ABSTRACT
The prohibition of competition serves as a regulation designed to safeguard the interests of individuals involved in a legal relationship. Consequently, the freedom to compete is restricted in order to prevent harm to the rights of others.
I. INTRODUCTION
The duty of loyalty, as stipulated in our legislation, forms the foundation for the prohibition of competition. Within commercial companies, the board of directors’ members hold the responsibility of safeguarding trade secrets and confidential company information essential for managing and representing the organization. Consequently, the Turkish Commercial Code No. 6102 (“TCC”)1 explicitly incorporates the prohibition of competition. In joint stock companies, a board member is restricted from engaging in any commercial venture, either individually or on behalf of another party, within the company’s field of operation, without the explicit consent of the general assembly. Moreover, they are prohibited from becoming a partner with unlimited liability in a company involved in the same type of commercial enterprise.
If a member of the board of directors violates the prohibitions set forth in the law without obtaining the general assembly’s permission, various sanctions may be imposed in addition to seeking compensation from the board member, as specified in the legislation. These measures include treating the transaction as if it were conducted on behalf of the company, demanding that any benefits resulting from contractual relationships made on behalf of third parties be returned to the company, as well as actions such as the removal or dismissal of the board member, requesting an interim injunction, and seeking penalties. Although these measures are not explicitly stated in the legislation, they are recognized in the doctrine concerning joint stock companies.
In such cases, the other members of the board of directors, excluding the member who committed the violation, are required to submit an application to the commercial courts of first instance located in the jurisdiction where the joint stock company operates, or to the civil courts of first instance if there are no commercial courts available. This application must be made within three months from the date they became aware of the violation, or within the statutory limitation period of one year from the date of the violation in question, whichever comes first.
Our article encompasses the regulation of non-competition in Turkish law. It involves an in-depth examination of the concept of non-competition, its relationship with similar concepts, and its relevance within the framework of commercial companies. Specifically, we will focus on the prominence of non-competition in joint stock companies and provide detailed analysis on the individuals subject to the prohibition of competition within this context. Furthermore, we will explore the effects of the prohibition of competition on these individuals. Upon analyzing the individuals subject to the prohibition, we will narrow our scope to members of the board of directors. This will involve studying the impact of the prohibition of competition on board members, the rationale behind imposing this prohibition on them, and the circumstances in which the prohibition is applied in the context of their relationship with the joint stock company.
To ensure that the prohibition of competition does not infringe upon the constitutionally guaranteed freedom to compete, we will outline the restrictions placed on this prohibition. These restrictions will be categorized into three sections: subject, duration, and location. Additionally, we will provide an explanation for the reasons behind these restrictions. The study will also cover the sanctions that may be imposed in cases of non-compliance with the prohibition of competition, as dictated by relevant Turkish legislation. We will include information on the statute of limitations concerning these sanctions.
II. THE NOTION OF NON-COMPETITION
A. Scope of Non-Competition
In our legal framework, non-competition is categorized into two types: statutory non-competition and contractual non-competition. It serves as an obligation aimed at preventing unfair advantages. This prohibition is based on principles of honesty and the duty of loyalty, aiming to prevent individuals operating within the same industry as a company from engaging in unlawful competition against one another. The obligation of non-competition arises due to the potential misuse of trade secrets, information, and documents that are confidential to the company, which would violate the duty of loyalty. As a result, individuals authorized to access such information and documents are subject to non-competition.
Non-competition agreements can be established between employees and employers, and non-competition clauses can be included in agreements between joint stock companies and their board members. By doing so, contractual non-competition can be addressed in addition to the non-competition obligations imposed by law2.
B. Purpose of Non-Competition
The purpose of prohibiting competition is to establish fair and ethical competition within the realm of commercial activities, ensuring that it does not exceed reasonable limits and transform into unfair practices. The concept of non-competition arises to prevent competition between individuals in a legal relationship from devolving into unfair competition. The prohibition of competition serves as a regulation designed to safeguard the interests of individuals involved in a legal relationship. Consequently, the freedom to compete is restricted in order to prevent harm to the rights of others.
The primary objective of the regulations pertaining to non-competition is to prevent the negative consequences that may arise from the misuse of information and authority obtained by the parties involved through their relationship. It is crucial to implement the prohibition of competition in a balanced manner, ensuring the preservation of the benefits derived from the freedom to compete. Excessive restrictions imposed within the realm of non-competition can potentially undermine the very competitive dynamics that the prohibition seeks to protect. Thus, striking a proportionate balance is vital to safeguard the intended competitive relationship3.
C. Relationship of Non-Competition with Similar Concepts
1. Relationship with Unfair Competition and Competition Law
While the prohibition of competition entails the obligation to refrain from competing, the concept of unfair competition seeks to establish a fair and fraud-free competitive environment by guiding individuals towards ethical competition. Both concepts share the common goal of regulating competition. Unfair competition encompasses general rules applicable to all, whereas the prohibition of competition specifically focuses on individuals who are subject to the prohibition.
Competition law, in contrast, aims to protect the competitive framework by fostering a free and fair environment for competition. In comparison to the prohibition of competition, where the focus is on protecting individual interests, competition law aims to preserve competition itself, thereby addressing broader societal interests4. The regulations pertaining to competition law are obligatory and, unlike the prohibition of competition, they are essential for maintaining public order5.
