What an employment contract must contain, and what is void

Service page: Support for employers: hearings, dismissals and employee claims.

What must the notice to employee on terms of employment include, and what happens if it was not given?

The Notice to Employee and Job Candidate (Terms of Employment and Screening and Hiring Procedures) Law, 5762-2002 (חוק הודעה לעובד ולמועמד לעבודה (תנאי עבודה והליכי מיון וקבלה לעבודה), התשס״ב-2002) sets a duty. An employer must give the employee written notice of the main terms of employment no later than 30 days from the start of work. For a young worker, the deadline is 7 days. Otherwise, a fine is imposed on the employer (section 4). If the employer knowingly did not give the notice, the Labor Court may award the employee exemplary damages, which do not depend on damage (section 5(b)). As a rule, they are up to NIS 15,000, an amount updated on 1 January each year.

A dispute may arise over a matter that should have appeared in a notice that was not given. Then the burden of proof on that matter lies on the employer, provided that the employee testified to their claim (section 5A of the Law).

The terms that must appear are listed in section 2(a). They are the identity of the employer and the employee, and the start date of the work (and, for a fixed-period contract, its length). They include the main duties of the job, the direct supervisor, and the total payments paid as wages and their dates. They include the length of the regular working day or working week, and the weekly rest day. And they include the types of payments for social benefits and the bodies to which they are transferred. The notice is drawn up according to Form 1 in the Notice to Employee (Terms of Employment) (Form and Details of Notice) Regulations, 5762-2002 (תקנות הודעה לעובד (תנאי עבודה) (צורת הודעה ופרטיה), התשס״ב-2002). It also includes the basis of the wage and any payment in kind, if agreed (regulations 1–2).

Working hours: how much may be demanded, and what is paid for overtime?

Section 3 of the Hours of Work and Rest Law, 5711-1951 (חוק שעות עבודה ומנוחה, התשי״א-1951) provides that a working week may not exceed 45 hours. Under the Extension Order on Shortening the Work Week (צו ההרחבה בדבר קיצור שבוע העבודה במשק) (in force from 1 April 2018), the working week in the economy is 42 hours. The notice of terms of employment must state the length of the regular working day or the regular working week. This is under section 2(a)(6) of the Notice to Employee Law. As a rule, a working day may not exceed 8 hours. In night work and on the day before the weekly rest, the limit is 7 hours (section 2 of the Law). A longer day is possible only within the frameworks the Law allows, such as a collective agreement approved by the Minister of Labor (section 5).

Under section 7 of the Hours of Work and Rest Law, the weekly rest is at least 36 consecutive hours. For a Jew, they include the Sabbath day. For someone who is not a Jew, they include Saturday, Sunday or Friday, according to what is customary for them. The notice of terms of employment must state the rest day (Notice to Employee Law, section 2(a)(7)). An employee who works during the hours of weekly rest is entitled to pay of at least 150% of their regular wage for those hours (section 17 of the Law). For a monthly-salaried employee, the employer may instead give alternative rest of at least one and a half hours for each such hour.

An employee who is employed beyond the daily or weekly standard (42 hours) works overtime. This work is paid at an increased rate under section 16 of the Law. It is 125% of the regular wage for the first two overtime hours on that day, and 150% for each overtime hour after them. The Law does not state expressly whether an employer may require an employee to work overtime. As a rule, this depends on the employee’s consent and on the employment contract. An employee who worked overtime is entitled to overtime pay for it under the Law.

Annual leave: how much are you entitled to, and what happens to leave you didn’t use?

The Annual Leave Law, 5711-1951, provides that an employee is entitled to annual leave with full pay. In each of the first five years of employment, the employee is entitled to 16 vacation days (section 3(a) of the Law). They may include no more than one weekly rest day for every seven vacation days. So in a six-day week, that is at least 14 working days. In the sixth year, it is 18 days, and in the seventh year, 21 days. From the eighth year on, one more day is added for each year of employment, up to 28 days.

For the purposes of the Law, a “year of employment” is a calendar year that begins on 1 January (section 1). It is worth having the contract make clear in which periods the employee is expected to take their leave.

