Cessation of an employment relationship in Israel

Cessation of an employment relationship in Israel-

Obligations of the terminating employer and rights of the dismissed employee

One of the inherent rights granted to the employer is the right to dismiss an employee for various reasons, including dissatisfaction with employee’s performance; manpower needs to be downsized, criminal conduct of the employee, etc.  However, this right is not absolute and Israeli law supplies a long list of obligations the employer must fulfill prior and during the employee’s dismissal procedure.  Failure by the employer to comply with same can result in a finding of an unlawful dismissal which will entitle the employee to compensation predicated on the assumption that the termination of employment may alter and essentially damage the employee’s life.

This article shall discuss the obligations placed upon the employer by the legislature and the courts.  The policy interest is four fold:

1. balance the unequal bargaining situation between the parties
2. provide an opportunity for the employee to be heard and seek to defend his conduct and job (hearing requirement)
3. allow the employee sufficient time to get organized and find a new job (advanced notice)
4. mitigate the economic impact on the employee so he doesn’t leave empty handed (severance pay).

It is important to state that this article deals mainly with the limited situation of termination of employment by the employer and the obligations placed upon him versus the rights of the employee and the defenses applied by the law and court rulings.

The hearing requirement: “Hear the causes between your brethren, and judge righteously between a man and his brother” (Deuteronomy 1; 16)

The hearing requirement is among the various obligations applicable to the employer who chooses to dismiss an employee.  This requirement stems from court rulings and is based on the principle of good faith.  It has been consolidated in the public law and applied to the private sector in such manner that nowadays, every employer, public or private is obligated to grant the employee who he intends to dismiss, the right to claim and voice his stance within reasonable time prior to his dismissal, since the dismissal may harm and substantially impact his life.

What is the hearing requirement or right?

As the Honorable Judge Amiram Rabinovitz of the National Labor Court states in 530-09 CintecMedia vs. Eldad Saida:

“The employer’s decision to dismiss an employee is not a simple one at all.  Such a decision is meant to service the employer’s needs yet affects the employee as well.  Such a decision requires cautious and intensive discretion… from here stems the need for a hearing procedure which is designed to bring to the surface the employee’s interests even as confronted with the employer’s needs.  Only a dismissal decision based on real needs on the one hand and a serious and honest consideration of their impact on the other hand, stands up to the test of good faith which obligates the employer’s actions.  The power of dismissal is not unlimited and only proper use of it will withstand the inspection test.”

The right of hearing includes the right to claim.  Its purpose is to allow the employee to express his claims in front of the employer in order for the employer to weigh whether it is desirable or appropriate to dismiss the employee.  This will increase the chances that the employer’s decision will not be arbitrary but rather rational, practical and balanced (701/07 The Electric Company vs. Turgeman).

The source of our subject matter is a basic right derived from the rules of justice and is an “intrinsic part of labor law and of its own flesh and blood” (see 518/08 Malca Avraham vs. Agman Metal Factories Ltd.).  The Honorable Judge Heshin of the Supreme Court ruled that the right to judicial access and be heard transcends even a constitutional right.  “The right to turn to the court is not a basic right in its usual meaning of a basic right but rather to a list of other norms in the judicial system and one may argue, and I am that one, that it even supersedes a basic right.  No longer, as its existence is a necessary condition and essential for the existence of all other basic rights” (733/95 Arpal Aluminum Ltd. Vs. Klil Industries Ltd.).

It is important to note that the employee’s right to be heard is essentially absolute and exists in various situations and is not dependent on the employee’s conduct.

When summoning an employee to a hearing, it is most appropriate to send a notice to the employee reasonably in advance in order to allow him to make arrangements in the best manner and prepare his defense claims properly and sometimes even with the help of professional legal assistance (620/07 Dov Gamliel vs. The Electric Company) since the goal of the hearing, among others, is to convince the employer that the dismissal decision is not justifiable and the claims are “more of a bark than a bite”.