2. Relationship with the Duty of Loyalty and Obligation to Maintain Confidentiality
The duty of loyalty is a concept enshrined in the Turkish Code of Obligations No. 6098 (“TCO”)6, which encompasses an employee’s obligation to remain loyal to their employer and workplace, acting in the employer’s and workplace’s best interests. It serves as the foundation for the prohibition of competition, extending beyond solely the prohibition itself. Similar to the prohibition of competition, the obligation to maintain confidentiality is one of the obligations that falls within the scope of the duty of loyalty. However, the duty of loyalty is a comprehensive concept that extends beyond these two specific obligations, yet it forms the basis for both of these concepts7.
D. Non-Competition in Turkish Legislation
1. The Place of Non-Competition in the Turkish Code of Obligations
Non-competition is governed by both the Turkish Commercial Code (TCC)8 and the Turkish Code of Obligations (TCO)9. Apart from non-competition provisions in the legislation, parties also have the option to include contractual non-competition clauses. The prohibition of competition under the Code of Obligations is applicable to various types of relationships, including general partnerships, employees, commercial agents, and other assistants to merchants. Within the framework of the Turkish Code of Obligations, the prohibition of competition can be examined under two distinct categories: service contracts and power of attorney contracts10.
a. Service Contracts
The prohibition of competition within the framework of a service contract is designed to prevent any economic harm to the employer, in accordance with the obligation of loyalty derived from the principle of honesty. This obligation arises from the contractual dependency between the employer and the employee, and is regulated by Article 396/1 of the TCO titled “Obligation of Diligence and Loyalty.” The article states, “The employee is obliged to diligently perform the work undertaken and to act loyally in protecting the rightful interests of the employer.”
The obligation of loyalty, as defined in the law, encompasses various specific obligations such as maintaining confidentiality, refraining from competing, delivering and accounting, and working overtime11. The non-competition obligation, which is one of these specific cases, is specifically addressed in the third paragraph of the same article. It states, “As long as the employment relationship continues, the employee may not provide services to a third party for a fee in violation of the duty of loyalty, and particularly may not compete with their own employer.”
In accordance with this provision, it is considered a breach of the duty of loyalty for an employee to engage in competition with their employer while the employment relationship is ongoing. The concept of “engaging in competition” in this provision encompasses actions such as providing services or offering to provide services in the same field as the employer, and forming a business partnership with a competitor of the employer.
Following the termination of the employment relationship, the employee’s duty of loyalty is replaced by the obligation of confidentiality, which is regulated under Article 396/4 of the TCO. The article states: “During the employment relationship, the employee is prohibited from using or disclosing information obtained during their employment, including trade secrets and business practices, for their own benefit or to third parties. Even after the termination of the employment relationship, the employee is obliged to maintain confidentiality to the extent necessary for protecting the employer’s legitimate interests.” The non-competition obligation, which is encompassed within the duty of loyalty, ceases to apply once the employment relationship ends. Subsequently, the employee is entitled to exercise the freedom to compete within the framework of their obligation to maintain confidentiality, preserving the employer’s trade secrets and confidential information even after the termination of the employment relationship12.
b. The Contract of Mandate
The contract of mandate, similar in nature to a service contract, entails obligations for both parties and involves the performance of specific tasks. Regulated under Article 502 of the TCO, the contract of mandate is defined in the first paragraph of the said article as follows: “A contract of mandate is an agreement whereby the agent undertakes to carry out an act or perform a transaction on behalf of the principal.”
The contract of mandate establishes a relationship of trust between the parties, forming the basis for the agent’s duty of loyalty towards the principal. In this context, the agent is obliged to safeguard the interests of the principal. Similar to the service contract, the duty of loyalty in the contract of mandate encompasses obligations such as confidentiality, avoidance of conflicts of interest, disclosure, and non-competition13. These obligations are grounded in the principle of honesty. Article 506/2 of the TCO specifically imposes the duty of loyalty on the agent, stating: “The agent is obligated to carry out the works and services undertaken with loyalty and diligence, while observing the rightful interests of the principal.”
Furthermore, the concept of the contract of mandate can also be applied to the legal relationship between a board member and a company. In this context, the board member assumes the role of an agent and is obliged to act in the best interests of the company14.
2. The Place of Non-Competition in the Turkish Commercial Code
The Turkish Commercial Code encompasses the regulation of non-competition for various entities, including joint stock companies, limited liability companies, commercial companies, and agencies. The individuals subject to non-competition within these entities are specifically identified in the respective articles of the applicable laws. The prohibition of competition, as prescribed within the legislative framework, remains in effect until the termination of the legal relationship between the parties.
The provisions regarding non-competition are not obligatory, and this type of prohibition, known as statutory non-competition, imposes restrictions on the freedom to compete and engage in work activities15. The prohibition is characterized by two significant features: its non-mandatory nature and its narrow interpretation. As the freedom to compete and participate in commercial activities constitutes a fundamental right with constitutional safeguards, the prohibition imposed by the law on competition is exceptional in nature. To safeguard the constitutionally guaranteed rights of individuals, this prohibition must be interpreted restrictively16. In contrast, the prohibition of competition, which may be mutually agreed upon in a contract, can persist even after the termination of the relationship between the parties17.
III. INDIVIDUALS SUBJECT TO NON-COMPETITION IN JOINT STOCK COMPANIES
Article 396 of the TCC, which addresses the topic of non-competition, outlines the specific provisions regarding the prohibition of competition in joint stock companies. The opening paragraph of the article states: “A board member may not, without the consent of the general assembly, engage in a commercial business that falls within the company’s field of activity, either individually or on behalf of another person, nor may they become a partner with unlimited liability in a company engaged in the same type of commercial business”18. According to this provision, it is evident that the prohibition of competition in joint stock companies solely applies to members of the board of directors.
