Payment in Lieu of Notice — Notice Periods, Calculation and Entitlement

What is payment in lieu of notice, how long are the notice periods and how is it calculated? Everything you need to know about payment in lieu of notice under Labour Law art. 17.

What Is Payment in Lieu of Notice and Where Is It Regulated?

Payment in lieu of notice is the compensation that a party terminating an employment contract of indefinite duration must pay to the other party where it ends the contract without observing the notice periods prescribed by the statute. Article 17 of Labour Law no. 4857 forms the basic legal basis of this payment and sets the notice periods on a graduated scale according to length of service.

Payment in lieu of notice applies only to employment contracts of indefinite duration. In fixed-term employment contracts the end date is determined in advance, so the parties already know when the contract will end. For that reason no payment in lieu of notice may be claimed under a fixed-term contract.

Payment in lieu of notice is the monetary consequence, regulated in Labour Law art. 17, of failing to observe the notice period. Tax and social security deductions are determined according to the character of this payment under the relevant special legislation; as a rule it is subject to income tax and stamp duty and is not included in the calculation of social security premiums.

How Long Are the Notice Periods Under Article 17 of the Labour Law?

Article 17 of Labour Law no. 4857 sets the notice periods on four levels according to the employee's length of service: 2 weeks for those employed up to 6 months, 4 weeks between 6 months and 1.5 years, 6 weeks between 1.5 and 3 years, and 8 weeks for those employed more than 3 years.

These are the minimum periods laid down in Labour Law art. 17; they may be increased by contract but not reduced. For which party and to what extent an increased period applies is determined by examining the contractual provision together with the mandatory protective rules and the principles of equity.

Notice periods begin to run from the date the notice of termination reaches the other party. Under Labour Law art. 109 the notice must be given in writing and against signature. Failure to observe the written form affects the character of the termination, its proof and the conditions of art. 19 on job security according to the particular case; the existence and date of the notice must also be proved.

The employment contract continues during the notice period. The employee continues to work and the employer continues to pay wages. During this period all the rights and obligations of the parties arising from the employment contract remain fully in force.

How Is Payment in Lieu of Notice Calculated?

Under Labour Law art. 17, payment in lieu of notice is the amount of wages corresponding to the notice period. The calculation takes into account the last gross wage at the date of termination together with contractual or statutory benefits that are regular in character and consist of money or are measurable in money. Occasional payments are not treated in the same way as continuing bonuses or premiums; the pattern of payment and the relevant period are examined.

The gross daily wage including benefits is multiplied by the number of days in the notice period applicable to the employee. For example, purely to illustrate the method, if the monthly gross wage including benefits is assumed to be TRY 45,000 and the notice period is eight weeks, the gross amount is 45,000 / 30 × 56 = TRY 84,000. This example is not the current minimum wage nor a calculation from an actual file.

The net amount depends on the income tax tariff, stamp duty and the social security treatment under the legislation in force at the date of payment. As a rule, payment in lieu of notice is subject to income tax and stamp duty and is not included in the calculation of social security premiums; the current tariff and rates must be checked against each year's official regulations. A stamp duty rate or net figure that is liable to change should not be fixed in a permanent article.

In calculating the wage including benefits, continuing benefits consisting of money or measurable in money are taken into account. The name given to a premium or bonus is not on its own decisive; whether it is regular and whether it is ancillary to the wage are examined. Genuine reimbursements of expenses and occasional payments are not taken into the calculation in the same way.

Who Pays: the Employee or the Employer?

Payment in lieu of notice is made by the party that terminates an employment contract of indefinite duration without observing the notice period. Accordingly, both the employer and the employee may be liable to make the payment; this depends on who carried out the termination.

In practice payment in lieu of notice is most often made by the employer. The main reason is that the great majority of employment contracts are terminated by the employer. Where the employer terminates the contract without observing the notice period, it must pay the employee in lieu of notice.

If the employee likewise terminates a contract of indefinite duration without just cause and without observing the notice period, the employer may claim the amount provided for in Labour Law art. 17. Because the payment is calculated on the wages for the statutory notice period, no separate proof of actual loss in the same amount is required; the position changes if there is a just-cause termination or another valid form of ending the contract.

Whether the employer may set off its claim for payment in lieu of notice against another claim of the employee depends on the conditions of set-off in the Code of Obligations, the maturity of the claims, and the restrictions on the protection of wages in Labour Law art. 35 and Code of Obligations art. 407. A unilateral payroll deduction or a written notice does not in every case produce a valid set-off.

In What Circumstances Does No Entitlement Arise?

Payment in lieu of notice depends on a contract of indefinite duration being terminated without just cause and without observing the notice period. As a rule no such payment arises on the expiry of a fixed-term contract, on agreement between the parties, on the death of the employee, or on termination during the probationary period. If the employee proves an immediate termination for just cause under Labour Law art. 24, they are not obliged to give notice; but neither may they claim payment in lieu of notice for themselves. If the employer proves an immediate termination for just cause under art. 25, it does not pay in lieu of notice. A document headed “resignation” is not on its own decisive; the true intention to terminate, any allegation of pressure and the course of events are investigated.

