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Blog  / Employment

Adv. Marie Tsion
You have decided to dismiss an employee. Here are five rules of thumb for conducting a hearing proceeding. These are designed to help you through the process, as well as to minimize the risks of lawsuits and employee demands for monetary compensation on the basis of unlawful dismissal.
Adv. Marie Tsion
Has one of your employees notified you that she is pregnant? Here are a few points you should know:   Permitted absence during pregnancy for the purpose of medical monitoring Any female employee who works up to four hours per day during a five-day workweek is entitled to be absent for up to 20 hours during a single pregnancy.   Any female employee who works more than four hours per day during a five-day workweek is entitled to be absent for up to 40 hours during a single pregnancy.   Changing the percentage/scope of employment or wage of a pregnant employee If a female employee has been employed by the same employer or at the same workplace for at least six months, her employer is prohibited from adversely changing her percentage/scope of employment or her wage, unless a special permit obtained from the Ministry of Labor.   Dismissal of a female employee during pregnancy If a female employee has been employed by the same employer or at the same workplace for at least six months, her employer is prohibited from dismissing her, for any reason whatsoever, unless a special permit obtained from the Ministry of Labor. The dismissal of a pregnant employee without having obtained such a permit not only constitutes grounds for a lawsuit, it also constitutes a violation of the law.   A dismissal permit may be obtained from the Ministry of Labor only if the employer succeeds in proving there is no connection between the dismissal and the pregnancy. However, even if the employer does prove there is no connection, there is no guarantee a permit will be issued.   It is important to note that even if the female employee has worked for less than six months, and the law does not require her employer to obtain a permit from the Ministry of Labor in order to dismiss her, if her dismissal is related to her pregnancy, she may sue the employer on the grounds of discrimination. Therefore, in any event, her dismissal must be for legitimate reasons.   Maternity leave and subsequent leave without pay   Duration of maternity leave If a female employee has been employed by the same employer for at least one year on the day of the childbirth, then she is entitled to 26 weeks of maternity leave, 15 of which are paid by the National Insurance Institute (while the remainder of the period is deemed leave without pay). If a female employee has been employed by the same employer for less than one year on the day of the childbirth, then she is entitled to only 15 weeks of maternity leave. In the event of the birth of more than one child, or if the mother or newborn is hospitalized, then she is entitled to a longer maternity leave.   Extending maternity leave as leave without pay Every female employee is allowed to extend her maternity leave by the number of months equivalent to about one quarter of her months of seniority, up to a maximum of one year, according to the calculation principles prescribed in the law.   Maternity leave for male employees Employers should know that a male employee who becomes a father is also entitled to maternity leave. He may elect to be absent for five days immediately after the birth of his child, on account of accumulated sick days and vacation days. Subsequently, an option also exists for the new father to actually take maternity leave instead of his wife, or together with her, upon fulfilling a number of criteria prescribed in the law.   Payment to provident funds during maternity leave If a female employee worked for the employer throughout her entire pregnancy, as well as for the six months that preceded her pregnancy, then her employer is obligated to continue making deposits to the female employee’s provident funds also during the period when she receives maternity leave pay from the National Insurance Institute. The same rule also applies to a female employee during a high-risk pregnancy, during which she receives a high-risk pregnancy benefit from the National Insurance Institute. Employers must comply with special regulations in this regard, and they must also issue a notice in this regard to the employee during her pregnancy.   Returning to work A female employee may shorten the duration of her maternity leave: If a female employee wishes to shorten her maternity leave so that it will be shorter than 26 weeks but not less than 15 weeks, her employer cannot postpone her return to work for more than three weeks after the date of her notice that she wishes to return to work. If a female employee has extended her maternity leave to leave without pay, and then later desires to shorten her leave without pay, her employer cannot postpone her return to work for more than four weeks after the date of her notice that she wishes to return to work.   As long as a female employee is absent by virtue of the law and is on maternity leave or on a subsequent leave without pay, her employer is obligated to hold her position and workspace for her. Her employer may recruit a temporary replacement for her during her absence, but when she returns to work, she must be reinstated in her position.   Employers are prohibited from dismissing a female employee for 60 days after her return to work, unless they obtain a permit from the Ministry of Labor. Such a permit may be issued only if the employer can prove the female employee's dismissal has no bearing on the period of her absence and, additionally, only if the employer ceases to operate.   Source: barlaw.co.il
