Transfer of Undertaking in Türkiye: Employee Rights and the Liability of Transferor and Transferee

1. Introduction: The Deal Is Signed — What About the Employees? A business changing hands is usually the outcome of months of negotiation, financial models and warranty clauses. Yet there is a subject at least as decisive as the balance sheet, and usually discussed last: the employees. What happens to the employment contracts once the transfer closes, who carries the accrued severance, and can an employee refuse the transfer? These questions are expensive when they surface after closing. The course must be charted before signature. This article examines the effect of a transfer of undertaking on employee rights under Article 6 of Turkish Labor Law No. 4857 and Article 14 of Law No. 1475, from the perspective of both transferor and transferee.

2. What Counts as a "Transfer of Undertaking"? Article 6 governs the transfer of a workplace, or a part of it, to another on the basis of a legal transaction. "Legal transaction" is construed broadly: a written contract, an oral agreement, and even an implied agreement may effect a transfer. A transfer does not depend on a document titled "transfer agreement." The decisive test is whether the economic entity changes hands while retaining its identity. This test does not appear in the statute; it was developed by the Court of Cassation in line with Court of Justice case law (Spijkers, Süzen). The following factors are weighed together: whether tangible and intangible assets were transferred, whether the workforce was taken over, whether the customer base passed, the degree of similarity between the activities carried on before and after, and — if activity was suspended — the length of that suspension. A sale, a lease, a usufruct or a leasing arrangement may equally effect a transfer.

One important nuance: in labour-intensive sectors, taking over the employees themselves may amount to a transfer of undertaking even without any transfer of tangible assets. The transfer of intangibles such as a brand, logo or licence may likewise qualify. The assumption that "no assets were transferred, therefore there is no transfer of undertaking" is unsafe: it is economic reality, not the title of the agreement, that governs.

3. A Share Deal Is Not a Transfer of Undertaking This is the most frequently confused point in M&A practice. In a share transfer, the employer legal entity remains the same; only the shareholding changes. A share deal is therefore, as a rule, not a transfer of undertaking and Article 6 does not apply: the employment contracts simply continue with the same employer, seniority runs uninterrupted, and no transferor/transferee split or joint-liability debate arises. In an asset deal, by contrast, the employer changes and Article 6 is engaged. A caveat: courts look to substance, not form. A share deal coupled with an actual handover of the economic unit may be re-characterised as a transfer of undertaking; and the later incorporation of a sole-trader business counts as a transfer even if the same people remain the owners.

4. What Happens on Transfer? On a transfer of undertaking, the employment contracts existing at the transfer date pass to the transferee with all their rights and obligations (Art. 6/1). The transfer operates automatically; no separate assignment and no employee consent is required — Article 6 grants the employee no right to object. This does not mean consent is never required: in a demerger under company law, Article 178 of the Commercial Code does give the employee a right to object. For entitlements based on length of service, the transferee must treat the employee as having started on the date they began with the transferor (Art. 6/2). Severance pay, annual leave entitlement and notice periods do not reset; the aggregate period governs.

5. The Liability Map: Who Owes What? This is where the real complexity lies. There is not one rule but three distinct regimes depending on the type of claim:

(a) Claims that arose before the transfer and were due on the transfer date — wages, overtime, weekly rest, national and public holiday pay: the statute makes the transferor and transferee liable together (Art. 6/3); the Court of Cassation applies this as joint and several liability. Two conditions are cumulative: the claim must have arisen before the transfer and been due on the transfer date. The transferor's liability here is limited to two years from the transfer date. For claims arising from work performed after the transfer, only the transferee is liable.

(b) Severance pay (kıdem tazminatı) — the critical exception: the transferor is liable limited to its own employment period and to the wage level at the transfer date (Law No. 1475, Art. 14/2). The subtlety is this: because Article 14/2 sets no time limit for the transferor's liability, the two-year limitation in Article 6 does not apply to severance pay. Severance is computed over the entire period before and after the transfer; the transferor's liability is capped by period and wage level — but not by two years.

(c) Notice pay and unused annual leave pay: these are termination-linked entitlements, and liability rests with the last employer, i.e. the transferee. The transferor bears no liability for them; the transferee is solely liable.

This threefold distinction directly shapes pricing and the warranty/indemnity architecture in transfer negotiations. The received wisdom that "the transferor is liable for employment claims for two years" is misleading once severance pay is on the table.

6. The Transfer Alone Is Not a Ground for Termination The law lays down two distinct rules here. For the employer it is a prohibition: the employment contract may not be terminated solely by reason of the transfer. For the employee, the transfer does not constitute a just cause for termination; an employee cannot terminate with just cause and claim severance merely because "the employer has changed." Two rights are, however, reserved: the employer's right to terminate where economic and technological reasons, or a change in work organisation, so require, and the just-cause immediate termination rights of both sides. Two practical risks: (1) dismissals made on the occasion of a transfer being later dressed up as "business requirements" — where a valid ground cannot be proved, such a dismissal turns into a reinstatement claim; and (2) a substantial change to pay, place of work or working conditions after the transfer — this engages Article 22, and may give the employee a just-cause termination with severance.

7. Mergers, Absorptions and Changes of Type: A Different Regime The final paragraph of Article 6 introduces an important exception: where the legal entity ceases to exist through merger, absorption or a change of type, the joint-liability provisions do not apply. The key words are "ceases to exist": if the legal personality survives, the exception does not operate. The rationale is universal succession: on a merger, the surviving company succeeds to the whole of the assets and liabilities of the absorbed company; there is no second debtor left to apportion liability to. This is not a carve-out to the employee's detriment. Two points to note: a demerger falls outside this exception — liability there is assessed separately under the Commercial Code (Art. 178), and importing Article 6's two-year cap into it is a mistake. Article 6 also does not apply where the workplace changes hands through the liquidation of assets due to bankruptcy.

8. Sham Transfers: The Visible Structure Is Tested in the Storm Transfers engineered to escape employment claims, lacking economic reality, do not survive judicial scrutiny. Where a transfer is found to be a sham (muvazaa), liability is determined by the true position rather than the apparent structure. Transfers to hollowed-out companies, in particular, produce no effect as against creditor employees.

9. Pre-Transfer Checklist (HR Due Diligence) - Clarify the deal structure: share deal or asset deal? Does Article 6 apply? - Quantify the severance exposure: model the transferor's cap using pre-transfer periods and the wage level at the transfer date. - Scan matured claims: wages, overtime, holiday pay — joint liability and the two-year window. - List pending litigation and mediation files. - If a collective bargaining agreement exists, review its scope, term and competence status. - Audit subcontractor structures and sham-arrangement risk. - Reflect findings in price and in warranty/indemnity clauses; put the post-closing compliance plan in writing.

10. Conclusion As regards employee rights, a transfer of undertaking is not governed by a single rule but by a liability map that varies with the type of claim. That the two-year cap does not apply to severance, that notice pay and leave pay sit solely with the transferee, and that a share deal falls outside Article 6 — these three details change the number in most transfer files. The compass must be set when the offer is being prepared, not after closing. Once the legal map of the transfer is drawn correctly, employment risk stops being a surprise and becomes a negotiable line item.

_This content is for general information only and does not constitute legal advice. For a specific transfer, due diligence process or employment claim dispute, we recommend consulting a lawyer specialized in employment law._