The primary objective behind imposing the non-competition obligation on members of the board of directors in joint stock companies is to prevent any potential harm caused by board members who possess extensive knowledge about the company’s operations, management style, trade secrets, customer base, and business prospects during their tenure. By prohibiting competition, it aims to discourage board members from acting in concert with the company they serve on the board, thereby safeguarding the company’s interests19. The prohibition of competition for board members is an inherent aspect of their fiduciary duty. The company has a fiduciary relationship with the members of the board of directors, and the members of the board of directors acting for a common purpose with the company and causing damage to the company will damage this fiduciary relationship20.
Pursuant to the Law, the reason why the members of the board of directors are sub ject to non-competition is their title. The non-competition obligation of the member of the board of directors starts with the acquisition of this title and ends with the loss of this title21. However, if there is a request for the non-competition obligation to continue after the board member loses his/her position as a board member, this may be agreed upon by adding a provision to the articles of association of the company22.
Pursuant to paragraph 2 of Article 359 of the TCC, “If a legal entity is elected as a member of the board of directors, only one real person appointed by the legal entity on behalf of the legal entity shall be registered and announced together with the legal entity; in addition, the fact that the registration and announcement has been made shall be immediately announced on the company’s website”23. It is evident that these appointed individuals, who replace the legal entity, are also bound by the prohibition of competition.
In accordance with Article 363, paragraph 1 of the TCC titled “Vacancy of Membership,” if a vacancy arises in the board of directors for any reason, the remaining board members are responsible for temporarily appointing an individual who meets the legal requirements as a board member24. This temporary appointment is then subject to the approval of the first general assembly meeting. The person elected in this manner serves until the general assembly meeting where their appointment is presented for approval. If approved, they will complete the term of their predecessor. Considering that the temporary board of directors is responsible for fulfilling the term of its predecessor, there is no distinction in terms of the non-competition obligation and the prohibition of competition between the temporary board members and the other members of the board of directors.
According to Article 367, paragraph 1 of the TCC titled “Transfer of Management,” “The Board of Directors has the authority to delegate the management of the company, either wholly or partially, to one or more board members or to a third party. This delegation can be arranged through provisions incorporated in the articles of association and internal directives issued by the board of directors”25. In cases where the management of the company is entrusted to one or more board members or a third party based on the articles of association, the question arises as to whether the individual to whom the management is delegated will be subject to the prohibition of competition.
When the articles of association delegate the management of the company to one or more members of the board of directors, the role of the managing director is established. The managing director, who is both a board member and a shareholder of the company, is unequivocally subject to the prohibition of competition as outlined in Article 335 of the TCC26.
However, since it is not possible for the representation and management of a joint stock company to be carried out by the board of directors and for the board of directors to be continuously informed about the management of the company, especially in large companies, persons who are not even shareholders of the company may be appointed outside the board due to the division of labor for the management and representation of the company. In the event that the management of the company is delegated to a third party by the articles of association, an executive director is referred to. Executive directors are completely different from managing directors, and executive directors are not members of the board of directors, nor are they required to be shareholders of the company27. The issue of whether the executive directors are subject to non-competition is controversial in the doctrine28.
In the doctrine, there is an opinion that executive directors are indeed subject to the prohibition of competition as stipulated in Article 396 of the TCC. According to this perspective, since the board of directors entrusts its powers of representation and management to the executive director, the executive director assumes the role of a board member while carrying out these delegated responsibilities, possessing comparable authority. While exercising this delegated authority, the executive director may have access to the company’s confidential information, trade secrets, and documents, potentially utilizing such information to the detriment of the company. Considering these factors, proponents of this opinion argue that executive directors should be subject to the non-competition obligation outlined in Article 396 of the TCC29.
According to another opinion in the doctrine, Article 553 of the TCO titled “Non-Competition”, which has a narrower scope of application for the executive director who has the authority to manage and represent the company, will be applicable30.
IV. PROHIBITION OF COMPETITION IMPOSED ON BOARD MEMBERS AND THE LIABILITY OF SHAREHOLDERS WITHIN THE SCOPE OF NON-COMPETITION
A. The Reason for Regulating the Prohibition of Competition Imposed on Board Members
In joint stock companies, the members of the board of directors are prohibited from acting in competition with the company due to their knowledge of the company and the obligation of loyalty arising from the existence of a trust-based relationship with the company. Due to his/ her position, a member of the board of directors is privy to the secrets and commercial information of the joint stock company. Pursuant to their duty of loyalty, they must use such information within the framework of the rule of honesty and in a manner that will not lead to unfair competition. Pursuant to Article 396 of the TCC, the activities of the member of the board of directors must not overlap with the areas considered as commercial business in which the joint stock company operates31.
In this context, in order for the activity to be considered within the scope of the prohibition of competition, both the activity of the board member and the activity of the joint stock company must have the characteristics of commercial business. Members of the board of directors may not engage in any commercial business that would fall within the scope of the company’s activity, either on their own account or on behalf of someone else. In addition to the fact that the activity in the nature of commercial business cannot be of the same type, it will not be possible for the board of directors to enter the relevant companies as an unlimited liability partner, to be a founder or manager in the relevant companies within the scope of the prohibition of competition in the relevant fields of activity and in terms of different companies that carry out the said activities on a continuous basis. Participation in property and/or person organizations, particularly associations and foundations, does not violate the aforementioned limitation of competition because it only applies to companies.