Meeting the conditions for retirement may be significant as regards severance pay. However, whether the employee genuinely left for the purpose of retirement or for some other purpose, and the obligation to give notice, are assessed according to the particular case. Generalisations such as “a retiring employee always pays in lieu of notice” or “never pays” should be avoided.

What Does Serving the Notice Period Mean and How Is It Applied?

Serving the notice period means that the party terminating the employment contract actually allows the other party the notice period prescribed by the statute. The employer continues to employ the worker throughout the notice period and the contract ends at the end of that period; in that case no payment in lieu of notice is made.

Where the notice period is served, the employment contract continues with all its rights and obligations until the end of that period. The employee continues to work and the employer continues to pay wages and other social benefits. The employee's entitlement to annual leave also continues during this period, and the notice period is included in the length of service.

The most important matter to observe while the notice period is being served is the time off to look for work regulated in Labour Law art. 27. Throughout the notice period the employer must give the employee at least 2 hours a day to look for work. If the employee wishes, these hours may be combined and taken as a block. In that case the combined time off is taken on the final days of the notice period.

The employee's wages are paid in full for the time off to look for work. Where the employer fails to grant this time off, or grants less than required, the wages for that period must be paid to the employee with a one hundred per cent increase. This is expressly laid down in Labour Law art. 27/3.

Where the employer terminates, the notice period and untaken annual leave cannot be made to run concurrently under Labour Law art. 59. Because the notice period protects the opportunity to look for new work while annual leave protects rest, payment for untaken leave is calculated separately on termination.

How Is Time Off to Look for Work Used During the Notice Period?

Time off to look for work is regulated in article 27 of Labour Law no. 4857. Throughout the notice period the employee must be given at least 2 hours a day to look for work; this time is paid and no deduction may be made from the employee's wages.

Time off to look for work arises only where the notice period is actually served. Where termination is immediate against payment in lieu of notice, the employee leaves at once and therefore takes no such time off.

An employee who wishes to combine the daily periods and take them as a block must notify the employer in advance and take the time off on the days preceding the last day of employment. The total number of hours is calculated according to the actual working days and hours falling within the notice period; a fixed example of eighty hours based on the assumption of a five-day working week cannot be applied to every working pattern.

If the employer makes the employee work during the time off to look for work, it pays, in addition to the wages the employee would receive for that time without working, the wages for the period worked with a one hundred per cent increase. Both of these separate wage elements in the text of the statute must be taken into account in the calculation.

What Is the Limitation Period for Payment in Lieu of Notice?

The limitation period for payment in lieu of notice is as a rule five years. For claims that arose before the amendment which entered into force in 2017, the transitional provision must be examined separately. Time runs from the date of termination; limitation is suspended from the application for mediation until the final record is drawn up.

Limitation is not a forfeiture period and is as a rule a defence to be raised. Interruption, suspension and transitional provisions must be assessed according to the file.

Limitation is as a rule a defence raised by a party and is not applied by the court of its own motion. It is expected to be raised in the statement of defence; the possibility of raising it later is determined by the rules of civil procedure on extending claims and defences, the express consent of the other party and amendment of pleadings.

What Are the Differences Between Payment in Lieu of Notice and Severance Pay?

Payment in lieu of notice is made because of a termination carried out without observing the notice period, and where the conditions are met either party may be liable. Severance pay, by contrast, is a separate employment claim paid by the employer in the cases of termination listed in the statute, subject to at least one year's service.

Severance pay requires at least one year's employment, whereas payment in lieu of notice has no minimum service requirement. Nevertheless, under Labour Law art. 15 no notice period and no payment in lieu of notice apply during the probationary period.

Severance pay is subject to a statutory ceiling, whereas payment in lieu of notice is not. It is calculated on the employee's actual wage including benefits.

No tax other than stamp duty is deducted from severance pay, whereas both income tax and stamp duty are deducted from payment in lieu of notice. This can cause the net amount to fall considerably below the gross amount.

Both payments are calculated on the gross wage including benefits. However, severance pay is calculated at 30 days' wages for each full year, while payment in lieu of notice is calculated at the wages for the notice period corresponding to the length of service.

In Which Court Is a Claim for Payment in Lieu of Notice Brought?

Because payment in lieu of notice is in the nature of an employee's or employer's claim and compensation, applying to a mediator under art. 3 of Law no. 7036 is a condition of bringing proceedings. The application for mediation suspends limitation; after the final record, time resumes running from where it stopped.

Unlike a reinstatement dispute, there is no special two-week period for bringing a claim for payment in lieu of notice after the final mediation record. The competent court is the labour court. Venue is determined according to the defendant's place of residence and the place where the work or transaction was carried out; venue agreements contrary to the statute are void.

The calculation is made on the gross wage including benefits. Regular benefits consisting of money or measurable in money may be added; occasional payments and genuine reimbursements of expenses are not taken into the calculation in the same way. Tax and deduction rates are calculated under the legislation in force at the date of payment; no fixed net amount can be given.

Official sources: Labour Law no. 4857, Income Tax Law no. 193, Stamp Duty Law no. 488, Law no. 5510, Labour Courts Law no. 7036