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Labor Law in Israel
Prepared by L. Marc Zell, Adv. and Keith Shaw,
Adv., Zell, Goldberg & Co.,
Jerusalem and Tel Aviv, An Affiliate of the FANDZ International Law
Group.
June 1997
Background
As is only to be
expected, the field of labour law in Israel is a large one, and it would
not be practicable nor expedient to attempt to cover the entire field in
a briefing note of this nature. Accordingly, this note will concentrate
on those laws and the specific areas of those laws which are of the
greatest potential relevance to a foreign investor, and at the end will
provide a list of other laws in the employment field on which
information can be provided if required.
The central initial
point which must be understood concerning labour law in Israel is that
there are significant differences between the employment framework here
and that which typically exists in other western economies, both in
terms of the engagement of employees and the terms of their employment.
This arises chiefly due to the prevailing socialist system of government
during the early years of the State, which led to the enactment of a
number of “protection laws” in the fifties and subsequently. In
particular, minimum conditions of employment were created in a number of
areas, meaning that individual employment contracts could not derogate
from employees’ rights under law. In addition, a special status was
conferred upon collective agreements, whose provisions prevail over
those of individual employment contracts.
It is relevant to
note that membership of labour unions in Israel is very high, being
something in excess of 70% of employees. The majority of employees are
members of the General Federation of Labour in Israel, known as the
Histadrut. The Histadrut’s representation covers all areas of the
economy - public and private sectors, skilled and unskilled workers,
clerical and academic.
Almost all workers
in industry, construction, agriculture and certain other areas work
under collective agreements. In these fields, it is customary for senior
and management employees, who are not union members, to enter into
individual employment contracts. Further, such contracts are customary
for all employees in the computer and high-tech industries.
Engaging employees
Since 1991, there
has been no restriction on the methods by which employees may be engaged
- such as through advertisements, private employment agencies, and so
on. However, foreign workers, including those from Judea, Samaria and
Gaza, must be engaged through the official labour exchange, and in
addition must carry a work permit, the breach of which condition is an
offence by both the employer and employee. For more detail in this area,
see separate section below.
As in other
jurisdictions, the law differentiates between employees and independent
contractors. Whether a particular individual is one or the other is
determined by the facts of the matter and the character of the
contractual relationship, in accordance with criteria set down in
judicial decisions, and not by the name given to their contractual
relationship. Clearly, given the blanket of protective laws which apply
to employees, together with the potential applicability of collective
agreements, the distinction is an important one. In addition, an
employer must deduct tax at source from his employee’s salary and pay
national insurance on his behalf. Further, employment “packages” in
Israel often include such matters as the employer’s contribution to the
employee’s pension fund, provident fund, fund for continuing education
in his field, and “director’s insurance”, which is not, as the title
might suggest, insurance for liability incurred while acting as the
director of a company, but rather a particular type of insurance offered
to employees who do not have to be, and normally are not, directors (see
below).
Where a collective
agreement is in effect, it is often the case that employees will not
have personal employment contracts, except in the case of senior
employees for the purpose of including additional benefits.
Engaging Foreign Personnel
A non-resident
foreign national who wishes to work in Israel must, as referred to
above, obtain a work permit. This can be achieved by application in
writing to the Ministry of Labour by the prospective employer, giving
personal details of the proposed employee together with an explanation
of why a foreign national is required. As this latter requirement
suggests, the matter is unlikely to be problematic if the individual in
question is required to fill a senior management post or possesses
particular expertise, but should the job in question be one which does
not require any special level of qualification, the requirement might
prove more difficult to fulfill. The employee should also complete a
separate form.
The application is
sent to the Office of Employment in Tel Aviv, which decides whether or
not to recommend the granting of a permit. It then refers the matter to
a committee in Jerusalem for the final decision. Although this committee
sits every two weeks, it can in practice take up to two months to
receive the permit.
If the prospective
employer is a company which receives a form of incentive under the
Encouragement of Capital Investment Law (see separate note), it would
appear that approval for the application will also be required from the
Investment Centre.