There are exceptions to the prohibition of competition for the members of the board of directors. Namely, if the general assembly of the company grants permission to the member of the board of directors, the member of the board of directors may operate in the fields that fall within the scope of the activities of the joint stock company without exceeding the limits of this permission32. Although it is controversial in the doctrine, in the event that the powers of the board of directors are delegated, the prohibition of competition will also arise in terms of the person or persons to whom such powers are delegated. This is because the person to whom the powers of the board of directors are delegated may have as much control over the secrets and commercial information of the joint stock company as the member of the board of directors33. In the event of a breach of the non-competition clause, the company may exercise its optional rights under Article 396 of the TCC against the member of the board of directors who violated the prohibition.
B. The Liability of Shareholders who are not Board Members within the Scope of the Prohibition of Competition
There is no specific regulation regarding the prohibition of competition for shareholders who are not members of the board of directors34. However, within the scholarly discourse, there are opinions suggesting that shareholders have an obligation to maintain confidentiality in this context, stemming from the general duty of loyalty based on the principle of honesty. It should be noted that in joint stock companies, the focus is on the capital rather than the individual shareholder, making it difficult to establish a trust-based relationship between the shareholder and the company through personal actions35. Given the nature of joint stock companies as capital-based partnerships, the contribution of shareholders towards achieving the purpose of the partnership lies in fulfilling their capital obligations. Therefore, when assessing the element of a trustbased relationship, it is essential to examine the specific circumstances, the structure of the partnership, and the shareholders’ relationship with the company36.
The nature of joint stock companies as capital-based partnerships results in shareholders not having a duty of loyalty towards other shareholders or the company, unlike board members. When considering the element of a trust-based relationship, it is crucial to examine the specific circumstances and structure of the partnership on a case-by-case basis. The principle of honesty, as stipulated in Article 2 of the Turkish Civil Code No. 4721, states that “Everyone is obliged to comply with the rules of honesty when exercising their rights and fulfilling their obligations.” imposing a general obligation on everyone to act in accordance with the rules of honesty when exercising their rights and fulfilling their obligations37. The potential obligation of loyalty that may arise from this principle of honesty should be evaluated within the context of specific events. The varying relationships between shareholders and the joint stock company due to the company’s structure contribute to the differing opinions within the doctrine.
V. LIMITS OF NON-COMPETITION
The prohibition of competition is not mandated by law, allowing board members to engage in activities covered by the prohibition with the consent of the general assembly. Transactions undertaken with the permission or authorization of the general assembly must adhere to the limits set by the assembly. If deemed necessary, it is possible to challenge these permissions and authorizations through an action for annulment38.
Limitations on non-competition can be examined under three main categories: subject matter, duration, and location. Each of these aspects plays a significant role in defining the parameters and limitations of the prohibition.
A. Limits in Terms of Subject Matter
The limitation of the prohibition of competition in terms of subject matter pertains to the business activities specified in the company’s articles of association. Engaging as a representative or principal in matters unrelated to these business activities, or in activities that the company does not actively pursue despite being included in the articles of association, does not pose a conflict39.
However, when it comes to activities explicitly mentioned in the articles of association and actively pursued by the company, engaging in similar activities on one’s own behalf or on behalf of another entity would fall under the scope of the prohibition of competition40.
The violation of the prohibition of competition occurs when a board member engages in commercial activities that fall within the company’s field of activity for their personal gain or on behalf of another person. Article 396/1 of the TCC serves as the legal basis for setting the limits of the prohibition in terms of subject matter. This provision states that “A board member may not conduct commercial transactions falling within the company’s field of activity for their personal gain or on behalf of another person. Additionally, they may not become a partner with unlimited liability in a company engaged in the same type of commercial business without obtaining the authorization of the general assembly”. According to this provision, the conditions that need to be fulfilled for the prohibition of competition to apply include the activity falling within the subject matter of the company’s business, the activity being of a commercial nature, and the board member performing the activity on their own or on behalf of another person.
B. Limits in Terms of Duration
The period of non-competition commences upon the assumption of the board membership position and concludes upon the termination of the board membership title. However, this duration can be extended through a contractual non-competition clause. Although Article 396 of the TCC, which governs non-competition, does not explicitly specify the duration of the non-competition, its applicability begins with the acquisition of the board membership title, subjecting the board member to the non-competition obligations towards the joint stock company. Conversely, once the board membership title is terminated, the provisions of the aforementioned article cease to apply, allowing the former board member to compete freely with the joint stock company. If the intention is to prevent competition even after the termination of the board membership title, parties have the option to enter into a non-competition agreement. By doing so, they can restrict the former board member from engaging in competitive activities against the company even after the termination of their membership41.
C. Limits in Terms of Location
The limitation of non-competition in terms of location, similar to the limitation in terms of duration, is not explicitly specified in the law. However, according to scholarly opinions, it is permissible to impose geographic limitations on non-competition. The primary rationale behind this limitation is that if a board member engages in activities within the same industry but outside the geographical areas of the joint stock company’s operations, it does not create a competitive relationship, and therefore does not pose a threat to the interests of the company42.