Under section 7 of the Law, the leave cannot be accumulated as of right. But with the employer’s consent, the employee may take as few as seven vacation days and add the balance to the leave of the next two years of employment. When the employment relationship ends, all leave not used is paid to the employee at its full value. Problems often arise when the employer did not document the leave. An employer must keep a vacation register (section 26 of the Law). Without one, it will find it hard to prove that the employee used their leave.

Who is entitled to severance pay, and when is a waiver of it valid?

The law provides that an employee who was dismissed from their job is entitled to severance pay, if the conditions set by law are met. This compensation is calculated under section 12 of the Severance Pay Law, 5723-1963 (חוק פיצויי פיטורים, התשכ״ג-1963). It is one month’s wage for each year of employment, according to the employee’s last wage. This is under section 13 of the Law and the Severance Pay Regulations (Calculation of Severance Pay and Resignation Deemed Dismissal), 5724-1964 (תקנות פיצויי פיטורים (חישוב הפיצויים, והתפטרות שרואים אותה כפיטורים), התשכ״ד-1964).

For an hourly or daily-paid employee, the rate was raised to one month’s wage for each year of employment. This was done by the Severance Pay Regulations (Rates of Severance Pay for an Hourly or Daily-Paid Employee), 5743-1983 (תקנות פיצויי פיטורים (שיעורי פיצויי פיטורים לעובד בשכר), התשמ״ג-1983). For the period before that, the rate is two weeks’ wage.

An employment contract should state clearly whether there are other conditions for dismissal, such as a warning or advance notice. It should also state what additional rights the employee has when the employment ends. An employee employed on certain terms (such as employees in senior positions) may receive higher severance pay if the contract says so. And when is a waiver of severance pay valid? A settlement or a discharge receipt regarding severance pay is valid only if it was made in writing. It must state expressly that it concerns the severance pay (section 29 of the Severance Pay Law).

Wages and benefits: what you can demand even if it is not written in the contract

The Wage Protection Law, 5718-1958, defines “wage” broadly (section 1). It includes payments for holidays, productivity and overtime. It also includes other payments due to the employee because of their work and during their work. The employment contract should state clearly the base wage (or the daily or hourly wage). It should also state every additional wage component, such as commissions, bonuses, holiday pay, recuperation pay or other supplements. The notice of terms of employment must include the total payments and the dates on which the wage is paid (section 2(a)(5) of the Notice to Employee Law). It is worth also stating the method of payment (bank transfer, cheque, cash).

In addition to the base wage, an employment contract should also describe additional benefits. One is a study fund (keren hishtalmut). There is no general legal duty to contribute to a study fund. The right comes from a personal agreement, a collective agreement or a sector extension order. An employer contribution of up to 7.5% of the wage is the ceiling of the tax benefit under the Income Tax Ordinance [New Version] (פקודת מס הכנסה [נוסח חדש]). It is not a requirement of law. Other benefits are health insurance, loss of working capacity insurance, travel expenses and meal allowance. Others again are periodic health checks, clothing and equipment allowance, and even loans to employees under certain conditions. The employer must provide the employee with every benefit stated in the contract.

Confidentiality clauses: what is valid and what can be challenged?

An employment contract can include a confidentiality clause (non-disclosure agreement) that limits the employee’s right to disclose or use confidential information related to the work. However, these clauses are examined for their reasonableness and scope. When examining the validity of a confidentiality clause, three practical questions are asked. (1) Is it clear and specific, and not too broad and general? (2) Is it limited in time, and not unlimited, especially when technology changes? (3) Is it limited in scope, so that it does not prevent the employee from working in their field permanently?

The basis for this is in the law. The information that the law protects is a “trade secret”. Section 5 of the Commercial Torts Law, 5759-1999 (חוק עוולות מסחריות, התשנ״ט-1999) defines it. It is business information that is not public knowledge, and that others cannot easily discover lawfully. Its secrecy gives its owner a business advantage over its competitors, provided that its owner takes reasonable measures to keep it secret. On the other hand, section 7(a)(1) of that Law states expressly when there is no liability for misappropriation of a trade secret. That is when “the knowledge embodied in the trade secret came to them in the course of their work for the owner of the trade secret, and this knowledge has become part of their general professional skills”. In other words, a confidentiality clause may prevent an employee from using their professional skills in the field in which they worked. It will not protect the employer, because this is not a trade secret in the first place.