If approval is
granted, notification will be given by way of letter. Application can
then be made to the Ministry of the Interior for the issue of the
appropriate visa (classification B-1), this being made by way of the
appropriate form, together with the approvals mentioned above, and
photographs both of the employee and of his or her spouse and family, if
it is required that they be included on the visa. In practice, and
regardless of the period applied for, the visa will normally be granted
for a period of one year and will require renewal after that time.
In addition to the
above requirements, the Ministry of the Interior may also require the
provision of a security bond from the employer, together with such other
undertakings as they may specify. It will also require proof of
residence in Israel, either in the form of a purchase contract or a
lease, and of sufficient health insurance coverage for the employee and
his family for at least one year.
Although, as
stated, the employee may include his or her spouse and family on the
visa, should the spouse also wish to work in Israel, it will be
necessary to follow the same procedure.
If, as is likely,
the employee is intending to come to Israel for an extended period of
time, it is probable that he will wish to bring his household effects
with him. In order to achieve exemption for the payment of customs
duties on such effects, it will be necessary to present the B-1 visa to
the customs authorities, together with a guarantee from the employer to
the effect that the duties will be paid in the event that the effects
are not re-exported at the end of the employee’s period of employment in
Israel.
As can be seen from
the above paragraphs, the procedure for engaging a foreign employee is a
slightly involved and invariably time-consuming process, and therefore
it is advisable if at all possible to carry out as much of the procedure
as possible before the employee and his or her family arrive in Israel.
If this is not possible, their entry into Israel will be on B-2 tourist
visas, which are valid for three months. This is doubly inconvenient as
the employee is not allowed to work during this time, and further may
have to leave on the expiry of the visa if the work permit and B-1 visa
have not been received during that time. However, there are situations
in which this is unavoidable.
With regard to the
import of household effects in such a situation, given that these cannot
be released free of customs duties until the B-1 visa has been obtained,
it is nevertheless possible in practice to write to the customs
authorities informing them that the application has been filed, together
with a copy thereof. In general, the customs authorities will then
release the effects upon provision of a security bond which is
realisable if the visa is not obtained within the time they require.
One final matter to
which reference should be made is the Israeli Law of Return, which
exists due to the particular character of Israel as the Jewish State.
Under this law, any person who is Jewish (as therein defined) has an
automatic right to immigrate to, settle in and become a citizen of the
State of Israel, immediately upon their arrival in the country (there
are limited exceptions for individuals with criminal backgrounds).
Accordingly, the above regulations will not apply to Jewish foreign
employees who immigrate to Israel and who acquire citizenship, though
they will still apply to such individuals who do not wish so to change
their permanent status.
Collective Agreements
A collective
agreement is defined by the Collective Agreements Law 1957 as an
agreement made between either an employer and an employers’ organisation
and an employees organisation, concerning all or some of the following:
hiring of employees or termination of employment, working conditions,
labour relations, and the rights and obligations of the parties to the
agreement. There are two types - special collective agreements, which
are for a particular enterprise or employer, and which are made between
the particular employer (or his representative organisation) and the
relevant representative employees’ organisation, and general collective
agreements, which are for all or part of an area of Israel, for specific
or all branches of employment, and which are made between the
representative employers’ and employees’ organisations for the area or
branch concerned.
Collective
agreements apply to all employees of the categories included in the
agreement who are employed in trades or functions included in the
agreement by employers who are party to the agreement or who are duly
represented, even if they are not members of the employees’ organisation
which is a party to the agreement. In addition, general collective
agreements apply to all employers in the branches or areas included in
the agreement who are members of the employers' organisation which is a
party to the agreement. Accordingly, if an undertaking is a member of an
employers’ organisation which subscribes to a general collective
agreement, the provisions of that agreement are automatically imposed on
that undertaking and its employees.