In this context, the prohibition of competition is limited to the geographic location where the company conducts its commercial operations. Individuals bound by the prohibition may engage in the same commercial activities in locations outside the company’s operational area43. For instance, if the joint stock company’s scope of activity is limited to a district, province, or country, the area of the non-competition prohibition is delimited to that specific region as defined by the field of activity44. Consequently, the board member is prohibited from carrying out identical activities within that designated area. Imposing restrictions on the member’s freedom to compete in an environment lacking any competitive relationship would unduly encroach upon the constitutionally guaranteed freedom to compete, unless justified by a legitimate reason.
VI. PROVISIONS AND CONSEQUENCES OF NON-COMPETITION
A. Sanctions
1. Sanctions Explicitly Mentioned in the Legislation
Under Article 396 of the TCC, titled “Non-Competition”, it is regulated that the members of the board of directors may not engage in a commercial transaction that falls within the scope of the company’s business on their own behalf or on behalf of others, nor may they enter into a company engaged in the same type of commercial business as a partner with unlimited liability, without obtaining the permission of the general assembly, and in case of violation of this provision, the company has the right to demand compensation from the members of the board of directors or to deem the transaction as made on behalf of the company and to claim that the benefits arising from the contracts made on behalf of third parties belong to the company45.
a. Damages
As mentioned above, in the event that a member of the board of directors engages in a commercial transaction that falls within the scope of the company’s business on his own account or on behalf of another person, or enters into a company engaged in the same type of commercial business as a partner with unlimited liability, without obtaining the authorization of the general assembly, the company has the right to demand compensation from the members of the board of directors.
To claim compensation from the board of directors for violating the non-competition clause, the company must have suffered a loss of profit or damage as a result of the fact that the transaction in question was not carried out on its own behalf and account, and this damage must be proven46.
b. Deeming the Transaction Made on Behalf of the Company
Another type of sanction mentioned in Article 396 of the TCC is the deeming of the transaction made by the board member in violation of the prohibition of competition as made on behalf of the company.
However, this sanction will not be applicable if the member of the board of directors enters the company dealing with the same subject matter as an unlimited liability partner. The said sanction can only be applied if the members of the board of directors perform a commercial transaction on their own or someone else’s account, which falls within the company’s field of operation, without obtaining the authorization of the general assembly.
Contrary to the compensation claim, the company is not required to suffer a loss in order to apply the sanction in question47. In the event that a sanction is imposed on the members of the board of directors to deem the transaction in which the members of the board of directors violated the competition obligation as made on behalf of the company, the company will not be able to claim compensation from the members of the board of directors due to the wording of the law48.
“In this option, the company does not become a party to the transaction between the third party and the member by replacing the member”49. Pursuant to Article 205 of the TCO titled “Assignment of the Contract”, agreements between the assignor and the assignee, which are based on the prior authorization given or subsequently approved by the other party remaining in the contract, are also subject to the provisions on assignment of the contract50.
Since the board of directors’ request to have their transactions considered to be performed on the company’s behalf is not recognized as a contractual transfer, the company will not be liable for the debts and expenses of the board members. The members of the board of directors who violate the prohibition of competition will be liable for such debts and expenses, and the company will be able to take over the benefits arising from the transaction subject to the prohibition of competition.
c. Benefits Arising From the Contracts Made by the Members of the Board of Directors on Behalf of Third Parties to the Company
The last sanction mentioned in the first paragraph of Article 396 of the TCC is the assignment of the benefits arising from the contracts made by the members of the board of directors on behalf of third parties to the company51.
In order for this sanction to be applicable, the board member must have carried out the transaction violating the competition obligation on behalf of a third party and the board member must benefit from the transaction carried out on behalf of the third party. However, if no benefit has yet been derived from the contractual relationship in which the member of the board of directors has breached the competition obligation, the company may request the transfer of the claim rights regarding the benefit by the member of the board of directors52.
Unlike the sanction stipulating that the member of the board of directors shall be deemed to have made the transaction that violates the competition obligation on behalf of the company, the said sanction may also be applied in the event that the member of the board of directors enters into a company operating in the same field as an unlimited liability partner.
Since the obligation not to compete with the company is an obligation imposed only on the member of the board of directors, the liability of such third parties against the company for breach of non-competition cannot be mentioned due to the contracts made by the members of the board of directors on behalf of third parties.
2. Other Sanctions
Although not mentioned in the legislation, the doctrine mentions sanctions such as the withdrawal of a member of the board of directors of a joint stock company from the company, dismissal of the members of the board of directors, request for interim injunction and imposition of penal clauses.
a. Withdrawal of the Member from the Company
Article 396 of the TCC stipulates that “entering into a company engaged in the same type of commercial business as an unlimited partner” is considered to be within the scope of non-competition53.
Although it is not regulated under the legislation, it is accepted in the doctrine that if the members of the board of directors violate the non-competition obligation by entering into a company engaged in the same type of commercial business as the company in which they are a member of the board of directors as an unlimited partner, the members of the board of directors may be requested to withdraw from the company in which they have entered as an unlimited partner54.
b. Dismissal of the Member
Pursuant to Article 364 of the TCC titled “Dismissal”, even if they are appointed by the articles of association, the members of the board of directors may be dismissed at any time by a resolution of the general assembly, provided that there is a relevant item on the agenda or there is a just cause even if there is no item on the agenda55.
Although the legislation does not include a sanction for the dismissal of a member of the board of directors in the event of a breach of the non-competition obligation, since the members of the board of directors can be dismissed at any time by the decision of the general assembly, the general assembly will be able to dismiss the relevant members of the board of directors in the event of a breach of the non-competition obligation by a member of the board of directors56.
c. Request for Precautionary Measure
Pursuant to Article 61 of the TCC titled “Precautionary Measures”, upon the request of the person who has the right to file a lawsuit, the court may decide to preserve the existing situation as it is, to prohibit unfair competition, or to eliminate the material situation resulting from unfair competition57.
