What Is a Mutual Termination Agreement? What Are Its Requirements?

Although a mutual termination agreement provides the parties with the opportunity to terminate the employment relationship by mutual agreement, it may have significant consequences regarding severance pay and notice pay, the right to reinstatement, unemployment benefits, income tax, and Social Security Institution (SSI) procedures. Therefore, the ikale process should be conducted by considering not only the text of the agreement but also the reason for terminating the employment relationship, the parties' genuine intentions, and the payments to be made.

What Is a Mutual Termination Agreement?

A mutual termination agreement is a contract that enables an ongoing employment contract to be terminated by the joint decision of the employee and the employer. In labor law, this is also described as mutual termination or an agreement to terminate by mutual consent (bozma sözleşmesi).

Labor Law No. 4857 does not contain a separate and detailed regulation concerning mutual termination agreements. Ikale is assessed within the framework of freedom of contract and the general principles of the Law of Obligations. Due to the positions of the parties in the employment relationship, Court of Cassation case law also plays an important role in determining the conditions for validity.

When an employment contract is terminated by the employer, the employer makes a unilateral declaration of intent, whereas in the case of an employee's resignation, the employee expresses the intention to terminate the employment relationship. In an ikale, however, both parties must agree to terminate the employment relationship.

This distinction is important. This is because, under a valid mutual termination agreement, the employment relationship generally ends through the parties' agreement rather than unilateral termination. Accordingly, the consequences of the rules governing unilateral termination may not apply directly in relation to job security, compensation, and unemployment benefits.

What Are the Validity Requirements for a Mutual Termination Agreement?

The validity of a mutual termination agreement does not depend solely on the parties signing the agreement. Particularly because the employee is in a weaker position than the employer, mutual termination agreements are carefully assessed during judicial review.

The main factors considered in assessing validity are as follows:

Mutually Consistent Intentions of the Parties

The employee and the employer must share the same intention to terminate the employment contract by mutual agreement. An employee's declaration of an intention to resign, the employer's notification of a termination decision, or a unilateral statement by either party does not automatically constitute a mutual termination agreement.

For an ikale to be established, an offer to terminate the employment relationship by mutual agreement must be accepted.

Employee's Free Willl

A mutual termination agreement must not be signed under pressure, threats, deception, or other circumstances that impair the employee's free will. For example, pressuring an employee to sign the agreement immediately or creating the impression that the employee will face unlawful consequences if they do not accept the agreement calls the validity of the agreement into question.

The fact that the agreement is in writing does not, by itself, prove that the employee acted of their own free will. The manner in which the mutual termination negotiations were conducted, the parties' statements, and the circumstances of the case are assessed together.

Consideration of the Employee's Reasonable Benefit

In Court of Cassation case law, when assessing the validity of an ikale, consideration is also given to whether the employee has a reasonable benefit in accepting the agreement.

In assessing reasonable benefit, consideration is given to which party initiated the mutual termination proposal, the employee's length of service, their status under job security provisions, the financial or other benefits provided to them, and the circumstances of the specific case.

Clarity of the Agreement Terms

The mutual termination agreement should clearly specify the date on which the employment relationship will end, the payments to be made, and the matters on which the parties have agreed.

In particular, distinguishing between wages, unused annual leave, payments corresponding to severance pay and notice pay, and additional mutual termination compensation is important for payroll and legal assessment.

What Is Reasonable Benefit in a Mutual Termination Agreement?

Reasonable benefit refers to assessing whether the benefit obtained by the employee in exchange for agreeing to terminate the employment contract by mutual agreement is sufficient and meaningful in light of the circumstances of the specific case.

The principle of reasonable benefit in mutual termination agreements is important in preventing employers from rendering job security provisions ineffective through unilateral termination. Reasonable benefit does not necessarily mean paying a specific number of months' wages in every case. The Labor Law does not prescribe a fixed additional compensation rate or amount applicable to all mutual termination agreements.

In Court of Cassation practice, particular consideration is given to which party initiated the mutual termination proposal when assessing reasonable benefit.