The notice of summon must be detailed and include all the information, including the relevant documents which are the basis of the decision to hold a hearing for the employee prior to his dismissal.  The employer must detail to the employee what the claims are for which he is considering the dismissal, the factual basis and the real reason for the dismissal (1070/01 Gila Shinar vs. State Service Commissioner, 620/07 Supra and 37268-09-140 Menucha Urben vs. Tchakutai Sasson Life and General Insurance Agency).

During the hearing, the employer must actually listen to the employee and consider his claims with an open mind.  Although the law has not stipulated the exact and formal requirements for the hearing, it can be done in various manners insofar as its purpose is fulfilled- “to grant the employee a fair chance to have his claims heard by the employer prior to deciding his fate” (32810-07-10 Gamliel Marina et al vs. (Ezo-Rit) Shopping Center Ltd. Et al)

The courts repeatedly state that the hearing is not some formal ceremony and must be done in an authentic and businesslike manner and in good faith.  Put another way, the employer must actually listen to the employee’s claims.

What shall be done to an Employer who dismisses an employee without a hearing or with an inappropriate hearing?

Courts have ruled that the fact that a hearing was not held is not reason enough to grant a remedy of enforcing employer- employee relations (when the dismissal was done for justifiable reasons) and will be granted only in rare instances (37268-09-10 Urban vs. Chakotai).  In general, lack of hearing will entitle the employee to compensation for unlawful dismissal which can be a higher amount than the standard severance pay defined in the law.  The compensation is not for the anguish caused to the employee but rather for the actual damage caused to him, i.e. lack of employment, since it is possible that had a hearing been held, he would not have been dismissed (930/07 Giora Arbel vs. A.S.S.S).  Not every dismissal without a hearing will grant the employee compensation, but rather each case is examined on its own.  Courts have ruled that not holding a hearing is not considered an absolute defect in dismissal (see 37268-09-10 supra), for example when the cause of dismissal is the employer’s financial difficulty to continue employing the employee (see 930/07 supra).

The labor courts usually tend to calculate the compensation amount in accordance with the employee’s salary, the amount of time he was employed as well as his behavior and conduct in the work place.  In one case for example, the Supreme Court ruled that Tel Aviv University as the employer must pay the employee compensation equal to 24 monthly salaries due to unlawful termination (456/06 Tel Aviv University vs. Rivka Elisheva and 4485/08 Rivka Elisheva vs. Tel Aviv University).

On the other hand, in the absence of a hearing, when the employee has been dismissed due to his own misconduct or breach towards the employer, the employee shall be entitled to a lower compensation.  The reasoning is that the financial compensation due to loss of employment and therefore the more it seems that even with a hearing the chances to remain in his position of employment are low, the financial damage caused to the employee is low (see 518/08 supra).

Advance notice: “Who is wise? He who discerns what is about to come to pass” (Talmud- Mas. Tamid 32a)

Once the hearing procedure has ended and the employer has decided to remain with his decision of dismissal, he is now required to give the employee advance notice.  Unlike the hearing obligation, the advance notice obligation is anchored in Israeli legislation.  Despite the topic of this article not being the employees’ obligations, it is important to point out that the law requires the employee to give advance notice to his employer as well.

The law casts an obligation on the employer who has decided to dismiss an employee to give said employee advance notice of the termination.  The employer is entitled to forgo the employee’s employment during the term of the advance notice, subject to the employer paying the employee the value of his employment during the term he has forgone (i.e. his wages during the term had he not been dismissed).  The advance notice must be in writing and include the date of notice as well as the date the dismissal is in effect.

The rational and calculation of advance notice

As already mentioned, the labor law protects the employee from damage to his livelihood and respect.  The purpose of the advance notice term is to allow the employee to prepare for the termination as well as to find an alternative work place.  Therefore, an employer who does not give advance notice will have to pay the employee compensation equal to his regular salary for the term during which sufficient advance notice was not given.

The National Labor Court has ruled that the payment for advance notice should be considered as salary for the purpose of entitlement to unemployment benefits, and the term of advance notice shall be counted as part of the training term for the purpose of unemployment benefits, even if the employer renounced the employee’s employment during the term of advance notice (123/07 The National Insurance Institute vs. Yehuda Zafrani et al).  This ruling has brought the courts to perceive the advance notice as a social purpose which promotes welfare and therefore recognize it as an integral part of the package of labor protection rights of employees.