For the members of the board of directors who violate the non-competition obligation, the persons authorized to represent the company may apply to the court and request an interim injunction. For this purpose, it is not necessary for the members of the board of directors to decide unanimously58.
d. Penalty Clause
Pursuant to Paragraph 1 of Article 179 of the TCO, if a penalty is agreed for non-performance or improper performance of a contract, the creditor may demand the performance of either the obligation or the penalty, unless otherwise agreed in the contract59.
It is possible to stipulate in the articles of association of the company that a penalty clause shall be paid in case the members of the board of directors violate their non-competition obligations60. If such a penalty clause is included in the articles of association of the company, in the event that the members of the board of directors violate their non-competition obligations, a penalty clause may be demanded from the said members of the board of directors pursuant to the articles of association of the company, on the grounds that the contract has not been performed at all or as required, pursuant to paragraph 1 of Article 179 of the TCO.
B. Procedure in the Imposition of Sanctions
1. Authorization
Pursuant to paragraph 2 of Article 396 of the TCC, in the event that one of the members of the board of directors, without obtaining the authorization of the general assembly, carries out a transaction on his own account or on behalf of another person, or enters into a company engaged in the same type of commercial business as the company, as a partner with unlimited liability; The optional right to request compensation on behalf of the company from the member or members of the board of directors who committed the relevant violation, or to deem the transaction as made on behalf of the company instead of compensation, and to sue that the benefits arising from the contracts made on behalf of third parties belong to the company, belongs to one or more of the members of the board of directors other than the member of the board of directors who violated the non-competition61.
2. Exercise of Electoral Rights
Pursuant to the wording of the law, it is possible to choose only one of the sanctions set forth in paragraph 1 of Article 396 of the TCC. Therefore, for the board member who violates the non-competition obligation, the members of the company’s board of directors, other than the member who committed the said violation, may choose only one of the rights regulated in the law, and all rights regulated in the law cannot be exercised together.
The exercise of the right of choice by the board of directors is a right that gives rise to novelty. For this reason, it is not possible to revoke this declaration after declaring which right has been exercised to the member62.
Pursuant to paragraph 2 of Article 154 titled “Interruption of the Statute of Limitations” of the TCO, the legal remedies for the exercise of the optional rights regulated in paragraph 1 of Article 396 of the TCC must be of a nature to interrupt the statute of limitations. Therefore, the board of directors must exercise its elective rights arising from the legislation through litigation. The request of the board of directors to exercise any optional right other than through litigation cannot be considered as a claim on behalf of the company in terms of the optional rights regulated under Article 396 of the TCC.
3. Competent and Mandated Court
The lawsuit to be filed due to the violation of the non-competition obligation of the board member in a joint stock company is an absolute commercial lawsuit pursuant to Article 4 of the TCC63.
Pursuant to Article 5 of the TCC, unless otherwise provided, the Commercial Court of First Instance is authorized to hear all cases and non-contentious judicial proceedings of a commercial nature, regardless of the value or amount of the action64.
Therefore, the violation of the non-competition clause by the member of the board of directors is a commercial case and the competent court is the commercial courts of first instance, and in the regions where there are no commercial courts of first instance, the civil courts of first instance.
Pursuant to Article 6 of the Code of Civil Procedure, the court of general jurisdiction is the court of the place of residence of the defendant natural or legal person at the time of the lawsuit. The competent court for the lawsuit to be filed due to the violation of the non-competition obligation of the members of the board of directors against the company is the court where the headquarters of the joint stock company is located on the date of the lawsuit65.
4. Trial Procedure
Pursuant to Article 1521 of the TCC titled “Trial Procedure in Company Lawsuits”, in commercial companies, simple trial procedure shall be applied in lawsuits arising from the partnership or shareholding of the partners or shareholders with the company or with each other, or in lawsuits to be filed against the members of the board of directors, managers, directors, liquidators or auditors of the company66.
In the event that the member of the board of directors of the company violates the obligation to compete, since the member of the board of directors will be sued, the simple trial procedure will be applied in accordance with the aforementioned provision of the law.
5. Statute of Limitation
Pursuant to the provision of paragraph 4 of Article 396 of the TCC, the optional rights regarding the sanctions to be imposed against the board member in the event that the board member fails to comply with the non-competition clause are time-barred after three months from the date on which the other members learn about the commercial transactions in question or the entry of the board member into another company, and in any case after one year from the date of their realization67.
Pursuant to the aforementioned provision of the law, in the event that a member of the board of directors of a joint stock company violates the non-competition prohibition arising from the law, the optional rights of the other members of the board of directors of the joint stock company, except for the member of the board of directors who committed the violation, shall be time-barred after three months and in any case after one year from the date of the violation.
In the event that the members of the board of directors of the joint stock company have made more than one transaction in violation of the non-competition obligation, the statute of limitations shall run separately for each transaction68.
However, in the event that the members of the board of directors, other than the member of the board of directors who violated the non-competition obligation, do not exercise their optional rights within the time periods stipulated by the law, the liability of the members of the board of directors who committed the violation, as regulated under Article 553 of the TCC, continues69. Pursuant to the relevant article, if the members of the board of directors violate their obligations arising from the law and the articles of association with their fault, they are liable for the damages they cause to the company, shareholders and creditors of the company.
