Take One: You finally found the ideal job in the Holy Land! You are so excited with the prospect of hitting it big, that you thought you would do without a written contract – after all, you don’t want to rock the boat!
Take Two: Your efforts have begun to pay off. Your business is up and running. You’ve hired new employees including a CEO, CTO and a CFO (and maybe a few other O’s), and something tells you that they’re going to be superb. Now you can sleep peacefully, share the responsibility with people you trust, and it seems that all that is left to do is for the founders to count the money. Can it really be that simple?
Take Three: You are a venture capitalist considering investing in a young enterprise. What should you insist on seeing in the company from an Israeli labor law perspective?
A relationship between an employer and an employee is no different than any other relationship – it begins with high aspirations. An employment relationship creates legal obligations on both the employer and the employee which should be considered and evaluated before commitments are made and before the relationship is established. You must comply with the minimum requirements of Israeli law which are likely significantly different that those in the Old Country.
Israel’s labor law system is a remnant of the country’s original socialistic character. The State of Israel was founded over 70 years ago mainly by workers and peasants raised on socialistic principles (people who lived in Kibbutzim or who belonged to the Labor party); this philosophical approach was adopted by the Israeli legislature and incorporated into the legal system – at least with respect to labor laws and regulations. The significance of the history of Israeli labor law is to be aware that the system is generally pro-employee as is the judicial system in this regard – knowing your rights and obligations is, however, crucial to enabling you to assert those rights and be aware as to when you should seek professional guidance.
Israeli labor law can be found in numerous laws, regulations issued by the government, circulars, instructions, orders issued by the Minister of Economy and Industry, particular or general agreements signed between employers and the Histadrut (Israeli employees organization) and expansion orders which apply them on an industry-wide basis or to all employees in the country and customary practices. All of these govern the relationships between employers and employees the failure to abide by which can have significant financial ramifications.
Among other things, employees generally must receive vacation and sick leave, time off during the day, commuting expense reimbursement, overtime pay for additional hours and severance pay under certain circumstances. There are provisions which govern ownership of intellectual property generated by an employee. There are Israeli Supreme Court rulings which pertain to non-competition provisions imposed by employers or accepted by employees.
- Prohibition of Discrimination in the Hiring Process, Terms of Employment and Termination of Employment.Generally prohibited is discrimination based upon age, sex, personal status, parenthood, sexual orientation, race, religion, nationality, country of origin, opinion or membership in a political party, and army reserve duty.
- Requirement to Provide Statutory Notice of Terms of Employment– on the statutory form or in an employment agreement which includes the mandatory provisions. The notice/agreement must be provided within 30 days of the commencement of employment and upon material changes in employment terms. Relatively recent amendments in the law also require employers (of more than 25 employees) to apprise employee-candidates of the status of the hiring process and when a selection has been made.
- Statutory Social Benefits – No Less than the Requirements by Law– including vacation and sick pay (both of which are based upon tenure) as well as public holidays.
- Commuting Reimbursement (נסיעות)– generally for the cost of public transportation to and from work subject to a daily cap as set by law – may be satisfied by payment of the cost of a monthly bus pass.
- Pension Plan/Managers Insurance Policy– currently at the following rates (total of 18.5%): (a) 6.5% on account of the Employer for pension, (b) 6% on account of the Employee for pension and (c) 6% on account of the Employer for severance pay – the employer and employee can enter into an arrangement under Section 14 of the Severance Pay Law for the employer to pay a higher rate for the severance pay component in exchange for it being the total amount that the employee would receive for severance pay. It must be funded after 6 months of employment for employees who did not have an active pension plan in place upon commencement of employment with the new employer or, if there was an active pension fund in place, after 3 months retroactive to the first day of employment. The employee is entitled to choose the pension provider.
- Dmei Havraah (Relaxation Pay/דמי הבראה)– mandated by law and based upon tenure. Either paid annually in a lump sum payment, or in monthly installments.
- Pay Stubs (תלוש משכורת)– to include the details mandated by Israeli law.
- Obligation to withhold income tax and Bituach Leumi at source (ניכוי מס במקור)and remit payment to the applicable authorities.
- Prohibition of Overtime (שעות נוספות)/Work on Employee’s Day of Restwithout a permit from the government unless covered by the general permit.
- Overtime Pay– mandatory with few exceptions (e.g. unless the employee is in a position of management or of unique trust). No global salary (with some qualifications).
- Timesheets/Electronic Records– of attendance are required.
