NEWSLETTER JANUARY 2012 THE LAW FOR INCREASED ENFORCEMENT OF LABOR LAWS The Israeli Parliament (Knesset) recently adpted The Law fr Increased Enfrcement f Labr Laws 2011 (the Law ), which will cme int frce n June 19, 2012. The Law represents a cmprehensive attempt t step-up enfrcement, by impsing additinal administrative sanctins upn emplyers fr nn-cmpliance wh are in vilatin f existing prtective labr law, and by impsing persnal liability n a cmpany s CEO fr nn-cmpliance. The Law als specifically regulates cntracts with service cntractrs in the security, cleaning, and catering prfessins, and places administrative fines and criminal sanctins n the recipients f the services f such cntractrs wh have nt fulfilled their bligatins twards their emplyees. As a result, cmpanies and rganizatins will nw have an additinal incentive t ensure that they are acting in cmpliance with applicable prtective labr laws. Mrever, cmpanies and rganizatins that cntract ut fr cleaning, cafeteria r security services, will nw need t make sure bth n a cntractual and a practical level -- that their service prviders are acting in cmpliance with such prvisins. An verview f the main prvisins f the Law fllws. Inspectin Authrity and Fines The Law authrizes senir labr inspectrs frm the Ministry f Industry, Trade and Labr t impse fines in an amunt ranging frm NIS 5,000 t 35,000 upn emplyers fr vilatin f certain labr laws. These fines als apply (at half the maximum rate) t individuals wh emply an emplyee utside the framewrk f a frmal business r service. An nging vilatin can increase the fine by 2% fr each day the vilatin ccurs, and, f curse, repeated vilatins can result in multiple fines. The labr inspectr finding a vilatin must prvide the emplyer with written ntice f the intentin t impse a fine, listing the details and circumstances f the claimed vilatin. The emplyer has the right t respnd and present the inspectr with a written respnse by a date specified in the ntice. Taking int accunt any respnse, r in the absence f a respnse within the specified perid, the inspectr will make a decisin whether r nt t impse a fine. The labr inspectr may alternatively chse t send ut an administrative warning instead f impsing a fine. An emplyer may appeal a fine r a warning t an appeal cmmittee set up by the Ministry, whse decisin is appealable t the labr curts. An impsed fine will be subject t the same cllectin prcedures applicable t taxes due under the Tax Ordinance (Cllectin). These prcedures prvide fr aggressive and expedited cllectin prceedings (such as seizure f bank accunts r pssessins), withut prir recurse t a nrmal curt prceeding. The impsitin f a fine des nt detract frm an emplyer's criminal liability fr the vilatin f the prvisins f the applicable law. Hwever, if an emplyer is charged under a criminal prceeding, the criminal prceeding will prevail and cancel any administrative acts under the Law. The ratinale f the Law is t make it easier fr Ministry fficials t impse sanctins utside f the existing (but time and resurce cnsuming) criminal prcess.
Persnal Liability f the CEO The Law explicitly prvides that the CEO 1 f any crpratin is persnally liable t versee and t take all reasnable measures t prevent the vilatin f thse prvisins f the Law applying t a crpratin. If the crpratin vilates any f the prvisins f the Law, the inspectr may send a warning t the CEO clarifying the CEO s respnsibility t eliminate the specified vilatin and/r prevent its recurrence, within a specified time frame. If the measures are nt taken, the inspectr may impse a fine upn the CEO persnally; unless the CEO prves that he has dne all that is pssible t fulfill his bligatins under this Law. Publicatin f the Impsitin f the Fine The Ministry f Industry, Trade and Labr will publicize n its site every fine impsed by it under the Law, including the name and identifying details f the emplyer, the nature and circumstances f the vilatin and the fine amunt. In the case f an individual, details regarding the vilatin will als be publicized, but will nt include the name f the ffender. Legislatin Cvered by the Law The Law prvides an extensive list f prvisins whse vilatin may be sanctined, brken dwn accrding t the severity f the fine that may be impsed. A full list appears in the frm f Exhibits t the Law, which may be viewed in its entirety (in Hebrew) at the fllwing link: http://www.knesset.gv.il/laws/data/law/2326/2326.pdf The fllwing is a nn-exhaustive survey f the labr law prvisin cvered by the Law: Prtective prvisins fr which a fine f up t NIS 5,000 may be applied: Failure t maintain