Abstract
Penalty clauses imposed in employment contracts executed between private schools and teachers are evaluated within the framework of obligations law, labor law, and legislation regarding private education. This article aims to set forth the necessary conditions for the enforceability of such clauses in teacher contracts, clarify their limitations, and provide a practical assessment in light of recent decisions by the Turkish Court of Appeal (Yargıtay).
- Introduction
Private educational institutions execute various employment contracts with teachers as service providers. In cases of breach, parties may include predetermined penalty clauses to compensate for potential damages. However, the enforceability of such clauses is not absolute; judicial authorities assess their validity based on statutory limitations, the nature of the contract, and the status of the parties involved.
- Nature of Penalty Clauses
Pursuant to the general provisions of the Turkish Code of Obligations Numbered 6098 (“TCO”), a penalty clause allows the creditor to claim a fixed amount of compensation without proving damages if the debtor fails to perform or improperly performs their obligation.
In the 9th Civil Chamber of the Court of Appeal’s decision dated 09.12.2024 and numbered E.2024/13678, K.2024/15917, the claimant, a music teacher, argued that their departure caused no actual loss to the private institution since a new music teacher was hired shortly thereafter. Nonetheless, the Court upheld the existence of the penalty clause, regardless of whether the institution had suffered tangible damages.
However, under the article 420 of TCO, unilateral penalty clauses imposed solely on the employee in employment contracts are explicitly deemed invalid. Therefore, any attempt to incorporate such clauses in contracts with private school teachers must ensure a fair balance of obligations.
- Conditions for Valid Penalty Clauses in Teacher Contracts at Private Schools
3.1. The Contract Must Be for a Definite Term
According to the Private Education Institutions Law Numbered 5580 (“PEIL”), private schools are required to execute employment contracts with teachers for a minimum term of one (1) year. Accordingly, definite-term contracts may validly include penalty clauses despite the restrictive nature of the article 420 of TCO, which is primarily aimed at indefinite-term employment contracts.
It should be noted that the Court of Appeal has adopted the view that even in cases where employment contracts concluded between private educational institutions and teachers are renewed consecutively, such renewal is deemed to arise from the law, and the contract retains its nature as a fixed-term employment contract (See: 22nd Civil Chamber of the Court of Appeal’s decision dated 11.12.2018 and numbered E.2016/614, K.2018/26911).
Furthermore, the penalty clause becomes effective upon the signing of the contract. At this point, it is not required that the teacher has commenced performance of services for the upcoming academic period. Pursuant to the 9th Civil Chamber of the Court of Appeal’s decision dated 04.12.2019 and numbered E.2017/13709, K.2019/21737, in a case where the employee signed a contract for the 2013–2014 academic year with a start date of 01.09.2013 and an end date of 31.08.2014, but submitted a letter to the institution one day after signing stating that they would work for another institution instead, the court ruled in favor of the employer and upheld the penalty clause, subject to a reasonable judicial reduction.
3.2. The Clause Must Impose Reciprocal Obligations
In the decisions of the Court of Appeal, it is emphasized that for a penalty clause to be valid, unilateral provisions that increase the burden solely on one party must be avoided. If the penalty clause is stipulated for both the employer and the teacher, a balance is established between the parties. Such bilateral arrangements are deemed valid by the Court of Appeal.
At this point, in the 22nd Civil Chamber of the Court of Appeal’s decision dated 14.01.2020 and numbered E.2017/26725, K.2020/185, evaluated the penalty clause incorporated into the employment contract within the scope of the principle of equality between the parties. In the decision, it was stated that, against the teacher, the contract included the following provision:
“Following the signing of this contract or during the academic year, under no circumstance may the teacher disrupt their actual service due to retirement, marriage, spousal relocation, transition to a public institution, custody arrangements, or any other reason whatsoever; the continuity of education arising from the Law must not be interrupted, and this contract may not be terminated in a manner that takes effect during the term of the contract. The personnel who violate this article shall be deemed to have accepted in advance to pay the employer a fixed compensation equal to ten times their last gross monthly salary.”
In contrast, for the private educational institution, it was stipulated that:
“In parallel with this provision, the employer also accepts to pay the teacher a fixed compensation equal to ten times the teacher’s last gross monthly salary in the event that the teacher is dismissed without any reason after the signing of the contract and during the academic year.”
The Court of Appeal found that obliging the teacher to pay a penalty regardless of the reason for terminating the contract, while allowing the employer to terminate it without any justification, violated the principle of equal treatment.
3.3. The Clause Must Be Proportional and Reasonable
The amount stipulated as a penalty must be based on concrete factors, particularly the employer’s investment in the teacher or the training provided to them, and must be kept at a reasonable level. Otherwise, if the penalty is deemed “excessive,” it may be subject to judicial reduction under Article 182 of the TCO.
At this point, it is observed that courts apply different rates of reduction to the penalty amount depending on the circumstances of the individual case. Indeed, in contracts belonging to the same private educational institution that were the subject of decisions by the 22nd Civil Chamber of the Court of Appeal, different rates of reduction were applied to similar penalty clauses depending on the teacher involved. In one case, a 40% reduction was applied to the penalty amount; in another case, the court reduced the amount by 50%, citing reasons such as the academic year not yet having started, the employer not facing significant difficulty in replacing the teacher, and the employee not suffering severe economic hardship.
On the other hand, in the 22nd Civil Chamber of the Court of Appeal’s decision dated 15.06.2020 and numbered E.2020/1896, K.2020/6750, ruled that a 75% reduction in a penalty amount equal to six times the gross salary was so excessive as to impair the substance of the right.
Similarly, in the 9th Civil Chamber of the Court of Appeal’s decision dated 21.05.2019 and numbered E.2019/3968, K.2019/11676, overturned the lower court’s ruling, finding that the reduction of a penalty clause originally set at 24 times the teacher’s gross salary to merely twice the salary was excessive.
In light of all these decisions, it is understood that the Court of Appeal determines the appropriateness of reductions in penalty clauses by considering factors specific to each case, such as the employee’s salary, length of service, and the nature of the work.
- Sample of the Penalty Clause
Below is a sample penalty clause for use in definite-term employment contracts with teachers, designed in accordance with applicable laws and court precedents:
“The Parties agree that this employment contract shall remain in force until [date] as a definite-term contract. Should either party terminate this contract unilaterally before its expiration without valid or justified cause, the terminating party shall pay the other party a penalty equal to gross [amount] Turkish Lira.
This clause aims to compensate for the employer’s investments in training and planning, and to prevent unjust economic hardship for the teacher.
The Parties acknowledge that this clause does not impose a unilateral burden on the employee under the article 420 of the TCO, has been mutually agreed upon, is reasonable in amount, and is applicable due to the definite-term nature of the employment.”
- Conclusion
Although the application of penalty clauses in private schools is permissible within the boundaries of the principle of freedom of contract, such clauses are deemed valid only if certain conditions are met. In the context of teacher employment contracts, the validity of penalty clause provisions is based on three essential criteria: the contract must be for a definite term, the clause must impose reciprocal obligations, and the stipulated amount must be reasonable.
In conclusion, while penalty clauses are intended to compensate for damages arising from breaches of contract, they must be assessed individually in each case within the framework of legal certainty and the principles of equity, taking into account the specific circumstances involved.
Sincerely,
DT Law