When the Mutual Termination Proposal Comes from the Employer

If the employer proposes terminating the employment contract by mutual agreement, it becomes important to assess why the employee accepted the agreement and what benefits they obtained.

In employer-initiated mutual termination agreements, providing an additional benefit alongside amounts corresponding to severance pay and notice pay may be an important factor in assessing reasonable benefit.

However, the existence of an additional payment does not, by itself, mean that the agreement is valid in every case. The employee's free will and the other conditions of the agreement are assessed separately.

When the Mutual Termination Proposal Comes from the Employee

When the mutual termination proposal comes from the employee, the benefits the employee obtains from the termination of the employment contract may be assessed differently. However, the determining factor is not merely that the proposal is documented as having come from the employee, but that the request for mutual termination genuinely reflects the employee's free will.

In practice, where an employee requests the termination of the employment relationship by mutual agreement for personal or family reasons, the employer's payment of amounts corresponding to severance pay and notice pay, to which the employee would not normally be entitled if they resigned, may be taken into consideration when assessing whether sufficient benefit has been provided to the employee. In such cases, an additional payment equivalent to a specific number of months' wages is not mandatory in every case.

Nevertheless, the existence of a written request from the employee does not, by itself, prove that the proposal genuinely originated from the employee. Particularly where a request prepared by the employer is presented to the employee for signature, which party actually initiated the process and the employee's genuine intention must be assessed in light of the circumstances of the specific case.

Therefore, when assessing the validity of a mutual termination agreement, the genuine origin of the proposal, the employee's free will, and the benefits obtained as a result of the agreement must be considered together.

How Is a Mutual Termination Agreement Concluded?

The mutual termination process must be conducted in a manner that reflects the genuine agreement between the employee and the employer. In practice, the process begins when one of the parties proposes terminating the employment contract by mutual agreement. If the proposal is accepted, the employment termination date, payments to be made, and other conditions are determined.

It is particularly important for the agreement to clearly address the following matters:

• Identifying details of the employee and employer, including relevant names and titles
• Information concerning the employment contract to be terminated
• Scope of the mutual termination proposal and mutual agreement
• Date on which the employment relationship will end
• Status of wages and other employment-related amounts owed to the employee
• Payment items corresponding to severance pay and notice pay
• Additional mutual termination compensation and other benefits, if any
• The amount, nature, and due date of each payment
• Other obligations of the parties and contractual provisions

Preparing the mutual termination agreement in writing is important for determining the scope of the agreement and providing evidence in any subsequent dispute.

However, a written agreement must still satisfy the other requirements for legal validity.

Are Severance Pay and Notice Pay Paid Under a Mutual Termination Agreement?

Since the employment relationship does not end through unilateral termination under a valid mutual termination agreement, entitlements to severance pay and notice pay do not arise automatically as they would in the case of unilateral termination. Nevertheless, the parties may agree in the mutual termination agreement to pay amounts corresponding to severance pay and notice pay.

Particularly in employer-initiated mutual termination agreements, these amounts and additional benefits are important in assessing the employee's reasonable benefit. The following distinction should be made when determining payments under an ikale:

• Payment corresponding to severance pay: The amount determined in the parties' agreement by taking the employee's length of service into consideration.
• Payment corresponding to notice pay: The payment agreed upon based on the amount relating to the notice period that could arise if the employment contract were terminated through unilateral termination.
• Additional mutual termination compensation: The additional financial benefit determined by the parties under the mutual termination agreement.

It is important to present these payments as separate items in the agreement. This is because, when assessing payments for income tax and SSI purposes, consideration is given not only to the name used in the agreement but also to the actual legal nature of the payment and the relevant legislation.

How Much Should Additional Compensation Be Under a Mutual Termination Agreement?

There is no fixed statutory rate applicable to all employees for additional compensation payable under mutual termination agreements. For example, there is no general statutory provision requiring an additional payment equivalent to three, four, or six months' wages under every mutual termination agreement.