Calculation of the sufficiency of advance notice is dependent on the amount of time the employee was employed as well as the nature of employment, as follows;

An hourly based employee is entitled to receive consideration of one day for each month employed, if employed for over 6 months.  An employee, who was employed for six to twelve months, is entitled to six days’ work for the first six months and two and a half days’ work for every successive month.  While an employee who was employed for over a year is entitled to consideration for one full months’ work.

A salary based employee is entitled in his first year to one day for each months’ work, in his second year, to 14 days’ for the first year and one days’ work for every two months in succession.  During the third year, the employee is entitled to 21 days for the first two years and one day for every two months in the third year.  As of the fourth year, the employee shall be entitled to one full month.

Exceptions to advance notice

Despite already determining that an employer who dismisses an employee without advance notice must compensate the employee, there are special cases in which said obligation shall not apply to employer and the employee shall not be entitled to receive advance notice.

The law lists two alternative instances which revoke the consideration:

The first, when the employee is dismissed for reasons that do not entitle severance pay or partial compensation, and then shall not be entitled to consideration for advance notice either.  For example, a secretary in a law firm took an unapproved vacation day and was therefore dismissed.  As of the date of dismissal, she did not return to the office and the court ruled that her dismissal was lawful since taking a vacation day on her own judgment is a severe disciplinary violation which revokes her right to consideration for advance notice (13222-07-10 Turgeman vs. Vash).

The second, when a disciplinary court hears the case and rules to dismiss the employee without severance pay.

The law today believes that revoking consideration of advance notice shall always be done in measure and only in the most rare and extreme cases since the actual termination and dismissal is punishment in and of itself (2089-09 Arman Yaakov vs. Elisra Electronic Systems Ltd. And 1126/00 Etziyon Hotel vs. Aviezer Sharoni)

Severance pay: “And when thou lettest him go free from thee, thou shalt not let him go empty” (Deuteronomy 15; 13)

The entitlement and calculation of severance pay is clearly stated in Israeli law.

An employee who worked for at least one consecutive year (or a seasonal employee, where a season is considered three consecutive months of which he worked at least 60 days, who worked for two seasons during two consecutive years) for the same employer, is entitled to severance pay if dismissed.

In the event the employee continues to work in the same workplace and the employers have changed, the employee is entitled to receive severance pay from the former employer, unless the current employer took upon himself said obligation in writing.

Courts have ruled that in order for an employee to be entitled to severance pay, the following criteria must all be met: a) he must be considered an employee by law.  b) he must accumulate seniority by consecutive employment by employer or work place. c) he must be dismissed.  An employee who quits is not entitled to severance pay, except under exceptional circumstances to be discussed infra.  Dismissal shall be considered as such for the purpose of receiving severance pay, even if not done explicitly.  It is enough that the reasons for termination prove that the employment relationship was ended by the employer (1195/99 Laniado Orli vs. Ortal Manpower Ltd. and 537/01 Weinegradov Igor vs. As Paris Jewelry Ltd.)

Employment shall be considered “consecutive” even in an instance that there is a break of some sort, insofar as the employer-employee relationship has not been cut off for more than three months.  Therefore, an employee dismissed while on army reserves duty, holiday, vacation, strike, illness and family mourning, shall be entitled to severance pay.

The law lists a small number of cases in which the employee shall be entitled to severance pay even when not actually dismissed.  The list includes bankruptcy, liquidation, death of employer, end of predetermined term and enrollment in army or police.

Additionally, there are instances in which an employee who quits shall be entitled to severance pay.  These instances include a) tangible worsening in employment conditions, b) employment conditions were such that employee could not be required to continue, c) health situation of employee or family member justifies quitting, d) employee gave birth and quit within nine months of the birth in order to care for the baby.