The confidentiality clause may in practice work as a non-compete clause. Then the rule laid down by the National Labor Court in Labor Appeal (ע״ע) 164/99 Frumer v. Redguard Ltd. applies to it (see also CA 6601/96 AES System Inc. v. Moshe Sa’ar). A restriction on a former employee’s freedom of occupation will be enforced only if it is meant to protect a legitimate interest of the employer. These are a trade secret, a special investment in training the employee, special consideration given for the restriction, or the duty of good faith and trust. A restriction whose only purpose is preventing competition as such is contrary to public policy. So it is void under section 30 of the Contracts (General Part) Law, 5733-1973 (חוק החוזים (חלק כללי), התשל״ג-1973). The court may also narrow a clause that is too broad — shorten its period or reduce its scope — instead of canceling it altogether.

Intellectual property (IP): who owns what you created at work?

An employment contract can give the company ownership of intellectual property (patents, brands, software, code, designs). This covers property created in the course of the work and without the use of the employee’s own resources. However, two laws set the default: the Patents Law, 5727-1967 (חוק הפטנטים, התשכ״ז-1967) (section 132, service invention), and the Copyright Act, 5768-2007 (section 34). The employer owns an invention the employee arrived at because of their service and during the period of their service. It also owns a work created for the purpose of the job and in the course of it, unless agreed otherwise. So works made in the employee’s spare time, not for the purpose of the job and without using the employer’s tools or data, remain the employee’s property.

A clause that attributes to the company all of the employee’s works, even outside work, may be considered unreasonable. Under section 34 of the Copyright Act, the employer’s right applies only to a work created for the purpose of the job and in the course of it. So personal works (such as a personal blog or private projects) remain the employee’s, unless agreed otherwise. A reasonable clause should define clearly what intellectual property is created “in the course of the job”. That is the only property in respect of which the employer acquires rights.

Changing terms of employment: when must it be in writing?

A change in the terms of employment requires the consent of both parties, and it is highly advisable to put it in writing. A change made orally makes it very hard for the employer to prove that the employee actually agreed to it. If an employer makes a unilateral change in the terms, such as reducing the salary, changing the hours, or canceling benefits, it may face a claim by the employee for breach of contract and also for failure to fulfill legal obligations.

To change a contract, it is advisable to do four things. (1) Give the employee written notice of the proposed change. (2) Give the employee a reasonable time to consider the proposal. (3) Obtain express consent in writing. (4) Have both parties sign the new document. In any case, if a term set out in the notice of terms of employment changes, the employer must give the employee notice of the change within 30 days (section 3 of the Notice to Employee Law). There are exceptions in the law, such as a change resulting from a change in the law, or a change shown on the payslip. The employee’s signature on the document of the change is the safest way to prove that they agreed to it. In a Labor Court, if an employer claims that the employee agreed to the change, the employer bears the burden of proof. See also: Legal support for employers in employment law.

Which rights can’t be waived, even if you signed?

The protective employment laws are mandatory (cogent): any agreement by an employee to waive minimum rights set by laws is void and has no effect. The principle is set out in the specific laws themselves. For example, section 12 of the Minimum Wage Law, 5747-1987, provides that “an employee’s right under this Law cannot be made conditional or waived”. These rights include the following. (1) Minimum wage under the Minimum Wage Law, 5747-1987 (updated from time to time). (2) Annual leave as set by law. (3) Severance pay under the law. (4) Protection against discriminatory dismissal under the employment equality laws. (5) Rights regarding pay on the Sabbath, on holidays and on special days under the relevant laws.

If an employment contract contains a clause that tries to take away or reduce one of these rights, the clause is void and unlawful. The Labor Court will not give effect to an employer’s argument that relies on such a clause. For example, an employee may have signed a contract that says “I waive annual leave in return for a higher wage”. That clause is void. The employee is entitled to annual leave under the law, in addition to the wage paid to them.