The adequacy of the additional benefit is assessed by considering which party initiated the proposal, the employee's length of service, wage level, job security coverage, the circumstances surrounding the termination of the employment relationship, and other benefits.

Therefore, rather than calculating compensation solely on the basis of a specific number of months' wages, all the conditions of the mutual termination agreement must be examined together.

Particularly in employer-initiated mutual termination processes, it is important to assess the rights the employee might have in the event of unilateral termination and the characteristics of the specific case before determining the additional payment.

What Happens to Annual Leave and Other Amounts Owed to the Employee Under a Mutual Termination Agreement?

Terminating an employment contract through an ikale does not automatically eliminate employment-related amounts owed to the employee that the employee has earned during their period of employment but that have not yet been paid. Unpaid wages, earned incentive payments and bonuses, overtime pay owed, and other wage-related entitlements must be assessed within the framework of the relevant conditions.

Furthermore, if there are unused periods of paid annual leave on the date the employment contract ends, the corresponding payment is to be assessed under Article 59 of Labor Law No. 4857.

It is important that employers do not confuse the additional compensation agreed upon under an ikale with wage and annual leave payments to which the employee was previously entitled.

How Is Income Tax Calculated Under a Mutual Termination Agreement?

When taxing payments made under a mutual termination agreement, Article 25, paragraph 1, subparagraph (7) of Income Tax Law No. 193 and the relevant regulations are taken into consideration.

The Law provides that compensation payments made under an ikale or mutual termination agreement after the termination of an employment contract are to be assessed together with the exemption limit applicable to severance pay.

Within this scope, severance pay calculated in accordance with the relevant legislation and additional compensation payments made under an ikale are considered together for the purposes of the income tax exemption. The exemption limit applicable to severance pay cannot be applied separately to each payment item made under an ikale.

The employee's length of service and the legislation applicable to them are taken as the basis for determining the total amount covered by the exemption. Income tax is withheld from amounts exceeding the exemption limit that must be taxed as wages. On the other hand, payments in the nature of notice pay and items such as wages and unused annual leave payments must be assessed separately for tax purposes.

Therefore, recording the total payment amount agreed upon under an ikale as a single compensation item in payroll may not produce accurate results.

Is All Mutual Termination Compensation Exempt from Income Tax?

No. Not all payments made under an ikale are automatically exempt from income tax. For the income tax exemption to apply, the nature of the payment, the relevant statutory conditions, and the exemption limit assessed together with severance pay must be taken into consideration.

Additional compensation amounts exceeding the exemption limit and other payment items subject to income tax are taxed within the framework of the relevant provisions.

Are Payments Under a Mutual Termination Agreement Subject to Social Security Contributions?

Whether payments made under an ikale are subject to social security contributions is assessed based on their legal nature rather than their designation. Pursuant to Article 80 of Social Insurance and General Health Insurance Law No. 5510, wages and wage-related payments are generally included in the social security contribution base, while certain compensation payments and other payments specified in the Law are excluded from the social security contribution base.

Under SSI practices, severance pay, notice pay, and certain lump-sum payments in the nature of severance pay are considered outside the Social Security Contribution Base.

Conversely, wages, unused annual leave payments, and other wage-related payments may be included in the social security contribution base. When determining whether an additional amount paid under an ikale is subject to contributions, it must be examined whether the payment is genuinely in the nature of compensation and whether it falls within the scope of the exemption provisions under Law No. 5510.

Therefore, it would not be correct to automatically consider a payment exempt from income tax as also exempt from social security contributions. Both obligations are assessed under separate legislative provisions.

How Is the SSI Employment Termination Notification Submitted Under a Mutual Termination Agreement?

When the employment relationship ends through a mutual termination agreement, the employer's obligations regarding the SSI employment termination notification continue. For insured employees covered by Article 4/a, the employment termination notification must, as a general rule, be submitted within ten days following the termination of insurance coverage.

When reporting the reason for employment termination, the legal nature of the ikale must be taken into consideration. An employment relationship terminated by mutual agreement should not be treated as an employer-initiated termination or employee resignation solely because of the payment made.