A number of examples in which courts ruled an employee who quit was entitled to severance pay:

1. A single father who quit was entitled to severance pay since his reason for quitting was the employer’s decision to move his work place which was close to home to a more distant destination which made it difficult for him to care for his son.  The court ruled that taking away his immediate accessibility to his son was considered a tangible worsening in employment conditions (8681-04-09 Pritco vs. I.S.S Ashmoret Ltd.)
2. A teller at a post office who was a victim of a violent robbery during work hours and quit due to trauma she experienced (1412/07 Dalia Bahari vs. Kadosh Uri).
3. A foreign worker who quit due to humiliating treatment she received.  The court ruled that since she received such embarrassing and horrifying treatment from her employer, it is considered as if she was forced to leave her place of employment (12198-08 Maria Teresa De Gozman vs. Sarah Rosenfeld et al).
4. A lawyer whose employer became disbarred yet continued to practice, was considered as if the circumstances did not allow him to continue working in the firm.  The court ruled that such an employee requesting to quit, has a legitimate request due to the disbarment of his employer (35086-05-10 Laniado vs. Popper).

The Severance Pay Rate:

An employee dismissed is entitled to severance pay at the rate of one months’ salary for each year he worked for the same employer or the same place of employment.  The determining salary for this purpose is the last salary received by the employee and includes: the base salary, seniority increment, cost of living, and any fixed increments which do not change.  On the other hand, various payments granted to the employee, such as for a telephone, car, overtime and convalescence pay, are not included and are not considered as part of the salary.

Revoking Severance Pay

The employee’s right to receive severance pay after dismissal is not an unlimited entitlement and there are circumstances in which it may be revoked.  However, one must keep in mind that severance pay is a social right that cannot be harmed unless due to exceptional circumstances since as mentioned supra, dismissal in and of itself is punishment enough.

The law states that partial or full revocation of severance pay is permissible in circumstances where the collective agreement in the sector determines its justification.  When the sector is not governed by a collective agreement, it is up to the court to decide if the circumstances are such that permit revocation based on the terms of the collective agreement governing the largest group of employees.

Two examples of the court agreeing to revoke severance pay:

1.  Full revocation from a secretary of four years who was dismissed due to her severe discipline violations which included examining other employees’ personal information including salaries and then publicizing the data (4906/08 Ben Ami Moran Aliza vs. T.B. Dessel Marketing Ltd.).
2. A bank worker convicted of stealing and violating the trust (2700/04 Bason Zahava vs. Bank Leumi Le’Israel  Ltd.).

However, courts have ruled that full revocation is the highest form of punishment and the labor court must use its discretion and when appropriate invoke a lesser punishment than full revocation (3-33 Newman Metal for Construction 1974 Ltd. vs. Masrawa and 2700/04 supra).

In 214/06 Aloniel Ltd. vs Tzerniakov, the Honorable Nili Arad quotes a previous ruling (60/06 Tamar Maizer Bablivovitz vs. Check Point Software Technologies Ltd.): “There are two aspects to revoking severance pay- to punish the employee for a severe discipline violation as well as to be a deterrent to other employees from acting in a similar manner.  When revoking severance pay, the employer conveys to the factory employees a deterring message while also giving an appropriate expression to his dismay of the employee’s unacceptable behavior.”

In this case the National Labor Court listed the criteria for which the severance pay can be revoked.

As part of the considerations for being stringent, the following must be considered:  the severity of the employee’s actions, the damage caused or could have been caused to the employer, the duration of the actions and amount of times committed, the duration of employment, the employee’s position, the trust and faith obligation, the influence of his actions on the other employees and on the workplace as well as the extent of deterrence necessary due to circumstances.

As part of the considerations for being lenient, the following must be considered:  the quality of the employee’s work during his employment, his contribution to the workplace, the intensity of the damage to be caused to the employee and his family by revoking the severance pay, his personal circumstances (such as age, marital status, health, ability to be employed in the future).

Dismissal of pregnant women during maternity leave and thereafter

Pregnant women, during maternity leave and thereafter are granted special protection under Israeli law.  An employer may not dismiss a pregnant employee who has been an employee for at least six months, without receiving special permission from the supervisor at the Ministry of Industry Trade and Labor.  A woman on maternity leave as well as the subsequent six months, may also not be dismissed without permission and therefore this term has been coined as the “protected period”.  Furthermore, the employer cannot even give advance notice during the protected period.

