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.
Trends In The TMT Industry
December 24, 2015 / by Isaac Hanania
December 24, 2015 / by Isaac Hanania
The Technology, Media & Telecommunications area is changing. We are now seeing new products, new services and innovation at a faster rate than ever before. The Israeli government identifies TMT as one of the most robust areas of the Israeli economy today and it encourages multinational companies to develop their IP within Israel. The government provides tax benefits, funds and grants to companies who develop their IP in Israel, under domestic and international programs, agreements, treaties and collaborations. Programs are directed and funded via the Office of the Chief Scientist (“OCS”). The applicable legislation is the Encouragement of Industrial Research and Development Law. However, there was one aspect of this Law which, in fact, had the effect of discouraging international companies from moving their IP research activities to Israel. The Law restricted the transfer of know-how developed by companies under the program in Israel outside its borders, by setting a redemption fee which was very often undefined, thereby alienating international buyers from a potential investment or M&A. Recent regulatory changes have reformed this contentious issue and it is now legally possible for know-how developed in Israel to be transferred outside of Israel, after receiving the approval of the OCS and the making of the payment of a predetermined transfer fee. Thus, more certainty has been introduced for interested parties. Further reforms were introduced on January 20, 2014, when the Israeli Parliament amended the Patents Act, revising the patent term extension, and in March of 2014, the U.S. Trade Representative's office removed Israel from the agency's watch list for IP violations, which originally had occurred following pressure from the research based international pharmaceutical industry which was competing on the global stage with the local generic drugs based pharmaceutical industry. The “cherry on the cake” in so far as reforms are concerned is that, as of 2014, under Israeli legislation, high-tech companies may pay as little as 9% tax instead of the current 26.5%. This constitutes a very attractive benefit for participating companies. Israel is known to be one of the leaders in the ever-popular and continuously growing 3D printing sector. A new 2015 initiative funded by the OCS aims at using 3D printers designed to print metal components such as titanium for the aerospace industry, dental implants, bone substitutes, and more. This may effectively place Israel at the leadership of a new coming revolution of "self-manufacturing". Legislators will need to quickly adapt to these technological innovations. The major legal issues related to 3D printing not only revolve around intellectual property, but also with safety, product liability and data protection issues. Digital blueprints will most likely be re-created and disseminated in order to print 3D replicas of protected products, or fabricate enhanced creations of existing designs and works of art. Law enforcement will also face new forms of crime involving the use of 3D printing of illegal, regulated or banned products. As for wearable tech, companies which will allow their employees to use such wearables will be faced with issues related to trade secrets, data security and corporate espionage. Strict internal policies and guidelines will need to be put in place. Many companies find themselves having to deal with patent and IP disputes, which of course can be damaging and costly for a company. So, proper planning should precede business activity. It is therefore critical for a company to decide whether to protect its IP with a patent, and if so, where to register the patent. Once it is approved, the patent allows the company to have an advantage in its field of business endeavour. Patent litigation can be very expensive and time consuming. Before filing a patent infringement lawsuit, it is advisable to try to amicably resolve the matter by mediation and reconciliation, no matter where it may be initiated. An experienced, expert lawyer should be retained to represent the aggrieved company. However, if it is not possible to amicably solve the dispute, the company should seek a jurisdiction which is most favourable to it. The jurisdiction is usually determined by the defendant’s domicile, or where the infringement activity takes place, or if the result of the infringement activity will have an effect on a specific territory. As regards Israeli companies, most of the sales and marketing efforts are typically focused in the USA, as would the protection of their IP. In the event of an infringement, it will most likely be litigated in the USA. Sometimes, the infringement may give rise to multi-jurisdictional litigation, thereby requiring claimants to seek favourable judgements capable of being enforced in other jurisdictions. The Israeli telecommunication industry has been a major player in the technology development global arena. WiMAX, VoIP and TDMoIP, are shining examples of Israeli innovation. Currently, the telecom market is rather concentrated and very competitive and opportunities are few. Any new joint venture, acquisition or merger will have to overcome the scrutiny of the Israeli Antitrust Authority and the Ministry of Communication. We should be expecting to see market convergence in the cellular sector with a drop to four operators in the coming years, as well as the continued dominance of the 2 existing TV operators despite the alternatives. As a result of regulatory changes, broadband reform, and intense competition in the market, Israeli companies must seek wider markets abroad. Israeli companies are highly technical, yet they lack international sales distribution channels and marketing capabilities. Successful partnerships with global vendors and service providers lead to better performance, which is the reason why many Israeli companies seek such partnerships outside its borders. Additionally, the rapid digitization of industries has led to the emergence of new telecoms services, such as cloud computing and mobile payment platforms. This has led to a significant change of focus by operators from vertically integrated business models to horizontally integrated business models. The objective is to create value by combining different segments and markets and replicating the features and capabilities of each market to the others. Further, operators will aim to digitize the core of their businesses thereby enhancing customer satisfaction, revenues and cost savings.
