer and, at the same time, if the use of this information is of a nature that will cause significant damage to the employer.’’

2. Function and Area of ​​Application of Penal Clause

Since it may be difficult to prove concretely the damages that will arise in case of violation of the prohibition of competition, the provisions of the penal clause that are foreseen to be paid in case of violation of the prohibition in question are important in practice. Article 446 of the Turkish Code of Obligations allows the employer to request the penal clause agreed in the contract without requiring proof of damage.

The main purpose of the penal clause is to provide deterrence against violation and to encourage compliance with the contract. However, if such penal clauses are designed in a way that will put the economic situation of the employee in excessive difficulty, they may be subject to reduction by the courts within the framework of the principle of equity. In this context, the penal clause must be proportionate, moderate and fair.

The prohibition of competition is an obligation imposed on the employee in order to protect the legitimate interests of the employer. This obligation comes into play especially when the employee has access to the employer's trade secrets, customer portfolio and special production information. Following the termination of the contract, this regulation, which prohibits the employee from working for a competitor or performing a similar activity for a certain period of time, can only be valid under certain conditions, as it is restrictive in nature.

According to Article 444 of the Turkish Code of Obligations, the employee's non-competition obligation can only be stipulated by a written contract. However, the non-competition prohibition must be limited in terms of duration, geographical area and subject of activity. Otherwise, regulations that excessively restrict the employee's economic freedom will be considered invalid.

4. Validity and Implementation Conditions of Non-Competition Agreement

As is known, the employee's non-competition with the employer during the continuation of the employment contract is an obligation within the duty of loyalty. On the other hand, the parties may decide to include a provision in the employment contract stating that the employee will not compete while the employment relationship continues or after the termination of the contract, or to make a separate agreement (non-competition agreement) on this subject. In the doctrine and the practice of the Supreme Court, it is accepted that the employee's obligation not to compete with the employer after the termination of the employment contract can only be in question if such an obligation is agreed upon in the contract.

This issue is detailed in the Turkish Code of Obligations between Articles 444-447. A non-competition agreement is a special agreement that prohibits the employee from working in similar jobs for a certain period of time after leaving the job in order to protect the legitimate interests of the employer.

TCC Article 445/1: “The non-competition agreement must be limited in terms of place, time and type of work in a way that does not endanger the economic future of the employee.”

Otherwise, the non-competition clause may be deemed invalid. In addition, the employer has the right to demand a penalty from the employee who violates this prohibition.

The conditions for implementation are as follows:

It must be made in writing.
It must be limited in terms of place, time and subject.
Valid for a maximum of 2 years
The employer must have a legitimate interest that may be directly harmed by the employee's activities.

If these conditions are not met, the non-competition clause and penalty clause provisions may be deemed invalid.

In various decisions of the Court of Cassation, a number of criteria have been developed regarding the validity of non-competition agreements and the applicability of the penalty clause. The most striking issue among these is the requirement to comply with the principle of reasonableness in terms of the scope and duration of the prohibition.

In the decision numbered 2017/1502 E., 2018/1351 K. of the 11th Civil Chamber of the Court of Cassation; it was stated that non-competition clauses that are not limited in terms of place, time and subject are invalid.

In the decision numbered 2019/1578 E., 2020/1453 K. of the 11th Civil Chamber of the Supreme Court of Appeals, it has become a precedent that the violation of the employer's legitimate interest is sufficient for a request for a penalty clause, and that there is no need to prove actual damage.

Issues such as whether the employee violated the prohibition and whether the penalty clause is excessive are meticulously examined. The Supreme Court of Appeals has developed established precedents on the application of the penalty clause.

a. Regarding the Request for Penalty Clause Without a Valid Non-Competition Agreement; Court of Cassation 11th Civil Chamber, 2017/1502 E., 2018/1351 K.

“If the non-competition agreement made between the employee and the employer is not limited in terms of place, time and subject of work, it is invalid. However, if the said limits are determined reasonably and the employee has violated this prohibition, the agreed penal clause can be requested.”

b. Regarding the Prohibition that Excessively Restricts the Economic Freedom of the Worker;

Court of Cassation 11th Civil Chamber 2015/12450 E. 2016/6672 K. Date 16.06.2016

‘’..In the ... numbered 6098, which entered into force on 01.07.2012, a regulation similar to the regulation in the Code of Obligations has been introduced. Article 445 of ... states that “The prohibition of competition cannot include inappropriate restrictions in terms of place, time and type of work, which would unfairly endanger the economic future of the worker, and its duration cannot exceed two years, except for special circumstances and conditions. The judge may limit the excessive prohibition of competition in terms of its scope or duration, by freely evaluating all circumstances and conditions and by taking into account the counter-action that the employer may have undertaken in a fair manner.” It can be said that the basis of this article is the idea that if the non-competition agreement includes provisions that exceed the limitations stipulated in the law, the judge should reduce the excessive recording to a “legal or appropriate level” by also taking into account the measure of equity in accordance with Article 445 of the CC. The provision of ... should be considered a special norm in the face of provisions 27/1 of the ... and 23/2 of the CC, and therefore the sanction of absolute invalidity, which is the sanction of non-conformity to these articles, should not be applied (Dr. Nagehan Kırkbeşoğlu, Partial Nullity in Turkish Private Law, ...-2011, p.324. et al.).