Adv. Marie Tsion
Many employers worry about the day they might discover their employees are organizing and joining a labor union.   This concern is natural, since an employer used to running its business as it deems fit, and according to its business needs, is not interested in sharing the helm with its employees’ representation.   However, it is important to know that unionizing is a basic right in Israel and that employers cannot prevent their employees from unionizing. Therefore: You cannot prescribe in your employees’ personal employment contracts that they are not allowed to be represented by any employee organization. You cannot require employees to sign an undertaking to not be represented by a labor union or an employees’work council. You cannot bar a representative of a labor union from entering the employer’s premises.   If preliminary labor organizing has already begun, then it is even more important to strictly abide by the following rules of conduct: Do not keep records about which employees have joined the labor union or are activists promoting unionizing. Do not announce the employer’s dissatisfaction about the formation of the organization, and refrain from making any negative remarks about the unionizing, directly or indirectly, demonstratively or subliminally. Do not threaten, discriminate against, adversely change employment terms, or fire an employee because he or she is unionizing. Do not grant benefits or promise benefits to employees in relation to their joining or not joining a labor union. Do not send personal messages (SMSs, emails, letters, etc.), initiate or hold meetings with groups of employees, or engage in personal conversations in relation to any matter pertaining to unionizing or preventing it. Employers may continue to hold meetings or conversations with their employees in relation to any other matter, provided it does not concern unionizing and provided it will not adversely influence the unionizing efforts. Do not participate in an employees’ meeting, since even an employer’s passive attendance is liable to be construed as having an inappropriate influence on the freedom to unionize.   These stringent rules regarding the initial stage of unionizing were prescribed in labor court rulings in recent years, as part of the new era of unionizing in Israel, to prevent employers from being able to undermine unionizing by applying pressure and unfair coercive tactics on their employees.   Once the initial stage of unionizing has been completed, and the employees are represented by a representative labor organization, the balance of powers between the employer and its employees begins to level off and the employer is no longer perceived as the strong arm in these relations. This is because the courts view labor unions as bodies that protect employees, and thus bridge any existing gaps in the balance of powers in the employment relations.   Source: barlaw.co.il
Adv. Daniel Lorber
One of the common remuneration mechanisms in startups and technology companies is the granting of options to employees in addition to or, sometimes, in lieu of, the traditional remuneration component – the cash salary.   The practical meaning of granting options is that employees are granted a right to purchase shares of the company at a fixed price at some time in the future.   Options enable startups to compensate for their inability to offer attractive salaries and recruit a top-tier workforce (due to the lack of available funds in the initial stages of a start-up’s lifecycle) and, at the same time, the grant of options serves as an effective tool to align the interests of the employees with those of the company.   Recently, we have been seeing an increasing number of cases in which successful startups that succeeded in securing investments from more than one investor in at least two investment rounds, find themselves in a complicated situation, whereby the company’s capitalization table following the above investment rounds does not enable the company to effectively incentivize its employees.   How does this situation occur? When a company raises capital from strategic investors (for the most part, venture capital funds), it grants preferred stock to those investors against their investment. One of the key rights attached to preferred stock is the right to receive a certain portion of any future proceeds distributed upon the sale of the company, prior to the remaining shareholders (liquidation preference rights).   Since every strategic investor seeks to ensure a pre-determined return on investment, a company with several strategic investors may find itself in a  situation whereby, upon the occurrence of a sale event, the distribution waterfall of the proceeds dries up before it reaches the company’s ordinary shareholders, which, ordinarily, are comprised of the company’s founders and employees.   This situation poses a major challenge to the company to retain and recruit the “best and brightest” employees, especially since in this era employees in the field of high-tech are well informed regarding equity incentive mechanisms and they are looking to join a company that offers a substantive equity incentive – and not just one on paper.   This situation is also disturbing for the company’s current and potential investors, as every investor appreciates that the best way to guarantee that its investment will eventually reap profits is to ensure that the company’s employees are fully committed to the company’s success.   