I. INTRODUCTION
Confidentiality agreements are legal relationships that aim to protect intangible assets of economic value shared during the performance of a commercial relationship entered into between the parties and, by their nature, give rise to ongoing obligations. The obligations of the parties under these agreements, especially those of the party receiving the information, are not limited to preventing the disclosure of the information to third parties, but also include both negative obligations (refraining from certain actions) and positive obligations (performing certain actions), such as using the information in accordance with the purpose of the agreement, carefully protecting it from unauthorized access, and returning it when the legal relationship ends.
II. PRINCIPAL AND SECONDARY OBLIGATIONS OF THE PARTIES IN A CONFIDENTIALITY AGREEMENT
Shaped by the principle of contractual freedom but also incorporating the general provisions of the Turkish Code of Obligations No. 6098 (“TCO”) regarding the duty of care and loyalty, confidentiality agreements require the receiving party to perform the following obligations:
1. Confidentiality (Non-Disclosure) Obligation
This obligation, which is a constituent element of the agreement, requires the party receiving the information to refrain from making the confidential information entrusted to them available to third parties who are not parties to the agreement, or from disclosing it to them or allowing them to use it. The concept of “disclosure” encompasses not only the verbal or written transfer of information, but also any action such as copying digital data, storing it on servers accessible to unauthorized persons, or indirectly placing the information within the control of third parties. It should be noted that for this obligation to be breached, it is not necessary for the information to be made public; even a single unauthorized third party gaining access to the information constitutes a breach of the duty of confidentiality and gives rise to contractual liability.
2. Obligation Not to Use (Not to Use for Purposes Other Than Intended)
The purpose of confidentiality agreements is to ensure that information disclosed between the parties to the agreement is used solely for the purpose of fulfilling the commercial relationship between the parties. In this regard, even if the receiving party does not disclose the technical or trade secret it has acquired, it may not use this information in its own commercial activities to gain a competitive advantage, develop similar products, or reach the customer portfolio by excluding the disclosing party. Any use beyond the permitted purpose constitutes an independent and fundamental breach of contract, regardless of the confidentiality obligation.
3. Obligation to Safeguard Information
The party receiving the information is obligated to take technical and administrative measures appropriate to the specific circumstances of the case and the sensitivity of the information to ensure the security of the confidential information. This obligation, which is assessed based on the “prudent businessman” standard in commercial relations, includes active measures such as encrypting information, restricting physical access, entering into confidentiality agreements with employees, and taking cybersecurity measures.
If the information falls into the hands of third parties as a result of a cyber attack due to the fault or negligence of the party receiving the information, such as insufficient security measures, this constitutes a breach of the obligation to preserve the information.
4. Obligation to Return or Destroy
Upon termination of the contractual relationship, expiration of the term, or failure of the parties to reach an agreement, all tangible materials, such as documents and disks, containing confidential information in the possession of the receiving party, as well as copies thereof, must be returned to the disclosing party in their entirety or destroyed in a non-recoverable manner upon request. This obligation ensures that control of the secret is returned to its rightful owner, the disclosing party, and guarantees legal security after the contract has ended.
III. PENALTY CLAUSE REGULATION, LEGAL NATURE, AND EASE OF PROOF
In the event of a breach of confidentiality agreements, establishing the causal link between the breaching party’s action and the resulting damage and proving the amount of damage in concrete terms is quite difficult in practice. Therefore, in order to overcome this difficulty of proof and compel the debtor to perform, a penalty clause is agreed upon in accordance with Articles 179 et seq. of the Turkish Code of Obligations (TBK) in line with the following principles.
1. Principle of Independence from Proof of Damage
Article 180(1) of the Turkish Commercial Code explicitly stipulates that the creditor is not required to prove that they have suffered damage in order to claim a penalty clause. A penalty clause is an amount that becomes due and payable upon the occurrence of a breach and must be paid even if it exceeds the creditor’s damages. This is the primary function of a penalty clause in confidentiality agreements. Since it is not possible to accurately calculate the economic loss caused by the disclosure of a trade secret, if a penalty clause is included in the confidentiality agreement, the creditor (the disclosing party) only needs to prove that the debtor (the receiving party) acted in breach of their contractual obligations, i.e., disclosed the information or used it for purposes other than those intended, and is not required to calculate the damage. If the damage incurred exceeds the agreed amount of the penalty clause, the creditor can only claim compensation for the “excess damage” by proving the debtor’s fault.
