OBLIGATION TO PROVIDE PRIOR NOTICE OF TERMINATION UPON CHANGE OF THE EMPLOYING ENTITY

Adv. Keren Maimon, Partner, Shibolet & Co., specializes in labor law

On February 11, 2015 the National Labor Court[1] awarded a judgment in which a new ruling was determined with respect to the duty to provide prior notice of termination upon a change of the employing entity, even in cases in which the employee continues to be employed at the same workplace following the change of the employing entity.

 In the case at hand, the appellants were dismissed from their employment with the respondent immediately upon the change of the employing entity, but continued to work at the same manufacturing site while employed by the new employer. The respondent paid the appellants severance pay, but did not pay them compensation in lieu of prior notice since they continued to work at the same workplace immediately following their termination date while being employed by the new employer.

 The National Labor Court accepted the appellants’ claim, and found that the appellants were entitled to prior notice or payment in lieu thereof even in circumstances of continued employment by the new employer at the same workplace immediately following their date of termination, based on the following reasons.

 (1)   The language of the Prior Notice of Termination and Resignation Law does not include any exception as to the employer’s obligation to provide an employee with prior notice in any event he chooses to terminate an employee.

(2)   According to the basic principles of labor law, an employee shall not be deemed a “piece on the chessboard”[2], and is entitled to elect where he/she wishes to work. The employer’s right to transfer the ownership of its business does not necessarily lead to a conclusion that the employee agrees to the transfer of all of his/her rights and obligations to the new employer. Therefore, an employer seeking to terminate the employee’s employment is required to give him/her the possibility of choosing if he/she wishes to stay on at the same workplace.

The foregoing indicates that the fact that the new employer was willing to assume employment of the employees under the same conditions does not suffice. The choice whether or not to stay on at the same workplace is the employee’s, and an employer terminating the employment of its employees is required to provide the terminating employees with prior notice as well as the option to choose whether or not they wish to continue to work at the same workplace.

The National Court made reference to the defendant’s argument that payment in lieu of notice in this case is liable to lead to a situation in which the employee will be paid twice for the same month (salary from the new employer and payment in lieu of advance notice from the prior employer), and determined that such payment can be avoided simply by the selling employer informing its employees of its intention to transfer its ownership to a third party in due time. An employer who elects to keep the information regarding its intent to transfer the ownership of its business and facility to itself, and thus deny the employee his/her freedom of choice, must bear payment in respect of said breach. The court further reiterated that the employee’s entitlement to prior notice is absolute, and the employee is not required to prove damage caused to him/her as a result of a failure to provide him/her prior notice.

As mentioned, the above judgment constitutes a change in the current case- law and will affect employers selling their business to third parties in the framework of termination of its employees and re- hire of its employees by the new employer, as it imposes on the former employer an obligation to inform its employees of its intent to transfer its business in due time (and this may result in departure of some of the employees who might otherwise continue to work or impact the transaction’s schedule or pre- exposure of the anticipated transaction), or alternatively may result in increase of expenses since the selling employer shall   bear the costs of payment in lieu of prior notice for its entire workforce.

Please note that the above judgment is irrelevant when a transaction does not entail the termination of employment, but rather a continuation of employment and an assumption of the current employment relationship by the purchasing party.

** This circular is designed to provide general information and does not constitute legal advice, and we recommend that legal counsel be retained in circumstances of a change of employers.

 



[1] Labor Appeal (National Labor Court) 28597-03-11 Dabush Nurit v. Yardeni Locks Holding (2005) Ltd.

[2] Labor Appeal 14039-07-11 Hannah Sultani – the State of Israel – Ministry of Education (December 19, 2013).