emplyer registers with respect t annual vacatin and wrk hurs and vertime, failure t adpt guidelines fr the preventin f sexual harassment, failure t prvide ntice f minimum wage, demands fr prtected infrmatin (military prfile, genetic tests etc.), prvisin f sufficient wrk breaks n a daily and weekly basis, including with respect t special circumstances (such as night wrk, pregnant emplyees, emplyees returning frm maternity leave). Prtective prvisins fr which a fine f up t NIS 10,000 may be applied: Failure t meet annual leave requirements r make mandatry payments in lieu f leave, requiring vertime wrk in excess f permitted time frames, failure t make payment fr vertime, wrk n hlidays and rest days, illegal emplyment practices fr minrs, failure t prvide ntices in cnnectin with wrk cnditins and terminatin f emplyment, failure t prvide a prper pay slip, unlawful deductins frm wages, emplyment f emplyees n maternity leave. Prtective prvisins fr which a fine f up t NIS 35,000 may be applied ( Serius Infractins ): Failure t make payment fr vertime 2, wrk n hlidays and rest days 2, illegal emplyment practices fr minrs, late payment f wages, failure t pay minimum wage, unlawful terminatin f prtected emplyees, and failure t make payments t pensin in accrdance with a general expansin rder. 1 While the Law is nt clear n the definitin f CEO, it shuld be assumed that this term wuld include a cuntry manager r ther mst senir manager in Israel, in the case f a cmpany with a branch r subsidiary in Israel. 2 It is nted that the matter appears bth here and in the NIS 10,000 list. -2-
Liability f the Recipient f Services frm a Service Cntractr In an effrt t cmbat the phenmenn f circumventin f prtective legislatin thrugh the use f utsurcing in the security, cleaning and catering prfessins, the Law als impses liability fr nncmpliance with such prtective legislatin n the recipient f such services (in the framewrk f a business r ther rganizatin), prvided that all f the fllwing three cnditins are met: The service is prvided n the premises f the recipient f services by at least fur emplyees (emplyed by ne r mre cntractrs 3 ). The service is prvided fr at least six mnths and in a cntinuus manner. Either: the cntractr's emplyee demanded that the cntractr fulfill its bligatins, prvided the recipient f services with a cpy f the demand, and the bligatins were nt fulfilled by the cntractr within 30 days; r if the labr inspectr gave the recipient f services a written ntice that the cntractr has nt fulfilled ne f his bligatins, and the cntractr did nt cmply within 30 days. In this cntext the recipient is als liable fr cmpliance with expansin rders applicable t the service prvider s emplyees (including with respect t recuperatin r cnvalescence pay, pensin requirements and s frth), even thugh the Law des nt prvide authrity t inspectrs with respect t the bligatins f a direct emplyer under expansin rders. Respnsibility f the Recipient f Services The recipient f services is required by the Law t take reasnable measures t prevent the vilatin f the rights f the cntractr's emplyees prviding the services, including prviding effective means at the wrk place fr submissin f ntices f vilatins and investigatin f alleged vilatins. If the recipient f services des nt initiate prcedures that infrm and allw the cntractr's emplyees t submit a ntice f vilatin f their rights, the recipient f services will be subject t a legal presumptin f direct liability twards the service cntractr's emplyees fr the vilatins. The recipient f services may als be held criminally liable under the Law if the cntractr cmmits (and des nt remedy) a Serius Infractin (as defined abve), such as failing t prvide a prperly detailed pay slip, making illegal deductins frm salary, failure t prvide annual vacatin, r failure t pay minimum wages. T avid criminal liability, the recipient f services must demnstrate that it did all that was pssible t fulfill its bligatins under this Law, including that the service prvider: (a) relied in gd faith upn peridic checks by the authrized salary inspectr in prximity t the time when the vilatin was cmmitted, and (b) when a vilatin was discvered, did all that was pssible t have it remedied r terminated the agreement with the cntractr. A recipient f services wh is sued by a cntractr emplyee r his r her representative in a civil suit fr the vilatin f ne r mre f the Law s prvisins will have a legitimate defense if it can be demnstrated that the vilatin was remedied frm the date upn which the vilatin ccurred, r that the recipient f services relied in gd faith n peridic inspectins by an authrized salary inspectr 4, and, if any vilatins were discvered, tk all actin pssible t have the cntractr remedy the 3 Fr example, if tw separate cntractrs prvide security services, and each emplys 3 emplyees fr a particular recipient f services, and an additinal service prvider allcates tw emplyees fr cleaning services, the prvisins f the Law will apply with respect t the tw security cntractrs, but nt the cleaning cntractr. 