Therefore, in the event that the members of the board of directors do not exercise their optional rights within the periods stipulated in the law, the members of the board of direc - tors remain liable for the damages they cause to the company, shareholders and creditors of the company in case the members of the board of directors violate the non-competi - tion obligation arising from the law and, if regulated, the articles of association, as stip - ulated in Article 553 of the TCC.
VII. CONCLUSION
The prohibition of competition finds its ba - sis in the duty of loyalty between the parties involved. Similar to the service contract, the non-competition obligation arising from the duty of loyalty in the contract of mandate remains in effect for the duration of the relationship between the parties. However, the parties can extend the prohibition of competition beyond the termination of their relationship by entering into a contract specifically addressing this matter. Within joint stock companies, members of the board of directors are among the individuals subject to the prohibition of competition due to their loyalty obligation towards the company. This obligation stems from their access to trade secrets and company-related information, as well as the trust placed in them by the company. The duty of loyalty is grounded in the principle of honesty, as regulated in Article 2 of the Turkish Civil Code (“TCC”).
To ensure that the prohibition of competition does not infringe upon the freedom to compete, the non-competition clause may be re - stricted in terms of subject matter, duration, and geographical scope. Such limitations must conform to the provisions outlined in Article 396/1 of the TCC or may be further specified through an agreement reached between the parties.
The applicability of non-competition to shareholders who are not members of the board of directors in joint stock companies remains a topic of debate in legal doctrine. While the prevailing view suggests that shareholders, unlike board members, do not have access to trade secrets and therefore are not subject to the prohibition of competition, it is our belief that the assessment of shareholders’ non-competition obligations should be based on the specific circumstances of each case. Given that the nature of the partnership relationship can vary, it is essential to consider the individual circumstances when determining the extent of shareholders’ non-competition obligations. The sanctions for breaching the non-competition clause are explicitly outlined in the relevant article of the law. In the event of a breach, the company possesses discretionary rights, as specified in the applicable article, and there are also additional sanctions acknowledged in legal doctrine, although not explicitly listed in legislation. The exercise of these discretionary rights is subject to the statute of limitations prescribed by law.
If a lawsuit is chosen as a form of sanction, it will be treated as a commercial lawsuit, and the competent courts will typically be the commercial courts of first instance, except for exceptional circumstances. However, it is worth noting that a member of the board of directors can be exempted from the pro - hibition of competition through a resolution passed by the general assembly. In cases where board members are not exempt from the prohibition, they will be held accountable for any damages they cause to the company, shareholders, and company creditors if they act in violation of the prohibition.
BIBLIOGRAPHY
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FOOTNOTE
1 14.02.2011 tarih ve 27846 sayılı Resmi Gazete’de yayımlanan 6102 sayılı Türk Ticaret Kanunu.
2 Atanur Karaahmetoğlu, “İş Sırrı ve Ticari Sır Bağlamında Anonim Şirketlerde Yönetim Kurulu Üyelerinin Rekabet Yasağına Aykırılıktan Doğan Sorumluluğu”, Yıldırım Beyazıt Hukuk Dergisi, S. 2022/2, p. 1299-1307.
3 Burcu Günaydın Gültekin, Anonim Ortaklıkta Yönetim Kurulu Üyesinin Rekabet Yasağı, 1. Baskı, İstanbul 2022, p. 21.
4 Mehmet Yavuz Güner, “Rekabet Hukuku ve Haksız Rekabet Hukuku İlişkisi”, Rekabet Kurumu Uzmanlık Tezleri Serisi, no: 184, Ankara, 2021, p. 50.
5 Günaydın Gültekin, p. 28-38.
6 04.02.2011 tarih ve 27836 sayılı Resmi Gazete’de yayımlanan 6098 sayılı Türk Borçlar Kanunu.
7 Karaahmetoğlu, p. 1305-1307.
8 6102 sayılı Türk Ticaret Kanunu.
9 6098 sayılı Türk Borçlar Kanunu.
10 Günaydın Gültekin, p. 62.
11 Günaydın Gültekin, p. 64.
12 Günaydın Gültekin, p. 64-66.
13 Günaydın Gültekin, p. 80.
14 Günaydın Gültekin, p. 81.
15 Beyza Yiğitbaşı, “Tek Satıcının Rekabet Etme Yasağı”, Yüksek Lisans Tezi, İstanbul 2021, p. 37.
16 Günaydın Gültekin, p. 48-52.
17 Uğur Mert Narlı, “Anonim Şirketlerde Yönetim Kurulu Üyeleri İçin Öngörülen Rekabet Yasağı”, Yüksek Lisans Tezi, Mersin 2021, p. 15.
18 6102 sayılı Türk Ticaret Kanunu m. 396.
19 Pınar Aşık, “Anonim Şirketlerde Rekabet Yasağı”, Ankara Barosu Dergisi, C. 4, 2017, p. 166.
20 Günaydın Gültekin, p. 151-153.
21 Aşık, “Anonim ve Limited Şirketlerde Rekabet Yasağı”, Yüksek Lisans Tezi, Ankara 2006, p. 66.
22 Aşık, “Anonim ve Limited Şirketlerde Rekabet Yasağı”, Yüksek Lisans Tezi, Ankara 2006, p. 67.
23 6102 sayılı Türk Ticaret Kanunu m. 359/2. 24 6102 sayılı Türk Ticaret Kanunu m. 363/1.
