High Court of Justice Ratifies the Labor Court's Approach toward Piercing the Corporate Veil

In the early 2000s, the National Labor Court ruled that the use of the legal tool "piercing the corporate veil" should be expanded insofar as the matter pertains to employees. The Labor Court maintained this approach even after the causes for piercing the corporate veil were constricted in the Companies Law.

In an appeal of the National Labor Court judgement on the matter of R-Z Plastek Ltd. to the Supreme Court, sitting as the High Court of Justice, the Supreme Court ratified the rulings of the National Labor Court and decreed that the rules for piercing the corporate veil are adapted to labor law and to its special characteristics by the Labor Court. The Supreme Court also ruled that it is warranted to expand the use of the legal tool of piercing the corporate veil, insofar as the matter concerns employees who are not "voluntary creditors" but special creditors, toward whom the company has an enhanced liability and a special fiduciary duty. The Supreme Court reiterated that the court is less cautious when piercing the corporate veil from a cluster of companies. It also stipulated that the founding of a new business, which continues the activities of a failing company while emptying it of its assets, justifies piercing the corporate veil, when it has been proven that the owners' intention was to evade paying off debts to creditors.

In relation to the case at issue, the Supreme Court ruling stated that the National Labor Court was correct when it ruled that the corporate veil must be lifted between the company and its sole shareholder, the party who abused the corporate veil for the purpose of evading payment of the company's debts to the employees, who subsequently filed a suit. The Court further concluded that the shareholder had founded an additional company to serve as a vessel that would hold the other company's assets, while emptying the previous company of its assets, for the purpose of preventing its creditors from being able to collect their debts. The Court determined, consequently, that both companies are actually a single company.

Employers should familiarize themselves with the position of the Labor Court, who is more lenient about piercing the corporate veil than the civil courts. This position has now also been ratified by the Supreme Court.

Amendments with Regard to Calculating Severance Pay for Hourly Employees

Recently, the National Labor Court set a new ruling with regard to calculating severance pay for hourly employees. The decision was handed down on the matter of Y.B. See Resources Ltd.

Up until now, according to the National Labor Court's previous precedent, to calculate the severance pay of an employee who earned an hourly wage, it was necessary to compute the severance pay according to the scope of employment during the last 12 months of the employee's employment. Now, according to the new ruling, the calculation is to be computed according to the employee's volume of work throughout the entire period of his employment.

In its judgement, the Court relayed a possible situation in which the parties do not have sufficient data about the employee's scope of employment throughout all the years of his employment. Accordingly, the court ruled that if such a situation arises, then the calculation should be performed using solely the existing data, while also making use of the burdens of proof that apply to the parties in relation to establishing the employee's scope of employment. (Since 2009, the burden of proof of  scope of employment has been imposed on the employer, insofar as attendance records were not kept in relation to the employee.)

In light of the new ruling, it is advisable to retain hourly employees' attendance records throughout the entire period of their employment, even if they have been working for many years, as well as for the entire prescription period (seven years) after termination of the employment relations.

Issuing Electronic Pay Slips to Employees

We are happy to inform you that the regulations granting employers the right to serve employees with electronic pay slips have been promulgated. Employers are now able to issue electronic pay slips to employees via the employer's secure website or via the employee's email inbox, whether via his personal email address or his company email address. This option will be subject to the employee's consent, which is to be given using a designated form that is specified in the regulations. The employee will have the right to withdraw his consent at any time. Furthermore, employers must enable their employees to access their electronic pay slips and to print them, in the manner specified in the regulations.

Employers preferring to issue pay slips via electronic means, rather than by issuing printed copies of pay slips, should familiarize themselves with the new regulations, obtain their employees' consent, and institute all information-security measures specified in the regulations.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.