2. Distinction Between Optional and Additional Penalty Clauses
Since a breach of confidentiality generally constitutes a breach of a “non-action” obligation, the nature of the penalty clause may differ depending on whether the contract continues:
If the contract continues and the parties want both confidentiality to be maintained and the penalty to be paid, then a “penalty clause added to performance” under Article 179(2) of the Turkish Code of Obligations applies.
However, since a breach of confidentiality generally results in the irreversible loss of confidentiality, the penalty clause sought in practice is in the nature of compensation for the non-performance of the obligation to keep the secret.
IV. PRACTICE IN THE LIGHT OF COURT DECISIONS, SPECIFIC BREACHES, AND REDUCTIONS
The amount and conditions of the penalty must be clearly and unambiguously specified in the contract. When examining court decisions regarding the validity and collection of penalty clauses, it is observed that abstract claims are insufficient, and the existence of concrete breaches and whether the amount of the penalty causes economic damage are investigated. Based on the decisions under review, the approach of the courts to the issue is as follows:
(i) Requirement to Prove Concrete Action
Courts require the plaintiff to prove the defendant’s specific breach of contract, not merely raise suspicions, in order to impose a penalty clause. For example, simply leaving a job and starting to work for a competitor is not considered, on its own, a breach of confidentiality or a violation of the non-compete clause. This matter was ruled as follows in the decision of the 14th Civil Chamber of the Istanbul Regional Court of Appeal dated May 9, 2024, numbered 2021/840 E. and 2024/766 K.:
According to the provision in Article 447/2 of the Turkish Commercial Code, the non-compete clause shall terminate in the event of termination of the employment contract by the employee for just cause or by the employer without just cause. Article V/8 of the contract states that “whether or not expressly stated as confidential, information and documents of a commercial secret nature acquired by the consultant during the performance of this contract shall be considered confidential information. The consultant shall not intentionally or negligently disclose, publish, or publicly reveal confidential information belonging to the hotel and/or its customers during the term of the contract without the hotel’s written consent, nor shall they use such information for their own benefit. The consultant agrees to pay a penalty of $10,000 exclusively in the event of a breach of this confidentiality provision, without prejudice to the hotel’s rights to all damages and losses incurred. According to the specified provision, there is no evidence that the customer’s information was negligently disclosed, published, or made public. The plaintiff’s attorney alleged that the defendant took advantage of his position of authority to obtain customer information and, in violation of the non-competition clause, enticed the plaintiff’s employees and customers to work at the sports center opened by the defendant, where they provided services to customers. The complaint generally refers to unfair competition through the enticement of competitors’ customers and personnel, as regulated in Article 55 of the Turkish Commercial Code, but no claim is made in this regard. The plaintiff’s claim clearly relates to a penalty clause due to a breach of the obligation specified in the contract. As the claim relates to a penalty clause, the plaintiff is not required to prove that they suffered any damage. In this case, it must be proven with proper evidence that the defendant enticed the plaintiff’s employees and customers and that the plaintiff’s information was used in these transactions. Material facts can be proven with any type of evidence, including witness testimony. It has been understood that the employees were not enticed by the defendant and that they started working for the defendant after leaving the plaintiff’s workplace for reasons not attributable to the defendant. Witness statements indicate that several of the plaintiff’s customers went to the gym opened by the defendant and posted about it on social media. However, there is no evidence that these customers were enticed by the defendant. Considering that there is no penalty under Article III/37 of the contract, there is nothing unlawful or contrary to the contract in the defendant opening a workplace, provided that he did not resign and the consultancy service he provided to the plaintiff was terminated due to the expiration of the contract. Similarly, without determining a concrete action by the defendant that violates the law or the non-competition agreement, the fact that the plaintiff’s employees and customers began working with the defendant after leaving of their own accord does not in itself constitute an action that distorts fair competition. After these issues were determined by the court of first instance, it was appropriate to decide to dismiss the case in accordance with the procedure and the law, based on the evaluation of the expert report together with other evidence, pursuant to Article 281 of the Code of Civil Procedure. Therefore, it was necessary to decide to dismiss the plaintiff’s attorney’s appeal on its merits.
Although the existence of damage does not need to be fully proven subject to a penal clause, it has been clarified that the claims put forward by the plaintiff must be substantiated with concrete evidence.
In its decision dated May 9, 2024, No. 2021/840 E. and 2024/766 K. In this decision, the Court, evaluating the claim for a penalty clause based on a breach of the non-competition and confidentiality obligations, ruled that for the penalty clause to be effective as a guarantee, it is mandatory to establish that the defendant has committed a concrete act in breach of the contract. The decision emphasized that the defendant’s working with his former employer’s customers alone does not constitute a violation; rather, it is necessary to prove actual conduct, such as soliciting customers by using confidential information in violation of fair competition rules and contractual prohibitions. This decision establishes that the penalty clause, as a safeguard in the contract, serves as compensation only in the event of concrete breaches, not based on abstract suspicions.