A founders’ agreement is the first encounter between entrepreneurs who are embarking on a joint venture to establish a successful start-up company. A founders’ agreement reflects the relationship between the entrepreneurs inter se and between each of them and the joint venture. The importance of this agreement should not be underestimated. This comprehensive agreement, which is tailored to the nature, needs and aspirations of each of the entrepreneurs, and particularly those of the new venture, provides a strong foundation for a healthy and successful company. Frequently, the drafting of a founders’ agreement requires the parties to address topics that many founders fail to address, either due to a lack of experience, a desire to avoid friction, or simply because they are looking at the venture through rose-colored glasses. Meticulous, professional handling of these issues will provide creative solutions which, with the mutual agreement and commitment of the parties, will help navigate the venture along the optimal route to success. Barnea & Co. provides, inter alia, valuable assistance to entrepreneurs and start-up ventures and works with them to draft a founders’ agreement that prepares fertile ground from which the venture can grow and prosper. Micky Barnea is an expert in advising start-up entrepreneurs – watch Micky lecturing on the important issue of Founders’ Agreements:
Gambling via Mobile Device – Constraints and Opportunities
December 7, 2015 / by
December 7, 2015 / by
The online gambling industry generates billions of dollars annually and is one of the burgeoning industries on the internet today. The growth of this industry spurred online gambling operators to search for additional operating channels, besides PCs and laptops, such as applications customized for mobile phones and handheld devices that may be used on membership-based websites (such as online casinos). Thus, the mobile channel is becoming a primary channel in the online gambling industry. Considering the heightened use of mobile phones in general, online gambling operators are also seeking to offer their products via this channel – similarly to any other electronic commerce. Additionally, the opportunity being given to online gamblers to continue gambling when they shift from their PC platform to their mobile phone platform while using that same operator and a single electronic wallet (which is synchronized with the operator’s internet version and mobile version), increases customer loyalty to a particular gambling operator and to its brand. Furthermore, the expansion of access to gambling products also via the mobile channel lures customers to spend more time gambling, thus enabling online gambling operators to generate revenues from customers at a faster pace (than prior to the advent of the mobile application) and increases the “value” of these customers and the revenues generated from them. A similar channel exists in handheld devices, which enable customers who are visiting real casinos to continue gambling during their stay at the casino, even when they are outside of the casino halls, but still on the grounds of the casino complex (such as in the casino’s hotel rooms and public spaces, for example, at the pool, in one of the restaurants, etc.). This possibility, which is available in some casinos in the United States, also offers casinos potential growth in revenues and profits by providing access to gambling outside of the actual casino halls, while avoiding regulatory constraints and capital expenditures on physical expansions of their casino halls. That being the case, the use of the mobile channel undoubtedly offers significant potential for the online gambling industry. However, concurrently, this channel also poses significant constraints, mainly in terms of regulations. Firstly, the fact that this is a virtual channel raises the question of the law and regulatory regime applicable to online gambling via the mobile channel – whether the particular regime permits or prohibits online gambling. For example, let us assume that a Spanish citizen and resident, who has a gambling account with a Spanish licensed gambling operator, wants to use the said operator’s mobile application while he is staying in Holland. Will Spanish law, Dutch law or some other law apply in this case? Prima facie, the Spanish customer is “carrying” his gambling account with the Spanish operator in his mobile device, but, on the other hand, he is seeking to gamble while he is in Holland (which bans online gambling), using the Dutch communications network. These issues also exist generally in the general online gambling industry, but the mobile channels highlight the salience of the aforesaid regulatory issue, mainly because it has become a far more widespread issue. The more extensive the use of mobile channels in the online gambling industry, the closer the world gets to the point where it will become essential to find a satisfactory solution to this issue. Furthermore, the expansion of the online gambling industry into mobile channels could serve as ammunition for the most ardent opponents of this industry. One of the strongest arguments being made in the battle against online gambling is that the evolution of this industry will turn every computer into a casino in a way that substantially facilitates access to gambling, since mobile phones are ubiquitous among the general population. – and thus serves to promote an inconceivable increase in gambling addicts (one extreme scenario that is repeatedly mentioned is that of teenagers – who, as minors, are banned from entering physical casinos – who become rampant secret gamblers via online gambling websites up in their attics). Considering the incessant battle between the opponents to the online gambling industry due to the inherent phenomena involved (or at the very least, due to the phenomena that online gambling opponents claim are inherent in this industry) and proponents of online gambling, who are seeking to regulate the industry through legislation, any development, even merely of a technological nature, could impact the regulatory regime that will eventually be instituted. Even in the United States, where gambling is firmly established, there is a persistent battle at the federal level over whether or not all kinds of online gambling should be prohibited by law. Considering the Republicans’ control over the U.S. Congress, and the support of legislation banning online gambling by the casino magnate, Sheldon Adelson, one cannot rule out the possibility that the expansion of the online gambling industry to mobile channels might, in the final analysis, be the last straw that leads to its downfall.