In order to create that incentive for the company’s employees, companies facing the above predicament may amend their equity incentive plan and adopt what is known as a carve-out plan. A carve-out plan essentially “carves out” a fixed percentage of any future sale event and designates such percentage of the founders or employees of the company.   The adoption of a carve-out plan requires full coordination with the company’s current investors, since they are the ones who will be relinquishing a certain portion of the proceeds to which they are entitled, to the benefit of the founders or employees.   The adoption of a carve-out plan also raises significant legal considerations, such as the need to amend the company’s existing articles of association in order to create a new class of shares which is specifically designed to provide the grantees under the carve-out plan with the exact rights which are required to implement the plan, without disturbing the existing relationships between the company’s shareholders. Additionally, the adoption and implementation of a carve-out plan raises issues in the field of taxation, due to the need to seek the Israeli Tax Authority’s prior approval to the carve-out plan before it can be implemented.   How can companies avoid this situation? Founders of startups need to devote considerable thought and planning prior to raising investments regarding exactly how much funds they require for the purpose of carrying out their business plan, and at what company valuation.   Often, accepting a lower investment amount than the amount that the company could raise in a particular investment round, or holding off on raising capital until the company reaches a more mature stage, thus enabling the company to raise capital at a higher valuation, will minimize the dilution of the ordinary shareholders of the company.   Of course, it is far easier to write about refusing available funds than actually turning such funds down in reality. However, adopting this kind of long-term thinking on the part of the founders of startups, and taking the issue of incentivizing employees as a dominant consideration from the company’s inception, may assist in avoiding having to face a problematic ownership structure which ultimately requires adopting a carve-out plan.   Source: barlaw.co.il
Adv. Marie Tsion
The year 2015 was characterized by legislative initiatives and interesting rulings relating to the labor market in Israel –employers became obligated to send written notices to job candidates about whether or not they have been accepted for employment, the issue of soccer games on Saturday and more. Here are a few salient points to remember from 2015:   Biometric clocks may not be used without consent – the State Attorney General, Mr. Yehuda Weinstein, submitted an opinion in principle to the national labor court, whereby employers desiring to install a biometric (fingerprint) attendance clock should be required to obtain the consent of the employees or of the representative labor union. The opinion also stated that, besides constituting an infringement on employees’ privacy by way of exposing biometric information in general, it also poses a danger that biometric information might be abused or unlawfully used, particularly due to the fact that such information may not be altered, unlike any other electronic means for recording attendance (such as by card or password).   Extension order for integrating people with disabilities in the labor market – the order, which was promulgated in October 2014, prescribed that, one year after the promulgation of the validated order, any employer with more than 100 employees is required to ensure that at least 2% of its employees are people with disabilities (this ratio shall be increased to 3% in October 2016). It is important to note that the definition of “people with disabilities” is broad and includes various types of disabilities (physical, mental or cognitive deficiencies, whether permanent or temporary). The committee charged with monitoring the advancement of integration of disabled persons in the labor market issued a directive in October that defined a “person with a disability” as anyone recognized by the National Insurance Institute as having a disability ratio of 40%, or anyone who has been deemed disabled by the rehabilitation committee of one of the authorities (Ministry of Defense, National Insurance Institute), or who has been defined as a disabled IDF soldier.   In order to comply with the obligation of fair representation, employers must count the number of people with disabilities who are employed in their businesses. For this purpose, employers may ask all employees to report voluntarily, while explaining that the information is needed in order to comply with the provisions of the extension order.   Employees subject to a collective bargaining agreement and to a labor union may file a class action against an employer on the grounds of deprivation of rights - In August 2015, a precedent ruling was handed down by the High Court of Justice that clarified that the Class Actions Law does not prevent the filing of class actions against employers, even if a collective bargaining agreement applies.   Up until August, the Class Actions Law prescribed that a class action may not be filed in a workplace operating under a collective bargaining agreement. This exclusion had been based on the assumption that a labor union would adequately represent the interests of all employees and that therefore, it is unwarranted to allow class actions to be filed in such workplaces.   