AT THE INTERSECTION OF CORPORATE AND EMPLOYMENT LAW: PRINCIPAL EMPLOYER – SUB-EMPLOYER RELATIONSHIPS AND LEGAL RISK MANAGEMENT – 1. The Concepts of Principal Employer and Sub-Employer (Subcontractor) in Employment Law and the Constitutive Conditions

Known in practice as "subcontracting" and in legal terminology as the principal employer–sub-employer relationship, this arrangement is governed by Article 2, paragraph 6 of Employment Law No. 4857.

Under the statutory definition, a "sub-employer" is the employer who takes on work from another employer in the auxiliary tasks relating to the production of goods or services carried out at the workplace, or in a part of the principal work, and who employs the workers assigned to that work solely at that workplace.

For this relationship to arise validly in law, the principal employer must continue to employ its own workers at that workplace; the sub-employer taking over the work must actually exercise the capacity of employer and possess an independent organisational structure. These factors are significant in assessing whether the relationship is legally valid.

In addition, the sub-employer's registration notifications to the relevant institutions (the Ministry of Labour and Social Security / İŞKUR) and the fact that the sub-employer's worker is not being employed in another employer's work during that period also play a critical role in the validity of the relationship.

The validity of the relationship is subject to a twofold distinction according to the nature of the work transferred. "Auxiliary tasks" relating to the production of goods or services carried out at the workplace may be transferred to a sub-employer without any requirement of technological expertise.

However, for "a part of the principal work" constituting the employer's main field of activity to be transferred to a sub-employer, it is a statutory requirement that the work transferred must necessarily be work requiring expertise for reasons arising from the enterprise and the nature of the work, and for technological reasons. The principal work may not be divided and given to a sub-employer merely in order to reduce costs or to shed personnel burdens.

That the sub-employer employs its workers within the organisation required by the work taken on from the principal employer, and within the scope of that work, is significant in determining the legal nature of the relationship. Nevertheless, the assignment of a worker to different workplaces or projects should not on its own be accepted as an absolute criterion altering the nature of the relationship; all the circumstances of the particular case must be assessed together.

Failure to satisfy these statutory conditions gives rise to serious problems as to the validity and legal nature of the relationship, and may, depending on the features of the particular case, bring an allegation of collusion (muvazaa) into play.

Conclusion for Companies: When establishing a principal employer–sub-employer relationship, it is essential that the operation be structured within statutory limits. Correctly determining at the outset whether the work is an auxiliary task or principal work requiring expertise, and preserving the sub-employer's own independent employer capacity, allows you to lay sound foundations for the relationship.