- Halanat Sachar (Late Payment Penalty/הלנת שכר)– for salary and other financial benefits not paid by the dates provided by law (generally within 9 days of the date for which services were rendered – e.g. the end of the month).
- Prevention of Sexual Harassment (הטרדה מינית).Employers who are obligated to do so, must post their policy and procedures for bringing complaints.
- Right of Shimuah (Internal Hearing/שימוע)– before a decision is made to dismiss an employee. Generally required upon a reasonable amount of time and the employee is invited to bring someone with him/her.
- General Prohibition Against Terminating the Employment of a Pregnant Woman who has been employed for six months, or a woman during her maternity leave or a woman within 60 days after her maternity leave ended – without first obtaining the permission of the Ministry of Labor subject to the provisions of the law.
- Obligation to give Advanced Written Notice of Dismissal or Resignation (הודעה מוקדמת)– amount of notice is determined by tenure and the type of employment basis, and is generally capped at one month unless otherwise agreed.
- Upon termination of the employer/employee relationship, the employer is obligated to provide employees with a Statement of the Period of Time Worked at that Employer– to be provided within 14 days of the end of employment.
- Obligation to Remit Severance Pay– generally required with limited exceptions and may apply in some instances even upon resignation (e.g. material worsening of employment conditions as the expressed reason for resignation) – in particular the severance pay component of your pension plan.
- Unemployment Rights – provided by Bituach Leumi based on various criteria, including, among other variables, whether the employee resigned or was terminated, age, tenure of employment.
II. We take this opportunity to delve into more detail of some of the laws/provisions referenced above.
Notice of Employment Terms and Conditions
Even if current law did not already require it, we would suggest that it is important for parties to a contractual relationship to have at least the basic terms of that relationship concretized in writing to minimize disputes.
The Notification Law (Employment Conditions) – 2002 obliges every employer to provide employees with a written notification within 30 days from the beginning of the employees’ employment. The notice, which constitutes an employment agreement, must include details regarding the employment conditions, such as the date the employment commences (and if the employee is hired for a fixed period, the date the employment is to end), a general description of the job, the salary and other payments, including the times when these payments would be transferred to the employee), regular working hours, social payments, etc. The Law also states, that if employment conditions change during the employment period, the employer must provide the employee with written notification within 30 days. An employment contract which includes the conditions stated in the official form of Notice, can satisfy the obligation of the Notice (which is why it is often included as an appendix in Israel employment contracts).
Severance Pay/Pitzui Piturim
Generally, according to the Severance Pay Law – 1963, an employee, who has worked for his employer for a year, is entitled to severance pay, at the rate of one month’s last, regular salary for each year of employment at his/her employer, provided that the employment is terminated by the employer without cause (the parameters of “cause” are not within the scope of this article but in this context requires an egregious act by the employee). Under certain circumstances, an employee may be entitled to severance pay upon his resignation due to constructive termination (i.e. under particular conditions, if the employee can prove that he was forced to resign). There are other limited situations in which an employee may be entitled to severance pay, even if he resigned at his/her own discretion based on a list of conditions set forth in the law such as:
constructive termination: resignation compelled by employer such as material worsening of employment conditions (Haraat Tenaim);
- change of control of employer;
- death of employee – payable to heirs as well as death of employer;
- illness preventing continued employment (proof required and circumstances considered);
- a woman who resigns within nine months after giving birth to a child (and in some cases regarding adoption), in order to care for the child;
- resignation because a female employee was in a shelter for battered women if she was in the shelter for a period of sixty days or more;
- when a person changes his residence due to a new marriage, or if he moved to a settlement or an area of agricultural development;
- non-renewal of a fixed term employment contract unless the employer offered to renew the contract;
- entering regular army service or continuing serving in national service after already serving for six months;
- a seasonal employee who resigns after working for 3 consecutive seasons (180 working days) for an employer who couldn’t promise continuous employment in the future;
- retirement upon reaching retirement age;
- joining the police or prison service.
Some employers may voluntarily pay their employees severance pay, even if the employees would not otherwise be entitled by law or contract. Some employment agreements may entitle employees to more generous severance terms than those provided by the law (i.e. parachutes).
Even before the mandatory pension law came into effect, many Israeli employers insured themselves against their potential obligation for the payment of severance pay, through Bituach Minahalim (Managers Insurance) policies or pension plans. Depending on how these plans are structured, funded and established, release of the amounts accumulated on behalf of particular employees may cover some or all of the employer’s obligations for severance pay. We will address the new pension law below.