This ruling by the High Court of Justice changed the practice of the national labor court of customarily assuming that labor unions adequately protect employees’ rights, making the filing of class actions superfluous.   Update to the minimum wage – in the beginning of the year 2015, an update to the Minimum Wage Law was published in the official gazette, which is to apply in four stages. The minimum wage was first updated in April 2015, so that currently, after the first update, the monthly minimum wage is NIS 4,650, while the hourly minimum wage is NIS 25. At the fourth stage, on January 1, 2017, the monthly minimum wage will reach NIS 5,000.   It is important for employers to keep track of the dates of the statutory rise in the minimum wage, and to ensure that the pay slips of employees who are earning more than the minimum wage are also updated, as required by law, to reflect the statutory minimum wage in effect on the date of issue of the pay slips.   The Obligation to Provide Notifications to Job Candidates -  Effective from 2015, potential employers (with some exceptions prescribed by law) require to inform candidates with respect to the screening process which applies to the position applied for within the employer's organization.    According to the Amendment an employer will be required to inform a candidate of this process on an on-going basis, as follows: give notice in writing every 2 months to the candidate about the progress of the selection procedure starting from the beginning of the candidate’s screening process and to provide written notice of to the candidate that another person has been appointed to the relevant position no later than 14 days after such appointment.   It is important to note that the screening process definition is broad, and includes any interview or test completed by the candidate. Therefore, the new obligations will apply in every case of recruitment and screening procedures, even when it is not a long screening process, including screening tests and involvement of outside institutions.     Notice Period where Employee is transferred to another Entity- As part of a decision given this year, the National Labor Court determined that in the case of the transfer of employees from one corporation to another corporation,  the first employer has the obligation to give employees an advanced notice period.   If the first employer does not give the required notice, the relevant employees are entitled to receive a salary from both employers in respect of the notice period which should have been given.    
Adv. Marie Tsion
Employee rights in Israel are regulated by a long list of laws, extension orders and collective bargaining agreements. The perception of labor law is that it is primarily protective of employees vis-à-vis employers, and indeed, a basic rule of law states that employee contracts cannot derogate from rights prescribed in laws, extension orders and collective bargaining agreements, but may only supplement them. In light of this stance and this rule of law, the importance of employee contracts has steadily diminished over the years and today, the sentiment among many employers is that an employee contract is not really meaningful and is merely a declarative document that employers should retain for the sake of good order. Many employers do not make employees customarily sign employment contracts at all, while others make use of an old outdated version of a contract. In fact, contrary to this attitude, an employment contract is exceedingly meaningful and important, if it is drawn up correctly.   Employment contracts help employers comply with their statutory obligations The Notices to Employees and to Candidates for Employment Law (Employment Terms and Screening and Hiring Procedures) was enacted in 2002, which obliges every employer to issue written notice to every employee, specifying his or her principal  employment terms, but does not require the employee to sign the notice, nor does it require the inclusion of the employee’s obligations. The law defines a list of compulsory details for inclusion in the notice or, alternatively, in the employment contract that constitutes a substitute for this notice. If an employer fails to issue a notice or issues a notice that fails to comply with the law, this constitutes a violation of the law, for which the employer can expect fines and the employee can also sue for compensation as a result. In this instance, a correctly drafted employment contract can help employers comply with their statutory obligations, by including in the contract all of the details required by law, as well as the employee’s warrants and covenants that are not included in the statutory notice. There are additional contract clauses that an employer can include in the contract in order to minimize its exposure, such as overtime clauses or clauses addressing deductions of an employee’s wage due to various debts (such as if an employee’s use of  gasoline, telephone, etc., exceeds the defined limit). Employment contracts can be helpful in overcoming statutory restrictions. For example: employers are prohibited from requesting medical information from employees, due to the privacy protection law; however, a clause may be incorporated in the employment contracts in which the employees must warrant that there is no medical reason why they cannot perform their jobs according to the job description. Another example: employers are prohibited from demanding a ‘police certificate of no criminal