Israel: Do Employees Have The Right to Refuse to be Employed by Another Employer, in The Event of an Enterprise "Changing Hands"?

I. The Legal Questions

What rights are available to employees and what is their legal status, in the event of an enterprise "changing hands", i.e., transfer of the ownership of the enterprise resulting in a change in the identity of the employer? Would, in such event, the employees have the right to refuse to be employed by the new employer and to insist on continuing their employment relationship with the original employer? Which options does the original employer have in the event of such a refusal?

The above questions were discussed and examined, in depth, in a precedent decision handed down by the Israeli Supreme Court on June 2, 2004, in the matter of H.C.J. 8111/96, 922/97 The New Employees' Organization et al. v. Israel Aircraft Industries Ltd. ("IAI"), et al. (not yet published), dealing with two petitions filed against an earlier decision of the Israeli National Labour Court.

The background leading to the Supreme Court's ruling stemmed from a decision of respondent no. 1, IAI, an Israeli governmental company, to spin-off one of its many plants and to transfer the ownership therein to a subsidiary specifically incorporated for such purpose, the aforegoing as a first step toward re-organisation and privatisation of IAI.

In a significant judgment rendered by the National Labour Court it was adjudicated, inter alia, that in the event of transfer of the ownership in an enterprise resulting in a change in the identity of the employer, the employees may neither refuse to be employed by the new employer nor insist on continuing their employment relationship with the original employer. The National Labour Court further held that the only option available to the employees in this matter would be for them to resign with entitlement to severance pay (as, under the circumstances, such resignation would be regarded as dismissal for the purpose of severance pay), without, however, the possible entitlement to extended relief ordinarily available in the event of actual dismissal. Both parties petitioned the-Supreme Court against the aforesaid decision.

The panel of justices presiding over the case before the Supreme Court comprised of seven justices, however three disparate opinions were given, none of which constituting a majority decision. Thus, the determining judgment was based upon the opinion which received the most support. In the case at hand, the opinion of the Vice President (Retired) of the Supreme Court, Justice Or, which received the support of three justices, is regarded as the ruling Supreme Court judgment.

The Supreme Court, which reversed the National Labour Court's decision, held (in Justice Or's opinion, as aforesaid) that transfer of the employees cannot be effected solely by an agreement signed between the "original" employer and the "new" employer. The employees may refuse to be employed by the "new" employer, in which case the employees will remain the employees of the original employer who can either elect to continue their employment or dismiss them, in accordance with the applicable provisions of the relevant collective or individual agreements governing dismissal of employees in such circumstances.

The Supreme Court specifically adjudicated that the consent of the employees cannot be implied merely from the various statutory provisions linking the employees’ statutory rights (such as rights to severance pay, sick leave, paid leave, recreation pay, etc.) to the "place of employment", thereby guaranteeing continuity of such rights, nor may such consent be implied from the statutory provision stating that in the case of an enterprise changing hands, the "new" employer shall be deemed to be party to the collective agreement. The Supreme Court further held that such consent should not be construed from the consent ordinarily attributed to employees with respect to the prerogative of the employer to arrange and manage his business as he sees fit, since such prerogative can not be seen to include a right to transfer one's employee(s) to another employer. The judgment appears to assume (although the legal aspects of this point were not exhausted), that if the consent of the employees’ representative is obtained, in a collective agreement expressly prescribing conditions for transfer of the employees to the new employer, including the entitlements to be granted to the employees’ vis-à-vis the "original" and "new" employers, the requirement of consent may be deemed to be satisfied. The judgment refers only to a case of an enterprise "changing hands" where there occurs a change in the identity of the employer, and is not intended to refer to a case where there occurs a change in the identity of the shareholders.

The Supreme Court's decision is final and may not be appealed

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