Within the framework of all these explanations, although the court accepted that the sanction of the phrase “Whole World” in the contracts signed between the parties is absolute invalidity, when the provision of Articles 445/1 and 2 of ... is taken into consideration, the judge was given the opportunity to take measures to keep the contract alive against the excessive provisions in the non-competition contract and to intervene in the contract. Since the wills of the parties are united regarding the non-competition contract in the concrete dispute, there is no absolute nullity-nullity in the said contract but there is a nullity that can be remedied by the intervention of the judge, an evaluation should be made according to the provision of Article 445/2 of ... and a decision should be made according to the result. However, it was not deemed right to decide to reject the case with an erroneous evaluation and it necessitated reversal.’’

c) Regarding the Protection of Legitimate Interest and No Damage Condition; Court of Cassation 11th HD, 2019/1578 E., 2020/1453 K.

“If the employee works for a rival company after leaving the job and does so within the competition prohibition period, a penalty charge may be imposed. However, the employer does not need to prove that he has suffered a separate damage in order to request this penalty charge.”

The Court of Cassation 9th Civil Chamber, in its decision numbered 2015/20966 E. 2017/8282 K. and dated 09.05.2017;

"From the copies of the trade registry gazette, the internet pages of the defendant company and the non-suit ... Inc. and other information and documents included in the file; it is understood that the plaintiff, while working for the defendant company, established a non-suit ... Inc. company in the same field of activity as the defendant company. Without considering that the plaintiff acted contrary to his duty of loyalty and that the termination by the employer was based on a justified reason, it should have been decided to reject the severance and notice compensation claims, but its acceptance is erroneous."

"One of the obligations of the employee in the employment relationship is the duty of loyalty. The duty of loyalty imposes on the parties to the contract the obligation not to harm the person, property and other legally protected assets of the other party in the performance of the obligations arising from the contractual relationship, and also to refrain from any behavior outside the scope of the contractual relationship that would endanger the purpose pursued by the contract, especially undermine the mutual trust. It is a violation of the duty of loyalty for the employee to establish a company in the same field of activity as the company he works for, even indirectly, to spend part of his working hours in this company, and to direct the company's customers to another company in the same field of activity."

In the decision of the 11th Civil Chamber of the Supreme Court of Appeals, numbered E:2018/3705 K:2019/1860 K, dated 06.03.2019;

''In the doctrine, non-competition agreements are defined as agreements that prohibit the employee from engaging in competitive behavior with the employer in a certain field of activity, in a certain geographical region and within a certain period of time after the termination of the service contract due to the employee's penetration of the employer's customers or being aware of business secrets within the employment relationship. With this agreement, which includes the commitment not to compete, the employee assumes a negative obligation, a debt not to do, towards the employer for the period after the termination of the service contract.

In other words, the non-competition agreement restricts the worker’s economic activity freedom and economic future, even partially (Sabah Altay, Non-Competition Agreement between the Worker and the Employer According to the Provisions of the Turkish Code of Obligations, MÜHF-HAD, Vol. 14, p. 3, p. 179 et seq.).

In order for the non-competition clause to be valid, it is sufficient for the worker to work in a position where he/she can know the trade secrets such as the customer circle and production secrets of the employer with whom he/she has a service relationship and to have the possibility of sharing this information with the new employer who is a competitor of the previous employer. In this sense, it is not necessary for the leaving worker to work in the same position at the new workplace. Likewise, it is not necessary for the leaving worker to actually harm the previous employer for the existence of the non-competition clause to exist, but the existence of the risk and possibility of harming is sufficient. It is important whether he/she shares it with the competitor companies and has the opportunity to influence.”

In the stable precedents of the Supreme Court, it has been ruled that the employee's actions are considered as a clear violation of the obligation of loyalty, non-competition, non-confidentiality and company policies. In line with these decisions, the courts will decide on the dispute by evaluating the content of the contract, the employee's behavior, the employer's sector and the concrete case together.

6. Dispute Resolution Process and Evidence

In case of a violation of the non-competition clause, the first step of the employer is to send a notice through a notary and request payment of the penalty. If this request is unsuccessful, enforcement proceedings can be initiated. In case the employee objects to the enforcement proceedings, the employer will file a lawsuit for the cancellation of the objection, the collection of the receivable and up to 20% enforcement denial compensation will be on the agenda.

In terms of the burden of proof, the employer must prove with documents that the non-competition clause is valid and that the employee violated this prohibition. In this context, documents such as employment contracts, notary notices, new workplace SSI entries, trade registry records, witness statements and confidentiality agreements are used as important evidence.

7. Conclusion and Evaluation

Non-competition agreements and penal clause regulations are an area of ​​labor law where freedom of contract and economic rights are balanced. Since employees' behaviors contrary to the non-competition prohibition in labor law may harm the legitimate interests of the employer, the penal clause stands out as an important sanction tool.

However, in order for this sanction to be valid, the prohibition must be reasonable in terms of duration, location and field of activity. The Supreme Court practices observe the principle of interpretation in favor of the employee and consider the provisions that will limit the economic freedom of the employee invalid. Therefore, it is of great importance for employers to structure their non-competition and penal clause regulations in accordance with the law. These restrictions, which are envisaged to protect the legitimate interests of the employer, must be prepared in a way that does not violate the constitutional rights of the employee and in line with the principle of proportionality. In practice, it is important for the employer to organize the contract in accordance with the individual situation and for the employee to understand and consciously accept their obligations.

Ultimately, it is decisive for both parties to act within the legal boundaries in order to prevent disputes. The non-competition clause and related penal clauses must comply not only with legal regulations but also with the principles of the rule of law and the understanding of fairness.

Av. Arb. Fatih M. TERCAN