A pregnant employee who has been dismissed after less than six months of employment does not require the employer receive special permission, however she is entitled to sue for discrimination which is covered in a law that prohibits discrimination due to gender, pregnancy and fertility treatments.

The Tel Aviv Labor court ruled that an employer who dismissed a pregnant employee two days prior to her six month employment term, did not act in good faith since the employer’s conduct appeared to be an attempt to circumvent the law.  The court ruled he must therefore compensate her for nonfinancial damages of 10,000 NIS based on the law for equal opportunities (9372/04 Mordichai Sigal vs. Atzmaut Classic Ltd.).

The courts also ruled that dismissing a pregnant woman is only allowed after receiving special permission from the Ministry of Industry Trade and Labor, even when the employer was unaware that the employee was pregnant at the time of dismissal (15533/04 nili Knafo vs. General Health Services and 2641/07 Ada Feldman vs. Prof. Ariel Ben Amar Dental Services and Investments Ltd.).

Non Compete provisions in an employment agreement and its application subsequent to dismissal

An employment contract which has a provision on limitation of future employment opportunities means the employee is not entitled to work for other businesses which are similar or competitors.  This provision raises complicated questions regarding the collision between reasonable contractual limitations on the employee vs. the constitutional right to freedom of employment.  Which right takes priority- the employee’s right to enter into a contract with any employer or the freedom of contracts right to put stipulations in contracts?  What about the employer’s right to protect his intellectual property and proprietary assets?  Answers for these questions can be found in court rulings.

The court was forced to find a balance between the parties’ rights and the first case to list criteria for limited the right of freedom of employment, did so because of a legitimate interest to protect the employer.  In this case (164/99 Dan Froumer et al vs. Red Guard Ltd.) it was ruled that the limitation on employment is appropriate in instances in which the employer wishes to prevent the dismissed employee from using a commercial secret after investing resources and training the employee, as well as when the employee actually received consideration for signing the specific stipulation.  However, the basis for all is a commitment to good faith and trust.

In 6601/96 I.I.S. et al vs. Moshe Sa’ar et al. it was ruled that in every case in which there is a legitimate interest to limit the freedom of employment and the limitation withstands the test of reasonableness and proportionality, it can be deemed valid.  However, when it protect an interest but is not proportional, the court may intervene and minimize it so that it is limited to the proper proportion as deemed by the court.

The laws derived from court rulings:

1. When the stipulation limits the freedom of employment after termination of employment but without protecting a legitimate interest of the employer, it is in violation of public policy and is therefore void.
2. The legitimate interest of the employer must be proprietary, i.e. commercial secrets and client lists if such are secretive.  However, this is not an exhaustive list and there can be other legitimate interests and therefore in the trust relationship between the employer and employee the fairness and good faith commitments must be taken into consideration (189/03 Girit Ltd. vs. Mordichai Aviv et al).
3. Defending said legitimate interest must be reasonable and justifiable in such manner that the type of limitation and its territory must be limited.
4. A limitation of employment which stems only from the employer’s interest that the employee not compete with him, is void.

In the Girit case (189/03 supra) employees violated the trust and good faith towards their employer and while still being employed they made contacts with the employer’s suppliers, a relationship that was specifically prohibited.   The court ruled that due to the employees’ conduct, the weight of freedom of employment was diminished as was their legitimate interest to fulfill themselves on a professional level and therefore agreed that the limit on their post-employment was valid.  Since the consraint on limitation of employment was limited for one year and included only one type of business, it was deemed legitimate and proportional and therefore not voided.

Conclusion

An employer has a right to dismiss employees.  However, due to differences in power between the employer and the employee, the law seeks to protect the terminated employee who usually considers his employment as his whole fortune.

The labor laws in Israel are known as “protecting laws” since they protect the basic rights of employees to live in dignity and work in their field and therefore cannot be waived in a contract between the parties.

There is a real essential importance in knowing the norms and acceptable conduct which both the employer and employee must follow in such situations.  Compliance by both parties will prevent unnecessary legal battles and save money as well as time.  “Pirkei Avoth” 1;11 says: “love labor”; those who enjoy their work are said to engage in a “labor of love”. This article warns: show your love to those who labor for you by complying with the laws of dismissal.