Decision of the 13th Civil Chamber of the Istanbul Regional Court of Appeal dated July 8, 2021, No. 2021/890 E. and 2021/1076 K.:
“It has not been proven that the defendant … acquired knowledge of any commercial secrets that could cause significant damage to the plaintiff company by communicating directly with customers and getting to know them during his employment at the defendant company, as alleged, through the websites belonging to the defendant companies where people from all over the country shop. Considering the job description and position at the defendant company and the fact that the defendant company, unlike the plaintiff company, was supplier-focused rather than customer-focused, and given that the claim that the defendant … using the information he possessed at the defendant company would cause significant damage to the plaintiff company under the provisions of Article 444/2 of the Turkish Commercial Code could not be proven, the non-competition clause is invalid, and the case must be dismissed.
A similar ruling has been made accordingly.
(ii) Reduction of Penalty Clauses and the Principle of Economic Ruin
Although, as a rule, the reduction of the penalty clause cannot be requested in contracts between merchants pursuant to Article 22 of the Turkish Commercial Code No. 6102, the established case law of the Court of Cassation and the decisions of the Regional Courts of Appeal accept that the judge must exercise his/her authority to reduce the penalty if the amount of the penalty is excessive to the extent that it undermines the debtor’s economic future.
In its Decision dated October 21, 2020, numbered 2020/585 E. and 2020/664 K., the 6th Civil Chamber of the Kayseri Regional Court of Justice stated that
“When determining whether the penalty is excessive and exceeds the bounds of fairness, the judge shall take into account, in particular, the damage suffered by the creditor due to the debtor’s breach of contract, the degree of fault of the debtor, the contributory negligence of the creditor, and the financial situation of the parties (especially the debtor). Taking these elements into account, if there is a clear disproportion between the damage suffered by the creditor and the penalty imposed that is incompatible with the standards of fairness, the penalty shall be reduced. When assessing whether the penalty clause is excessive, it should be borne in mind that the purpose of the penalty clause is to improve the creditor’s situation. When reducing the agreed penalty, the amount must in any case remain above the amount of compensation that the creditor could claim under the general rules to cover their positive damage. The possibility of reducing an excessive penalty clause is a rule relating to public order, aimed at preventing the exploitation of debtors in a weak position. Therefore, the debtor’s “prior waiver of the possibility of reduction ” is invalid (Reisoğlu, S: General Provisions of the Law of Obligations, Istanbul, 2004, pp. 391, 392, citing Oser-Schönenberger, Tunçomağ, Becker, von Tuhr).
These decisions show that the existence of a penalty clause alone is not sufficient for collection, that the judge can exercise “excessiveness” control within the scope of Article 182, paragraph 3 of the Turkish Code of Obligations, and that, especially in employee-employer disputes, the invalidity of unilateral penalty clauses is also taken into consideration.
CONCLUSION
Confidentiality agreements are not merely simple contracts imposing a duty of “silence”; they are legal arrangements involving a series of complex acts such as storage, non-use, protection, and return. The penalty clause provisions in these agreements are the strongest guarantee that relieves the creditor from the burden of proving damage. However, in light of the Supreme Court and BAM decisions presented in this article, it is essential that the breach be demonstrated with “concrete evidence” for the penalty clause to be enforceable. Doubt or potential risk is not sufficient for the penalty clause to become due. Furthermore, keeping the amount of the penalty clause at a reasonable level that will not cause the counterparty’s economic ruin will minimize the risk of the judge exercising his/her power of reduction in a possible trial. Therefore, clearly defining the limits of obligations during the contract preparation process and determining the penalty clause in accordance with the principle of “proportionality” is necessary to ensure legal certainty.
ATTACHMENT-1: Decision of the 14th Civil Chamber of the Istanbul Regional Court of Justice dated 09.05.2024, No. 2021/840 E. and 2024/766 K.
ATTACHMENT-2: Decision of the 13th Civil Chamber of the Istanbul Regional Court of Justice dated 08.07.2021, 2021/890 E. and 2021/1076 K.
ANNEX-3: Decision of the 6th Civil Chamber of the Kayseri Regional Court of Appeal dated October 21, 2020, numbered 2020/585 E. and 2020/664 K.