25 6102 sayılı Türk Ticaret Kanunu m. 367/1.
26 Aşık, “Anonim Şirketlerde Rekabet Yasağı”, Ankara Barosu Dergisi, c. 4, 2017, s. 176’dan naklen, Fatih Aydoğan, Ticaret Ortaklıklarında Rekabet Yasağı, İstanbul 2005, p. 80.
27 Aşık, “Anonim ve Limited Şirketlerde Rekabet Yasağı”, Yüksek Lisans Tezi, s. 66, Ankara 2006’dan naklen, Mustafa Ünal, “Anonim Ortaklıkta Yönetim ve Yönetim Görevlerinin Murahhaslara Bırakılması”, Batider, C. 11, p. 72.
28 Narlı, p. 37.
29 Narlı, p. 37-38.
30 Narlı, p. 38.
31 Karaahmetoğlu, p. 1295.
32 Karaahmetoğlu, p. 1296.
33 Özdem Satıcı Toprak, “Anonim Şirketlerde Rekabet Yasağı”, Lebib Yalkın Mevzuat Dergisi, S. 220, Y. 2022, p. 2.
34 Murat Can Pehlivanoğlu, “Anonim Şirketlerde Pay Sahipliği Hakları ve Rekabet Hukuku İlişkisi: Dodge V. Ford Kararı Üzerinden Bir Değerlendirme”, Hacettepe Hukuk Fakültesi Dergisi, C. 11, S. 1, Y. 2022, p. 537.
35 Günaydın Gültekin, p. 206.
36 Günaydın Gültekin, p. 214-216.
37 08.12.2001 tarih ve 24607 sayılı Resmi Gazete’de yayımlanan 4721 sayılı Türk Medeni Kanunu m.2.
38 Toprak, p. 2.
39 Aşık, “Anonim ve Limited Şirketlerde Rekabet Yasağı”, Yüksek Lisans Tezi, s. 14, Ankara 2006.
40 Günaydın Gültekin, p. 219.
41 Günaydın Gültekin, p. 287.
42 Günaydın Gültekin,ps. 313.
43 Aşık, “Anonim ve Limited Şirketlerde Rekabet Yasağı”, Yüksek Lisans Tezi, p. 14-15-16, Ankara 2006.
44 Günaydın Gültekin, p. 314.
45 6102 sayılı Türk Ticaret Kanunu m. 396.
46 Günaydın Gültekin, p. 317.
47 Aşık, “Anonim Şirketlerde Rekabet Yasağı”, Ankara Barosu Dergisi, c. 4, s. 176, 2017’den naklen, Aydoğan, Ticaret Ortaklıklarında Rekabet Yasağı, İstanbul 2005, 56. 80.
48 6102 sayılı Türk Ticaret Kanunu m. 396.
49 Aşık, “Anonim Şirketlerde Rekabet Yasağı”, Ankara Barosu Dergisi, c. 4, p. 191, 2017.
50 6098 sayılı Türk Borçlar Kanunu m. 205.
51 6102 sayılı Türk Ticaret Kanunu m. 396.
52 Aşık, “Anonim ve Limited Şirketlerde Rekabet Yasağı”, Yüksek Lisans Tezi, p. 141, Ankara 2006.
53 6102 sayılı Türk Ticaret Kanunu m. 396.
54 Narlı, p. 73.
55 6102 sayılı Türk Ticaret Kanunu m. 374.
56 Özge Karaege, “Anonim Şirketlerde Genel Kurulun Yönetim Kurulu Üyelerini Görevden Alma (Azil) Yetkisi”, Ankara Barosu Dergisi, c. 1, p. 76, 2014.
57 6102 sayılı Türk Ticaret Kanunu m. 61.
58 Aşık, “Anonim ve Limited Şirketlerde Rekabet Yasağı”, Yüksek Lisans Tezi, p. 145-146, Ankara 2006.
59 6098 sayılı Türk Borçlar Kanunu m. 179/1.
60 Aşık, “Anonim Şirketlerde Rekabet Yasağı”, Ankara Barosu Dergisi, c. 4, s. 147, 2017’den naklen, Aydoğan, Ticaret Ortaklıklarında Rekabet Yasağı, İstanbul 2005, p. 56.
61 6098 sayılı Türk Borçlar Kanunu m. 396/2.
62 Aşık, “Anonim Şirketlerde Rekabet Yasağı”, Ankara Barosu Dergisi, c. 4, p. 155.
63 6102 sayılı Türk Ticaret Kanunu m. 4.
64 6102 sayılı Türk Ticaret Kanunu m. 5.
65 04.02.2011 tarih ve 27836 sayılı Resmi Gazete’de Yayımlanan Hukuk Muhakemeleri Kanunu m. 6.
66 6102 sayılı Türk Ticaret Kanunu m. 1521.
67 6102 sayılı Türk Ticaret Kanunu m. 396/4.
68 Aşık, “Anonim Şirketlerde Rekabet Yasağı”, Ankara Barosu Dergisi, c. 4, s. 147, 2017’den naklen, Halil Arslanlı, Anonim Şirketin Organizasyonu ve Tahviller, İstanbul 1960, p. 157.
69 Aşık, “Anonim Şirketlerde Rekabet Yasağı”, Ankara Barosu Dergisi, c. 4, s. 147, 2017’den naklen, Ünal Tekinalp, Sermaye Ortaklıklarının Yeni Hukuku, 4. Bası, İstanbul 2015, p. 283.