record’; however, employment contracts enable employers to obtain warrants from their employees that they have not been convicted of particular offenses that relate to the positions for which they are candidates. Another example is the non-competition clause that many employers want to include in employment contracts. It is important to note that, even though the labor courts will not always enforce such a stipulation, if such a stipulation is not included in the employment contract, then the employer cannot file a motion to the labor court that relates to non-competition on the part of an employee. Another topic associated with competition is the issue of intellectual property, a topic that must be regulated in employment contracts, in clauses that define the proprietary rights to the intellectual property, that assure employees’ future cooperation and that regulate the matter of the consideration in respect of the intellectual property, etc.   Employment contracts expressly regulate contractual rights Apart from the fact that employee contracts help employers comply with the statutory requirements, there are many employment rights that are purely contractual rights and are not anchored in laws, and therefore, the employment contract is the only possible instrument for regulating them. Therefore, the more explicit and detailed the employment contract is, the fewer are the uncertainties and the chances that disputes will arise over interpretation of these rights by the labor court. Examples of contractual rights not prescribed by law are bonuses, sales commissions, options, company car, telephone, etc. Commissions and bonuses are good examples of rights that labor courts are often petitioned to interpret as a result of the ambiguity of the arrangement or because they were not adequately defined in a contract. Consequently, it is important to regulate these rights clearly and unequivocally in an employment contract, including the eligibility criteria, the calculation methodology, the examination date, the payment date, etc. In Gimelstein vs. Yazamco Ltd., the national labor court (appellate level) was petitioned to deliberate a sales representative’s various bonuses (target-based bonuses and a profitability-based bonus), who also received sales commissions within the scope of his employment contract, and to rule whether or not they constituted a component of his wage.   Employment contracts help to assimilate procedures and policies Employment contracts are also ideal tools for employers to define and assimilate procedures and policies on various issues, such as safety, the prevention of sexual harassment, attendance reports, protection of privacy, etc. Employment contracts constitute a convenient instrument for informing employees of the various work procedures without having to produce a thick procedure manual. This will not only add clarity to the work relations, but may also help employers to defend themselves during various legal proceedings, when the employer must prove that it took appropriate action to assimilate policies and took appropriate preventative measures. A prime example of this may be found in the ruling of the national labor court on the matter of an employer’s right to read its employees’ e-mail correspondence: in the Tali Iskof case, the national labor court ruled that in order for an employer to not be deemed as having infringed on its employees’ privacy, the employer must show that it had set a clear policy about the use of e-mails and had informed its employees about this policy.   Employment contracts help to reduce employment costs Beyond the importance of an employment contract in terms of managing risks or minimizing legal exposures, it also constitutes an instrument for defining various arrangements that help regulate the cost of a position and reduce employment costs. Some arrangements can reduce the employment cost, provided that they have been expressly and accurately defined in the employment contract drafted by a professional. For example, the arrangement pursuant to Section 14 of the Severance Pay Law, whereby an employer will be exempt from paying supplementary severance pay in the event of a dismissal, will only be valid if it has been correctly worded and incorporated in the employment contract. A bonus will not be considered a wage component only if the bonus plan has been correctly structured, is defined as meritorious and as not constituting a guaranteed wage component. On the other hand, there are components that may be included in the wage, if they have been expressly defined as such in the employment contract, as was the ruling in the Orient Color Photography Industries (1986) Ltd. case on the matter of convalescence pay, travel expenses and holiday pay. In summation, employers benefit from recognizing the importance of employment contracts and their contribution to both the legal aspects of employment relations, and to their labor relations in general, since they provide both parties with certainty and clarity. Employment contracts help employers to assimilate policies and procedures, to enhance their image and reputation, to reduce employment costs without adversely affecting motivation, and also help employers to minimize exposures to civil suits lodged by their employees, as well as exposures to enforcement proceedings by the Ministry of Labor relating to criminal and administrative matters, including in relation to the liability of managers who might be found personally liable for offenses committed by the employer's corporation.
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