Growing economy and competitive environment in Turkey has been leading companies to seek more profitable ways to conduct their business. Therefore companies have chosen to engage in subcontracts for the purpose of reducing their costs. Yet, to serve such purpose, at some point companies have started utilizing subcontracts to limit employees’ entitlements through collusive contracts. Labor Law numbered 4857 (the “Labor Law“) and Bylaw on Subcontractor dated September 27, 2008 (the “Bylaw“) regulate which services or works may be subcontracted and strictly prohibit collusive contracts. According to Article 2/7 of the Labor Law, a collusive subcontract is considered null and void. Such nullity of subcontract automatically results in primary employers being redefined as main and sole employers of employees assigned to subcontracted work. Consequently, primary employers are solely responsible for employees’ rights arising from subcontracted works and technically, primary employers would not have the option to recourse to subcontractors in order to claim any compensation due to their sole responsibility.
This article discusses the recent decisions of High Court of Appeals stating that subcontractors cannot evade liabilities against employees assigned to subcontracted works despite the regulation under Article 2/7 of the Labor Law.
Permitted Subcontracted Works
Per Article 2 of the Labor Law and Article 4 of the Bylaw, either (i) auxiliary works for production of goods and services (e.g. security work, transportation, cleaning facilities etc.1) or (ii) dividable parts of main works that require expertise due to technological reasons or features of workplace and business (e.g. maintenance of technical equipment) may be assigned to subcontractors.
As neither the Labor Law nor the Bylaw defines what would qualify as auxiliary work, there are differences of opinion in the doctrine. According to one opinion which is often called “Indirect Participation to Production”, works that are, not directly but indirectly related to main work and would exist as long as main work continues, would qualify as auxiliaryworks2. Per one other opinion which is often named as “External Work”, any work that serves to technical purposes of workplaces would qualify as main work and any other work that does not fall under the scope of main works is called auxiliary work3.
On the other hand, the Labor Law and the Bylaw regulates the conditions to meet in order to partially assign main works to subcontractors. Accordingly, dividable parts of main works which require expertise due to technological reasons or features of workplace and business may be subcontracted. The dominant element in this regulation is the term “works require expertise due to technological reasons“. Meaning that, main works cannot be subcontracted unless there are technological reasons that do not fall under primary employer’s expertise. Thus, without complying with those conditions, dividing main work and assigning a part of it to a subcontractor is not permissible4.
In light of the foregoing, in case of a valid subcontractor relation, primary employers and subcontractors are jointly responsible for entitlements of employees assigned to subcontracted works pursuant to Article 2/6 of the Labor Law.
Definition of Collusion
Collusion is regulated under Turkish Code of Obligations numbered 6098 and defined as an agreement made for the purpose deceiving third parties which does not reflect its parties’ genuine will. Collusion requires the intention to deceive third parties and conceals the real purpose behind making such agreement5.
As collusive transactions are wrongful acts, third parties suffering from collusion are entitled to request for compensation of their damages6.
Article 2 of the Labor Law and Article 3/g of the Bylaw re-defines collusion in terms of employment relations and regulates that:
(i) Assignment of a part of main work which does not require expertise to subcontractor,
(ii) Establishment of a subcontractor relationship with a former employee,
(iii) Subcontractor employing primary employer’s employees by restricting entitlements of employees in question,
(iv) Agreements containing transactions concealing genuine intention of parties and having the purpose of circumventing public liabilities or restricting employees’ entitlements borne from employment agreement, collective labor agreement or labor legislation
would mean and constitute “collusion”.
Consequences of Collusive Subcontracts
According to the general provisions under Turkish Code of Obligations numbered 6098, collusive transactions are deemed invalid and do not inure effect, in other words they are null and void7. As the collusion regulated under the Labor Law is a reflection of the one set forth under the general provisions, collusive subcontracts would be treated as if they never existed.
In this context, most remarkable legal consequences of collusion in the aspect of subcontractor relationship are explained below.
Article 2/7 of the Labor Law outlines the consequences of collusive subcontracts and regulates that employees subject to a collusive subcontract shall be deemed as if they were employed by primary employer from the beginning of subcontractor relation8.
Meaning that primary employer will be solely and retrospectively responsible for employees’ unpaid salaries, bonuses, social security premiums, unused annual paid leave etc. and/or any difference between remuneration paid by subcontractor and remuneration that primary employer should have paid if they were its employees9 since a collusive subcontract would be null and void. In brief, subcontractor will be out of the picture and employees’ claims will be addressed to primary employers by the competent court. These claims are often subject to Article 5 of the Labor Law which regulates “equal treatment principle”10 and related to all kinds of remuneration, social security and tax liabilities of employers along with reemployment.
Yet the fact that primary employers are deemed solely liable retrospectively against employees11 and subcontractors are free from any liability, if not technically but in practice, is a way out for subcontractors. Given that the main purpose of the Labor Law is to protect employees against powerful employers, primary employers aiming to reduce their costs by limiting employees’ rights even though they do not intend to and subcontractors being free from any liability eventually leave employees unprotected.
The recent decisions of High Court of Appeals12 point out that even though collusive subcontracts are deemed null, primary employers and subcontractors shall be still held jointly liable against employees’ rights arising from collusion in accordance with the general provisions of Turkish Code of Obligations numbered 6098.
Per Article 2/7 of the Labor Law and the previous decisions of High Court of Appeals, as explained above, primary employers would solely responsible for employees’ claims arising from employment agreements, the Labor Law and other relevant regulation in case of collusive subcontracts.
That being said, with the recent decisions of High Court of Appeals, this approach of primary employers being solely responsible, which keeps subcontractors exempt from liability towards employees, has shifted.
The current approach High Court of Appeals, with which we also concur, is that “no one can benefit from his/her own collusion13” even if it is a collusive subcontract relationship. By virtue of these recent decisions, subcontractors shall still be deemed jointly responsible for employees’ rights with primary employers.