Code 22 – Other Reasons, which is among the SSI employment termination reason codes, may be considered in practice for employment relationships terminated through a genuine ikale. Nevertheless, the code to be used must be determined within the framework of the actual nature of the specific case and the SSI regulations in force on the notification date.

Reporting an incorrect reason for employment termination may lead to disputes regarding unemployment benefits and other procedures.

Can an Employee Who Leaves Employment Under a Mutual Termination Agreement Receive Unemployment Benefits?

It cannot be stated that an employee who leaves employment under a valid mutual termination agreement becomes entitled to unemployment benefits solely because an ikale has been concluded. Under Unemployment Insurance Law No. 4447, one of the basic conditions for unemployment benefits is that the insured person becomes unemployed involuntarily and through no fault of their own. Other conditions, such as the relevant number of contribution days, employment under an employment contract, and the application period, must also be satisfied.

Since an ikale involves terminating the employment contract by mutual agreement between the parties, entitlement to unemployment benefits generally does not arise in the case of a valid ikale. However, if a dispute arises alleging that a transaction formally arranged as an ikale actually constitutes an employer-initiated termination, the manner in which the employment relationship ended may be subject to legal assessment.

Therefore, for unemployment benefit purposes, consideration must be given not only to the title of the agreement or the employment termination code but also to the actual reason for the termination of the employment relationship.

Can a Reinstatement Lawsuit Be Filed Under a Mutual Termination Agreement?

Since the employment contract is not unilaterally terminated by the employer under a valid mutual termination agreement, the conditions for requesting reinstatement under job security provisions generally do not arise. However, this does not mean that a mutual termination agreement cannot be subject to judicial review under any circumstances.

The employee may claim that the agreement was signed under pressure, that there was no genuine mutual agreement, or that the reasonable benefit requirement was not satisfied. The court assesses the validity of the ikale according to the circumstances of the dispute. If it is concluded that the ikale is invalid and that the employment relationship was actually terminated by the employer, reinstatement provisions may become applicable if the job security requirements are met.

Therefore, the signing of a mutual termination agreement does not absolutely prevent a reinstatement lawsuit from being filed or a legal dispute from arising for the employer.

What Are the Differences Between a Mutual Termination Agreement, Resignation, and Employer-Initiated Termination?

Although an ikale, resignation, and employer-initiated termination may all result in the termination of an employment contract, they differ in their legal nature and consequences.

The consequences stated in this comparison are general in nature. In each specific case, the reason for termination of the agreement and the relevant statutory conditions must be assessed separately.

How Are Mutual Termination Agreements Assessed in Court of Cassation Decisions?

In Court of Cassation decisions, when assessing the validity of mutual termination agreements, particular emphasis is placed on the employee's free will, which party initiated the mutual termination proposal, and the reasonable benefit requirement. In addition, the nature of the additional benefits agreed upon in the contract, the scope of payment obligations, and the interpretation of contractual provisions may also become the subject of disputes.

In the decision of the 9th Civil Chamber of the Court of Cassation dated 8 January 2019, Case No. 2018/4949 and Decision No. 2019/328, attention was drawn to the possibility of job security provisions being rendered ineffective through an ikale. It was stated that reasonable benefit should be assessed by considering the circumstances of the specific case and which party initiated the proposal.

The decision of the 9th Civil Chamber of the Court of Cassation, Case No. 2018/510 and Decision No. 2018/5430, also demonstrates that the mutual termination proposal coming from the employee is important in assessing validity.

Based on these judicial precedents, three main conclusions can be drawn regarding mutual termination agreements:

1. The fact that the agreement has been signed is not, by itself, sufficient for validity.
2. Reasonable benefit is not assessed on the basis of the same amount or criterion in every case.
3. The employee's genuine intention and which party initiated the proposal are important in determining the legal nature of the agreement.

Therefore, it would not be correct for employers to assume that they have ensured the validity of mutual termination procedures by using the same additional payment amount and the same agreement text for all employees.