Notice of Resignation/Termination
In advance of terminating the employment relationship, the party seeking the termination (whether it is the employer who is terminating the employee or the employee who is resigning) must provide the other with advance written notice, pursuant to the Advance Notice of Termination and Resignation Law – 2001.
The length of the advance notice period to which the recipient is entitled, in the absence of agreement to more generous terms, depends on such factors as the type of employment basis (e.g. daily, monthly, open-ended) and the amount of time that the employee worked for that employer (generally, the notice period will be 30 days after a year of employment).
The employer may decide to allow (or require) the employee not to come to work during the advance notice period, but must still pay his/her normal salary during that period. The parties may agree on a longer notification period than that prescribed by the law if it is reciprocal, but not on a shorter one.
Generally, the obligation to provide the advance notice applies in the absence of termination (by the employer or employee, as relevant) for cause.
Upon termination, the employer is also required to provide the employee, within the earlier of 14 days of the date of termination or a week of the employee’s request, with written confirmation of the period of the employee’s employment (including beginning and ending dates). Under some circumstances, the managers or directors can be personally liable for payment of part of the fines that may be assessed by the Labor Court for lack of compliance with the law.
Keren Pentzia (Pension Plan)
Pension plans typically include coverage for a combination of retirement pension payments, severance, disability coverage and life insurance. Payment towards the plan is made both by the employer and employee. In 2007, the State promulgated an Extension Order which imposed a requirement upon all employers in Israel to provide at least a minimum pension benefit to virtually every employee in Israel.
Unemployment Payment (דמי אבטלה)
Employers withhold and disburse monthly payment of a percentage of their employees’ salary to Bituach Leumi. Among other things, this payment provides an employee with insurance for unemployment payments (calculated as a percentage of their salary), if and when their employment comes to an end. To qualify for unemployment, an employee must be an Israeli citizen, have been previously employed for 12 out of the last 18 months, and must register with and report to the Israeli Employment Service to receive assistance in job-hunting.
An employee who is terminated and meets the criteria for unemployment benefits, is immediately eligible to receive unemployment; whereas, if the employee resigns, s/he must wait a 3 month period before qualifying.
Aside from resigning or being terminated, there is a third category of employees who may be entitled to unemployment benefits: those on leave without pay / chalat (חופשה ללא תשלום / חל”ת). While this concept was relatively unknown in years past, it became a popular “trend” in dealing with the complexities of the economic volatility during the COVID-19 pandemic. Chalat essentially pauses an employment relationship for a limited period of time following a mutual agreement between employer and employee. If an employee fulfills the criteria mentioned above and is on chalat for more than 30 days, s/he may qualify for unemployment. During COVID-19, the Government eased the criteria to temporarily include those who were employed 6 out of the last 18 months.
III. Benefits from Which you May Benefit
To borrow the motto of a well-known U.S. retailer – “an educated consumer is our best customer.” Knowing some of the perks that are available in Israel and how reasonable it is for you to expect to receive some or all of those benefits, will allow you to make informed decisions regarding prospective employment opportunities.
Since there is always demand for quality employees and competition among employers for competent and experienced employees can be quite stiff, employers often provide employees with benefits in addition to base salary (itself the subject of negotiation) that are beyond those which are mandatory under Israeli law. Employees who seek more senior and responsible positions can expect even more attractive benefit packages. I also note that employment benefit packages can be assembled in various combinations agreeable to the employer and employee.
As the name indicates, it is an amount of money which some employers give to some employees whose performance met or exceeded expectations. It is typically given at year end or at or around the employee’s anniversary date with the employer.
Maskoret 13 (13th Salary)
This is a bonus equal to a regular month salary which is usually paid at the end of the year. This benefit is typically given only in larger businesses but may be available in small operations as well.
Keren Hishtalmut (Continuing Education Fund)
Keren Hishtalmut was originally devised to serve to fund an employee’s continuing education costs but morphed into a savings plan. It is more rare to have employers offer this coverage which is often reserved for valuable and senior employees or those in the public sector. Both the employer and employee contribute to the fund (it is similar to a 401-k plan in the U.S., with significant differences). It is a medium-length saving program from which the employee can withdraw deposits at certain times throughout the 6 years, on a rolling basis. In Addition, 6 years after deposits begun, generally, the employee can withdraw the entire deposit and use it for any purpose.