The net effect of
this is that in order to determine the employment terms which prevail in
a particular company, it is not enough simply to consider the individual
employment contracts of the employees - one must in addition investigate
whether there are any relevant collective agreements either to which the
company is a party or by which the company is bound, and if so what the
terms of such agreements are.
The Minister of
Labour and Social Affairs (“the Minister”) is empowered to extend the
scope of any general collective agreement, and indeed the general
collective agreement between the Histadrut and the Coordinating Bureau
for Economic Organisations has been extended to the whole economy. This
deals with the payment of cost of living increases, convalescence
allowances, and traveling expenses to and from an employee’s place of
work. Other general collective agreements have also been extended.
Under this Law, the
personal provisions in a collective agreement are considered as a
personal employment contract between the employer and the employee, and
consequently an employee may claim individually against his employer in
respect of his rights under the collective agreement. In addition, a
waiver by an employee of any right acquired under a collective agreement
is invalid, and where a personal employment agreement and a collective
agreement both apply, the employee benefits from the most favourable
provisions of both.
One should note
also the existence of collective arrangements, which are customary in
many places of employment. These are arrangements between employer and
employee which for reasons of formality are not considered collective
agreements, and which accordingly carry less weight. The personal
provisions in collective arrangements constitute implied terms in the
contract of employment only, and are accordingly overridden by the terms
of a collective agreement or personal contract of employment. In
addition, the provisions of a collective arrangement may be waived.
Remuneration and its protection
The payment of a
minimum wage in Israel is covered by the Minimum Wage Law 1987. This
provides that the wage to be paid must be no lower than 45% of the
national average for a full working day, though this amount does not
take into account various supplements such as overtime, shift payments,
expenses and bonuses. As is to be expected, in any workplace to which a
collective agreement prescribing a higher wage applies, the employer is
obliged to pay the higher wage. The base amount for the minimum wage is
updated annually on 1 April.
The employer’s
obligation to make timely payments of wages is cemented by the Wage
Protection Law 1958. This requires the employer to pay his employee’s
wages by the ninth day of the following month, which includes overtime
and other additions due. If payment is made after this date, the
employee is also entitled to claim wage delay compensation, in the
amount of one twentieth of the amount due for the first week, and one
tenth for every subsequent week, together with linkage differentials. A
court will only cancel or reduce such compensation if it is satisfied
that the delay was due to a bona fide error, or because of circumstances
beyond the employer’s control, or because of a substantive dispute in
respect of the debt itself, provided that any amount not in dispute was
paid on time. An amount due from an employer to a benefit fund will also
be deemed a delayed wage, though here the period for payment is 21 days.
This Law also
prohibits the attachment, transfer or charge of a certain percentage of
the wage, in order to safeguard the subsistence needs of an employee and
his family. The protected amount ranges from 25% of the average national
wage for an employee who is single up to 47.5% of such wage for an
employee married with at least two children.
Certain deductions
from an employees wage are either obligatory or permissible under this
Law. These include income tax, national insurance, debts of the employee
to his employer (up to one quarter of the wage), deductions by virtue of
a collective agreement, and amounts which the employee agreed in writing
to have deducted.
Annual Leave
The Annual Leave
Law 1951 obliges an employer to grant every employee annual leave on
full wage, the length of which will depend on the length of service at
the place of employment by that employee. The current entitlement is 14
days in the first four years of employment, rising to 15 days in the
fifth year, 18 days in the sixth, 21 days in the seventh, and one day
extra for every year thereafter to a maximum of 28 days. These are
minimums only and may be increased.
An employee is
entitled to the full leave period if he is employed for an entire year
and works at least 200 days in that year; if he is employed for only
part of a year, if he has worked at least 240 days. In either case when
the employee has worked less, his entitlement will be relative to the
number of days worked. These entitlements do not apply to an employee
who works less that 75 consecutive days in a year, who receives payment
in lieu instead.
Days of reserve
duty, festival days, days of mourning in the family, days of sickness,
days of maternity leave and days of strike or lockout are not counted as
leave days.
