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The US-Israel Legal Review 2019 73
substantially limited an employer’s ability to
prevent or intervene in any initial unionisation, thus
facilitating the unionisations attempts.
ARE THERE SPECIFIC RULES REGARDING
EMPLOYEE/CONTRACTORCLASSIFICATION?
In principle, Israeli employment law applies only
to employees, and not to workers who are engaged
in other forms of engagement. Therefore, it is
essential to determine the status of engagement
of each specific worker. However, this task is
not always easy, for the following reasons: (i)
there is no statutory global definition of the term
“employee” (rather only specific definitions for
specific legislation); and (ii) this is a question of
status, and as such not subject solely to the parties
contractual agreement, and open to judicial review,
and possible re-classification.
When examining the engagement of an
independent contractor, the courts will examine
the individual’s integration into the employer’s
business (the employer’s control and supervision
overtheworker,workhours,location,theemployer’s
power to give the worker instructions; how central
and vital the work performed by the worker is to
the employer’s overall activity; etc.) and whether
the worker carries out an independent enterprise
of his/her own (whether the worker concurrently
provides services to others; is required to perform
the services personally; etc.)
The key exposure for a company in classifying
(and paying) a worker as an independent contractor
– is that, it can later be argued (whether by the
worker itself or by any other third party, such as
the tax authorities) that the worker is in fact an
employee of the Company, despite the express terms
of the engagement documents; and that theworker is
therefore entitled to a range of employment benefits
which were not previously received during the term
of the relationship, which would be calculated based
on the worker’s (usually higher) compensation as an
independent contractor.
No contract can completely remove the risk
of reclassification; however, there are certain
contractual provisions, recognised by the labour
courts, which if inserted into the services agreement,
may reduce the financial risks associated with such
re-classification. Such provisions include a clause
which provides for an agreed-upon alternative
salary (which is lower than the services fee) in case
the worker is re-classified as an employee, a set-off
and reimbursement mechanism, as well as a set of
declarations on the worker’s behalf which stipulate
that the worker requested not to be engaged as
an employee of the company and that he/she
acknowledges all of the consequences of such status.
We note that there are exposures also in
relation to engagements with manpower and
service contractors, in relation to identifying the
employer in the triangular relationship between
the worker, the manpower agency or services
contractor and the company/organisation to whom
the employment services are being provided (the
“
Actual User
”). The identity of the employer is not
determined solely by the way in which the parties
contractually define their relationship, but is rather
open to judicial review.
According to the Manpower Contractors Law,
5756 – 1996 (the “
Manpower Law
”), after a
manpower employee (other than a manpower
employee engaged in a computerisation position as
defined in the Manpower Law) has been engaged
to provide services via an employment agency for
nine (9) months with the company/organisation to
whom the employment services are being provided
(the “
Actual User
”), he/she will automatically
transfer, and become the direct employee of the
Actual User. In addition, the worker’s seniority as
an employee of the manpower agency will be taken
into account when calculating his/her seniority
with the Actual User.
ARE ANY TERMS IMPLIED INTO
EMPLOYMENT CONTRACTS IN ISRAEL?
Extensive employment legislation lays out the
mandatory entitlements to employment terms
In principle, Israeli employment
law applies only to employees,
and not to workers who are
engaged in other forms of
engagement.