Some employers, particularly those in the public sector and hi-tech firms, provide their senior employees with a car for “commuting and business travel purposes.” The type and price of the car, as well as whether fuel and maintenance fees are included, varies by employer and employee. Since the government realized that cars were not only being used for business purposes but for the personal convenience of the employees as well, the Income Tax Authority began taxing employees for the “fair personal value” of the car. As the taxable value were considered to be relatively low, the number of leased cars in this country became disproportionately high. The Israeli tax code was therefore revised in order to dramatically increase the deemed value of the benefit to the employee – in some cases by doubling it. The change better reflects the economic reality and discourages the proliferation of leased cars (which result in traffic and pollution). As the economic benefits of leasing are dynamic, it is advisable to consult with an accountant to determine whether it is feasible for you to accept a car from your employer and to help you choose whether to downsize the vehicle offered to you in order to minimize your tax obligation.
Cellular Phone and Laptop
Many employers, particularly in the hi-tech sector, provide some or all employees with “equipment” intended to allow employees to be accessible to work other than during office hours. The equipment may include a laptop or home computer (often with internet service), and a cellular/smart phone. This equipment can be considered a convenience but also may be a “ball and chain.” As with cars, some years ago the Income Tax Authority began taxing employees who receive cellular/smart phones from their employers on the theory that they are also usable for personal purposes.
Shai LaChag (Holiday Presents)
Many employers customarily give to their employees gifts for Rosh Hashannah and Pesach. The gifts are often coupons usable in certain stores but may also include personal items. The value typically varies according to the rank of the employee.
Some additional benefits given by some employers include payment for home delivery of periodicals, payment for professional licenses and membership in professional organizations, payment for lunch or provision of a cafeteria with discounted meals and discounts at various stores or organizations and often with respect to the employer’s own products or services.
How to Get Benefits
The ideal time to request/insist upon particular benefits is before commencement of work for an employer. Benefits that are important to you should be reflected in your employment contract. Aside from our standard recommendation that you utilize a lawyer knowledgeable in the field to review your contract before you sign it, it is particularly important that you obtain advice from a lawyer or someone in your field familiar with standard practice in your industry to consider what is typical and which demands may be considered excessive.
IV. Contract in Hebrew – How do you even know your benefits and obligations?
We are frequently contacted by people who have signed or been asked to sign employment and other contracts in Hebrew even though they do not comprehend Hebrew at a level sufficient for them to understand the document. We have also been asked whether an employee can insist upon a contract being in English or whether the signer can get out of a contract in Hebrew by claiming that he/she did not understand the words. It is crucial for readers to realize that:
(a) Hebrew (and Arabic) are official languages in Israel – English is not;
(b) the previous comment is not intended to suggest that contracts in English (or other languages) are not binding – contracts in non-official languages are binding to the same extent as Hebrew or Arabic language documents;
(c) there is, generally, no obligation for a document, employment contract or otherwise, to be in English;
(d) if you do not understand a contract (whether because of its language or otherwise), you should consult with someone who does (and, if practical, with a lawyer) before you sign;
(e) Under Israeli law, there is a presumption that a person who signs a contract, understood its terms and conditions. Overcoming that presumption is difficult. Courts will generally not allow an argument of Non Est Factum (literally meaning, “it is not my deed” – I did not know what I was doing or signing) certainly if there is negligence on the part of the party that signed (e.g. indiscriminately signing without trying to understand). Even if the presumption is overcome, a court will not automatically cancel a contract, particularly if the signer did not bother to understand or consult before signing and more so if there would be injury to the other side if the contract is cancelled;
(f) Israeli law requires parties to a contract to act in good faith in its negotiation and performance;
(g) caveat emptor – “buyer beware” meaning, sign blindly at your own risk.
Following are some sites which you may consider using as a general resource for information – the author does not endorse nor vouch for these sites (other than the Facebook-referenced group below which I manage):
- Bituach Leumi – National Insurance Institute
- FaceBook Group: Ask an Israeli Lawyer – provides general advice including with respect to employment matters
- Kav La’Oved – hotline for employee rights
- Kol Zchut – provides guidance on rights
- Ministry of Industry, Trade and Labor lists SOME Israeli labor laws; some of which are in English but not necessarily up to date.
Welcome home and good luck!
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This article is not to be considered as a legal opinion. For legal advice, we suggest that you contact legal counsel directly
Russell D. Mayer is senior partner at the Jerusalem-based law firm of Livnat, Mayer & Co. (www.LMF.co.il). If you have any comments or questions with respect to this article, feel free to contact him at mayer@LMF.co.il.
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Updated July 2020