If an employee’s
employment ends, for whatever reason, before he has received the leave
due to him, he is entitled to leave compensation equivalent to the pay
which he would have received while on leave.
Leave pay, leave
compensation and payment in lieu are, for all purposes, treated as pay
and accordingly all the appropriate conditions apply to them. In
addition, if an employer fails to give his employee leave or to pay him
any of these payments within a reasonable period of time, he is guilty
of an offence and liable to a fine of up to NIS 40,000 (approximately
$11,700) per employee.
Sick Pay
The majority of
employees in Israel enjoy the right to sick leave by virtue of
collective agreements or personal employment contracts. Customarily,
these provide that employees are entitled to receive full payment for up
to 30 days’ illness per year, commencing from the first illness, with
the right of accumulation.
For those that are
not so covered, their rights are regulated by the Sick Pay Law 1976.
This provides that an employee shall be entitled to sick pay for one and
a half days per month of employment, with the right of accumulation up
to a maximum of 90 days. The employee is not entitled to payment for the
first day of any one illness, but on the second and third days is
entitled to 37.5% of his regular wage, and from the fourth day on 75%.
Sick pay is in all respects treated as wages.
In addition, by two
new laws passed in 1993, every employee is entitled to sick pay for
absence due to the illness of any child under 16, up to six days per
year, this being deducted from his or her accumulated right to sick pay,
and also due to the illness of a parent over 65 who is totally dependent
on assistance for carrying out his or her day-to-day activities.
Hours of Work and Rest
These are regulated
by the Hours of Work and Rest Law 1951. In general, this Law provides
that a working day for an employee shall not exceed eight hours, and
that work on the eve of a holiday or weekly rest, as well as night-time
work, shall not exceed seven hours. A working week shall not exceed 45
hours. Certain deviations from these rules are permitted, in particular
by subscribing to collective agreements on terms authorised by the
Minister. An appreciable part of the economy has taken the opportunity
to do so, with the effect that the standard working week in Israel
comprises five days of nine hours per day, though significant sections
of the economy such as shops and banks remain open for at least part of
the sixth day.
Employees are
allowed a weekly rest of 36 hours, and the Law forbids the working of
additional hours or during the rest period without permission. General
permits exist for overtime work of up to 15 hours in a five day week,
and also special permissions for working during a weekly rest for those
bodies whose activities cannot be interrupted, such as electricity and
water companies, hotels and hospitals.
The Law also
prescribes remuneration for additional work periods (125% for the first
two hours and 150% thereafter and for work during the weekly rest), and
provides that manual workers shall be entitled to a rest interval during
the work day during which they may leave their place of work.
A notable feature
of the Law, however, is the types of employment to which it does not
apply. In addition to certain defined groups such as policemen,
particular Government employees and air crew members, the Law does not
apply to employees in managerial positions, employees from whom a
special measure of personal confidence is required, as well as employees
whose hours of work and rest cannot be supervised by their employer due
to the conditions and circumstances of their work.
Termination of employment
As a general rule,
the employment relationship may be terminated in a number of ways -
completion of the agreed period of employment, resignation, dismissal,
retirement, death of the employee, or liquidation of the undertaking.
The completion of a
contract for an agreed period is simply considered expiration, and
neither party has any further obligations to the other following such
time. Resignation or dismissal during a fixed term contract constitutes
a breach of contract and gives rise to compensation, but in a contract
without a fixed term an employee is entitled to resign on giving prior
notice. In addition, an employer is entitled to dismiss an employee
employed for an unspecified period under a collective agreement in
accordance with the terms of that agreement (failure to act according to
its provisions constitutes a breach of contract which entitles not only
the employee to claim compensation, but also the union to claim
cancellation of the dismissal).
Where the length of
prior notice required for dismissal or resignation is not prescribed in
a collective agreement or employment contract, the length of notice
required is one month for an employee receiving a monthly salary and two
weeks for an employee receiving a weekly wage.