Israeli Online Gaming Sector – Q&A
November 17, 2015 / by Barnea
November 17, 2015 / by Barnea
Q: You work extensively with companies operating in the online gaming sector – what are the legal and regulatory challenges faced by firms operating in this sphere? A: The main legal and regulatory challenges which face online gambling operators is the worldwide shift from what is known as the .com situation to the .country environment. This relates mainly to the changes facing online gambling operators that are required, due to legislative changes, to obtain online gambling licenses in numerous jurisdictions across the world in order to continue their operation in those jurisdictions. Such jurisdictions include, by way of example only, the UK, Spain, Italy, Denmark and Belgium. The most recent and substantial change has occurred in the UK where online gambling operators that wish to provide their products and services in this jurisdiction will be required to obtain an online gambling license from the local Gambling Commission. Online gambling operators can now be subject to regulatory regimes maintained by several gambling regulators, each one of them with different sets of requirements – in connection with the license application, but mainly with the ongoing operation, relating to issues such as player protection, responsible gambling, software testing etc. All of the above requires the online gambling operators to allocate substantial personnel, time and allocation of funds. Adding to that is the fact that usually, with the obtaining of local online gambling license, the tax man cometh; that is, the online gambling operators, that have (or at least most of them) became accustomed to a very low tax liability in their home jurisdictions, are now required to pay substantial taxes to the jurisdiction from which they have obtained an online gambling license. Such taxes have the risk of turning their online gambling activities in that jurisdiction to unprofitable, which, in turn, could lead such online gambling operators to forfeit their licenses and exit these markets. Q: What role does regulation play for online gaming companies operating across multiple jurisdictions? What do you recommend to companies to be aware of? A: Online gambling operators should be aware of the fact that, in the long run, it will become very difficult for them to operate in a jurisdiction with an online gambling licensing regime, without obtaining a license from the local regulator. The reasons for this conclusion include, inter alia, the preference of local customers to wager via a locally licensed operator, the difficulties and costs associated with operating without a license (e.g., higher fees and commissions paid to third party intermediaries such as payment processors and affiliates), the increased enforcement activities taken by the local regulators and the understanding that an operation without a local license carries with it a lower value to its owners / shareholders – compared to a similar operation with a local license. It follows that the online gambling operators must get accustomed to a situation in which, in respect of a jurisdiction that offers an online gambling licensing regime, they need to decide whether to apply for a license or exit the relevant market. Q: How are most companies structured in the online gaming sector? What are the problems for companies wishing to set up tax efficient structures? A: Setting up a structure that is tax and regulatory efficient, which can provide value to the owners / shareholders, depends on the specific facts of each case including, by way of example, the main target jurisdictions, the offering of products and services in grey markets, adherence to incorporation requirements of licensing jurisdictions, what licenses are obtained, payment processing etc. Due to the numerous issues and considerations to be taken into account as well as the intricacies of the regulatory and tax considerations, it is vital that the structuring will be handled together with legal and tax counsels. Q: Why to operate out of Israel? A: Israel is considered a major power house in the online gambling industry, on the basis of, inter alia, the tech savvy Israelis that provide online gambling operators with state of the art software development and marketing strategies. This has led several online gambling operators to set up shop in Israel (although most of them avoid placing their main operational units in Israel for the reasons described in 5 below). Q: What are the legal implications if online gaming and e-commerce companies do not comply with government regulator in Israel? A: In Israel, there is no liberal licensing regime for online gambling activities. Only the sports betting monopoly is authorized to offer online sports betting and horserace wagering, and any other online gambling activity is not licensable in Israel. The current stance of the Israeli authorities is that given this legal situation, any online gambling offering made available to Israelis, even if provided from outside of Israel and on the basis of a foreign regulatory license, is illegal; as such, the Israeli authorities take quite a harsh position in respect of such activities and use a multitude of enforcement activities, such as financial payment blocking, ISP blocking (although this attempt was struck down by the Israeli Supreme Court due to lack of clear legal authority), arrests, seizing of funds and equipment, indictments etc. For the objective of combating online gambling, a special task force was created; such task force includes the Police, the Ministry of Justice, the Anti-Money Laundering Authority, the Central Bank and the Tax Authority.
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.