What Should Employers Consider When Concluding a Mutual Termination Agreement?

Preparing and implementing a mutual termination agreement requires the joint assessment of human resources, legal, and payroll processes. The following matters are particularly important for employers:

• Origin of the proposal: It should be clearly determined whether the mutual termination proposal came from the employee or the employer.
• Free will: The process should be conducted in a manner that ensures the employee does not sign the agreement under pressure and can evaluate its consequences.
• Reasonable benefit: The benefits to be obtained by the employee should be determined by considering the characteristics of the specific case and the relevant Court of Cassation case law.
• Separation of payment items: Wages, annual leave payments, amounts corresponding to severance pay and notice pay, and additional mutual termination compensation should be distinguished from one another.
• Tax and SSI assessment: The nature of each payment item should be examined separately in terms of income tax, stamp tax, and social security contributions.
• Employment termination notification: SSI notifications should be submitted according to the actual reason for termination of the employment relationship.
• Documentation: The mutual termination proposal, the parties' agreement, the contract, payment records, and relevant documents should be retained in an orderly manner.

Focusing solely on determining the total payment to be made on the employment termination date under mutual termination agreements may lead to subsequent legal and financial disputes. Therefore, agreement preparation and payroll calculations must be conducted consistently with one another.

Frequently Asked Questions About Mutual Termination Agreements

Is it mandatory to sign a mutual termination agreement?

No. A mutual termination agreement is based on mutual consent. Neither the employee nor the employer can unilaterally force the other party to sign a mutual termination agreement. If either party does not accept, a mutual termination agreement is not established.

Can the validity of a mutual termination agreement be challenged after it has been signed?

Yes. The fact that a mutual termination agreement has been signed does not mean that it is legally valid under all circumstances. If it is claimed that the employee's free will was impaired by factors such as pressure, threats, or deception, or that the conditions for the validity of the agreement were not met, the validity of the mutual termination agreement may be subject to judicial review. However, one party subsequently changing their mind is not, by itself, sufficient for the agreement to be deemed invalid.

Is it mandatory to pay additional compensation under a mutual termination agreement?

There is no fixed additional compensation obligation prescribed by law for every mutual termination agreement. Nevertheless, particularly in employer-initiated mutual termination agreements, the additional benefit provided to the employee may be important in assessing reasonable benefit. Adequacy is determined according to the circumstances of the specific case.

Can a mutual termination agreement be concluded for fixed-term employment contracts?

As a general rule, an ikale may be used to terminate fixed-term or indefinite-term employment contracts by mutual agreement. However, different legal consequences may arise when assessing the type of contract, termination conditions, and the parties' interests.

Should payments under a mutual termination agreement be determined on a net or gross basis?

The parties may agree on a net or gross basis when determining payment amounts. However, the nature of the payment items, applicable tax and social security deductions, and the net amount to be paid to the employee should be set out in the agreement in a manner that does not create uncertainty. In the case of net payment commitments, it is important to calculate the employer's cost separately.

Is it valid for an employee to waive all their rights under a mutual termination agreement?

General waiver or release statements included in a mutual termination agreement do not mean that all the employee's rights automatically cease to exist. The conditions set out in Article 420 of the Turkish Code of Obligations No. 6098 must also be taken into consideration regarding the release of employment-related amounts owed to the employee. A mutual termination agreement and a release agreement are different legal transactions.

Conclusion

A mutual termination agreement is a method that enables an employee and an employer to terminate an existing employment contract by mutual agreement. However, the legal validity of this method depends not only on the parties' signatures but also on their genuine and free intentions, the conditions of the agreement, and the assessment of the employee's reasonable benefit.

It is important to distinguish payments made under an ikale in terms of severance pay and notice pay, additional compensation, wages, and annual leave payments; to correctly assess income tax and SSI practices; and to carry out employment termination procedures according to the actual nature of the agreement.

Therefore, addressing mutual termination processes jointly through human resources, legal, and payroll teams is crucial both for protecting employees' rights and for properly managing employers' legal and financial obligations.