In the case of
dismissal due to a cutback, the number of dismissals is determined by
the employer, but the identity of the actual employees dismissed is
determined by seniority and the needs of the undertaking. In the absence
of agreement, the matter is referred to arbitration.
The remedy for
dismissal or resignation in breach of the terms of an employment
contract or a collective agreement is compensation for breach,
independent of the issue of severance pay (see below). Generally, the
amount due is the wage which would have been earned during the period of
notice.
Severance pay
The Severance Pay
Law 1963 provides for the payment of severance pay to any employee who
worked for the same employer or in the same workplace continuously for
one year and was dismissed. In addition, employees who have resigned are
entitled to severance pay in a number of instances, both under the Law
(in such cases as resignation due to ill health, on reaching pensionable
age, within nine months after childbirth, or due to transfer of place of
residence more than a certain distance from the workplace for particular
reasons) or as a result of collective agreements. In addition, it has
become customary in many places in Israel to pay employees severance pay
on resignation even when none of the stated grounds strictly applies.
The rate of
compensation is one month’s salary for every year worked, pro-rated for
part of a year.
Under certain
circumstances, severance pay may be denied by law, such as in cases of
serious disciplinary offences, or criminal offences such as theft or
embezzlement.
The Law permits
regulation of the arrangement of pensions or other matters in place of,
or on account of, severance pay, if so determined in a collective
agreement or by an order of the Minister. In the case of a pension
arrangement, the employer will make a monthly contribution of a fixed
percentage of the employee’s monthly wage, currently 12%, with the
employee contributing 5.5%. An alternative arrangement which releases
the employer from its severance pay obligation is director’s insurance
(referred to earlier), provided the relevant scheme is authorised by the
Minister. Here the employer contributes 13.33% and the employee 5%, and
the scheme ensures a large single payment or monthly payment to the
employee or his survivor having regard to his retirement age, disability
or death. Certain other arrangements may also be authorised.
Freedom of occupation after
termination and trade secrets
It is a generally
accepted principle that an employer is entitled to protect his
professional and trade secrets, and that there is a risk that a
departing employee may take advantage of the knowledge gained during the
course of his work to the detriment of the employer. Accordingly, the
law recognises that an employer should be permitted, within reasonable
limits, to place some restrictions on his employee’s future actions,
with regard both to future employment, and to the use of information
gained through his employment.
Professional
secrets have been broadly defined in decisions of the Israeli courts to
include such matters as commercial secrets, lists of actual clients, and
contract terms with suppliers and customers. The courts have ruled
variously that these are protected both as a property right and as an
obligation of loyalty owed by the employee, though without reaching a
firm consensus, and consequently it seems highly likely that there is no
need for their express protection in a contract of employment. As is
ever the case, though, the employer must prove that the information in
question does constitute a professional or trade secret, as opposed to
information which could have been procured independently with reasonable
diligence, or which no longer constitutes a secret due to general public
dissemination or availability. In this area the Israeli courts have
developed a similar doctrine to those of the UK, which also
differentiate between actual information which can be classed as secret
on the one hand, and on the other information which can be said to be
reasonably available or knowledge or skill which has been gained by the
employee himself as a result of his employment. Please see our separate
note on the specific area of protection of trade secrets.
As to
non-competition following termination of employment, the question of the
validity or otherwise of any such clause in an employment contract will
in each case be a question of fact for the court. As was most recently
stated in Elite Israeli Industries and others -v- Yaakov Serenga and
others, restating a principle established over more than twenty years of
case law, any restriction on freedom of employment must be explicitly
stated in the contract, and must pass two tests - that the restriction
is necessary to protect the legitimate business interests of the
employer, and that it not damage the public interest.
In applying such
tests, the court will take into consideration competing factors such as
freedom of occupation, protected in Israel by the Basic Law of Freedom
of Employment, freedom of contract, and the need for a competitive
economy. In particular, in deciding whether the clause is reasonable in
the limitations which it seeks to place, they will consider such matters
as time period, geographical range, the scope of the restriction, and
also how the clause protects the commercial secrets of the employer.
