Employee Receivables: Conditions for Entitlement to Severance and Notice Compensation
Under employment law, termination of an employment contract gives rise to a number of legal and financial consequences for both the employee and the employer. Among the most important are severance and notice compensation. Whether the contract is terminated with or without just cause directly determines whether these compensation rights arise.
In this article, we examine the conditions for entitlement to severance and notice compensation, calculation methods, interest commencement dates, and the key issues to consider during mediation, which is a mandatory pre-litigation step.
1. Severance Compensation: Conditions, Calculation and Interest Principles
Severance compensation is a statutory protection paid in return for the employee’s service and years spent working for the same employer.
Conditions for Entitlement
For an employee to be entitled to severance compensation, the following basic conditions must be met together:
- At Least 1 Year of Service: The employee must have worked for the same employer for at least one full year, even if at different workplaces.
- Nature of Termination: The employment contract must have been terminated by the employer without just cause (for reasons other than the cases contrary to morality and good faith under Article 25/II of the Labour Law), or by the employee for just cause (under Article 24 of the Labour Law due to health reasons, conduct contrary to morality and good faith, or compelling reasons).
- Special Exceptions: Severance compensation is also payable in cases such as compulsory military service, acquisition of retirement entitlement, resignation by a female employee within one year of marriage, or the employee’s death, provided that the one-year service condition has been met.
Calculation Method
Severance compensation is calculated for each full year of service on the basis of 30 days of the employee’s gross wage including regular benefits In addition to the basic wage, the gross wage including regular benefits covers all continuous cash and in-kind benefits such as transportation, meals, regular bonuses, premiums and fuel assistance.
Interest Commencement Date and Type
The applicable interest and its commencement date for severance compensation are specifically regulated by law:
- Type of Interest: Under Article 14 of Labour Law No. 1475, in an action filed because severance compensation was not paid on time, the highest interest rate applied to deposits is applied.
- Commencement Date: Interest on severance compensation begins from the date of termination of the employment contract There is no need to wait for the date of a notice, mediation application or lawsuit.
2. Notice Compensation: Conditions, Periods and Calculation Principles
Notice compensation is compensation that the party wishing to terminate the employment contract, whether employee or employer, must pay to the other party if the statutory notice periods are not observed. Unlike severance compensation, an employee who leaves without complying with the rules may also be required to pay notice compensation to the employer.
Conditions and Notice Periods
A party that terminates the employment contract immediately without observing the statutory notice periods becomes liable for notice compensation. However, because there is no obligation to grant a notice period in terminations for just cause under Articles 24 and 25 of the Labour Law, no right to notice compensation arises.
Under Article 17 of the Labour Law, the minimum notice periods according to the employee’s length of service are as follows:
| Employee’s Length of Service | Notice Period |
|---|---|
| Less than 6 months | 2 Weeks |
| 6 months to 1.5 years | 4 Weeks |
| 1.5 years to 3 years | 6 Weeks |
| More than 3 years | 8 Weeks |
Calculation Method
The weeks in the notice period are converted into days (for example, 8 weeks = 56 days) and multiplied by the employee’s last gross daily wage including regular benefits The main difference from severance compensation is that both income tax and stamp tax are deducted from notice compensation.
Interest Commencement Date and Type
- Type of Interest: The statutory interest rate applies.
- Interest commencement: For notice compensation, default and the date on which the claim is asserted are assessed according to the notices, documents and claims in the specific case; there is no single automatic commencement date for every case.
3. Key Issues to Consider During Mediation
In disputes concerning employee receivables and compensation arising from employment law, mediation is a mandatory prerequisite to litigation. Although mediation offers the parties an important opportunity to reach a quick and less costly resolution, it can also lead to irreversible loss of rights if not handled carefully.
- Separate Each Compensation Item: The mediation settlement record should clearly state which amount relates to severance compensation, notice compensation, overtime pay or annual leave receivables, separately, item by item Expressions such as “lump-sum payment including all receivables” may lead to serious loss of rights and financial or tax problems in the future.
- Net or Gross Distinction: The settlement record must clearly state whether the agreed amount is Net or Gross Otherwise, a new legal dispute may arise between the parties during payment and bank transfer.
- Mediation settlement: The agreed matters should be stated clearly. The enforceability of the settlement document depends on the signatures and statutory requirements, while the bar on bringing an action on the same matter is assessed under Article 18 of Law No. 6325. Disputes concerning signatures, scope or defects of consent may require separate assessment.
- Limitation Period: A five-year limitation period generally applies to severance and notice compensation. The commencement, suspension and interruption of the period, as well as the effect of mediation, should be checked in the specific case.
Kaplan Law & Legal Consultancy provides professional legal services in resolving employee and employer disputes through settlement or litigation, in mediation negotiations, and in qualified calculations of employee receivables. For detailed information about your matter, you can contact us through our Contact contact page.
Sources: Article 14 of Labour Law No. 1475; Article 17 of Labour Law No. 4857.