Accordingly, while these can be stated as general principles, the
decisions of the courts will vary in each case depending on the
particular facts under scrutiny. By way of brief example, in Damati -v-
Ganor a restriction upon working for any competitors for four years
after termination of employment was held to be excessive, and a similar
clause with a three year restriction was equally held to be beyond what
was necessary, in The Israeli Electric Cable Company -v-Kristianfoller.
Mention should
briefly be made of the Basic Law of Freedom of Employment, referred to
above. Without exploring too deeply the constitutional position of the
various Basic Laws, it is sufficient to say that between them they
constitute the central principles on which the State is founded, in the
case of this and one other Basic Law enjoying a greater form of legal
entrenchment than other laws, and thus can perhaps be said to
collectively make up the closest thing the State has to a constitution.
The Basic Law of
Freedom of Employment establishes the central principle that all
citizens or residents of the State are entitled to be employed in any
business, profession or trade, and that only a law in keeping with the
principles of the State is entitled to derogate from this principle. It
also states that all State authorities are obliged to uphold the
principle of freedom of employment, a statement which the recent case of
Egged Transportation -v-Mashiach and others extended to also cover
relations between individual parties. As was stated there: “The Basic
Law of Freedom of Employment grants formal statutory recognition to this
right [of freedom of employment] and an extra-legal status. It has
become a fundamental and protected right which enjoys a higher normative
status than a provision of a ‘regular’ law, or than the legal principles
recognised in Israel.” No further illustration is required of the value
with which the legal system in Israel endows this principle.
Transfer of ownership
The provisions of
various laws protect an employee in the event of a substitution of
employer, the basic net result being that the obligations of the former
employer become those of the new employer. The new employer takes on the
employee with his earned seniority, including any extra vacation or
other dispensation to which he is entitled.
This is of most
relevance in the area of severance pay, which, as noted above, is
calculated based on the period of the employee’s work at that workplace,
and not just for the particular employer. In addition, the Collective
Agreements Law provides that while an undertaking may change hands, the
law views the new employer as the person responsible with regards to the
collective agreement.
Similarly, the Wage
Protection Law provides that a new employer is liable for the wage
obligations of the previous employer. However, if a new employer
publishes a notice at the place of employment and in two daily
newspapers requiring the employees to detail the obligations which they
are owed, he will be liable only for those obligations so detailed by
the employees within 90 days of the date of publication.
As to whether a
change in ownership would permit a new employer to worsen or diminish
the rights of the employees, the above demonstrates that the new
employer effectively steps into the shoes of the old, and thus acquires
all the previous employer’s obligations to the employees. Such scope as
there is for diminishing employees’ rights is restricted to the
publication of a notice with regard to wage obligations, as detailed in
the previous paragraph, and the possibility, in a company which is
covered by collective agreements, of the arrangement of a collective
agreement whereby the employees would be paid severance pay for the
period of employment prior to the change in employment, thereby
relieving the new employer of any payment obligations for previous
periods.
Other labour laws
As stated above,
the laws detailed above are those which are of the greatest relevance to
the present matter. The following are other laws in the field of labour
law which are of less immediate importance:
Acquisition of
Enterprises by their Employees (Special Cases) Law 1987
Apprenticeship Law
1953
Basic Law: Freedom
of Occupation
Discharged Soldiers
Reinstatement Law 1949
Employment of
Employees by Manpower Contractors Law 1996
Employment of Women
Law 1954
Employment Service
Law 1959
Equal Employment
Opportunities Law 1988
Equal Retirement
Age for Male and Female Employees Law 1987
Foreign Employees
(Unlawful Employment) Law 1991
Labour Inspection
(Organisation) Law 1954
Male and Female
Workers Equal Pay Law 1996
Protection of
Employees (Exposure of Offences of Unethical Conduct and Improper
Administration Law) 1997
Settlement of
Labour Disputes Law 1957
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