4 Fr this purpse an "authrized salary inspectr" is defined as smene recgnized as such by the Minister f Industry, Trade and Labr. Fr the first 18 mnths in which the Law will be in effect, it will be sufficient t rely upn the inspectin f an accuntant, nce every 9 mnths, regarding at least 10% f the relevant emplyees, and presumably the Ministry will prvide additinal guidance in the future. -3-
situatin (and if the cntractr did nt d s in a timely manner, the recipient f services terminated the agreement with the cntractr). If a Serius Infractin is cmmitted by the cntractr, the senir labr inspectr may send the CEO f the recipient f services a warning that he must take actin t have the cntractr remedy the vilatin r t act in gd faith t terminate the agreement fr the prvisin f services by the cntractr. If neither f these measures are taken, the CEO will be presumed t be liable under this Law, and unless the CEO prves therwise, may be charged with criminal charges and be persnally liable fr the full amunts f the fine. Prvisins in a Services Agreement The recipient f services is bligated t ensure that the services agreement includes a written breakdwn f the cmpnents and minimal csts f the wages and ther payments that the cntractr will pay his emplyees (which f curse cannt be lwer than the mandatry minimum fr wages and ther payments), and a declaratin by the cntractr f its additinal csts, including prfits, and the cntractr must expressly undertake t make payment fr such itemized amunts. As minimum payment levels (whether minimum wage r therwise) are updated as a result in changes in the law r accrual f rights, the recipient f services is respnsible t ensure that the payments under the service agreement and t the cntractrs emplyees are updated accrdingly. Nn-inclusin f these prvisins in the service agreement cnstitutes a criminal ffense by the recipient f services, and its CEO bears persnal liability fr nn-inclusin unless he r she is able t prve that he r she did all that was pssible t supervise and prevent the ffense. In additin, the nninclusin f these prvisins autmatically makes the recipient f services directly liable twards the cntractr's emplyees. N Waivers r Indemnificatins Emplyee s rights vis a vis the cntractr and/r the recipient f services under this Law cannt be cntracted arund r waived, and any prvisin in a cntract purprting t d s, r t prvide fr indemnificatin r insurance, r therwise shifting the liability f the recipient f services under the Law t the cntractr, will be null and vid. Likewise, the CEO s persnal liability under the Law may nt be cntracted arund, waived r be made subject t indemnificatin r insurance. Practical Recmmendatins fr Service Cntractrs As suggested abve, any business r rganizatin whse activities include the utsurcing f security, catering r cleaning services by fur r mre individuals will be held respnsible under the Law fr the cmpliance f the service prviders bligatins t its emplyees. T prtect itself frm criminal and civil liability, including the persnal liability f its CEO, any such business r rganizatin shuld take the fllwing steps: We suggest that recipients f the affected services take the fllwing steps: appint ne f its emplyees as a designee t receive cmplaints f vilatins f mandatry emplyment prvisins frm emplyees f the cntractrs; create a written prcedure fr the investigatin f cmplaints; pst ntice in the wrk place (such as n a bulletin bard) addressed t the cntractr's emplyees setting ut the emplyee s right t file a cmplaint and the prcedure fr ding s, including details f the designated cntact persn; adpt a fixed prcedure fr the carrying ut f inspectins f the activities f the cntractrs, -4-
regarding the fulfillment f the prvisins f the Law; ensure that cntracts with affected service prviders cntain the fllwing prvisins: express undertakings f the cntractr t cmply with the prvisins f the Law and cperate with the recipient f services effrts t cmply with the Law; the right f the recipient f services t carry ut inspectins f the activities f the cntractr, including by appintment f an authrized salary inspectr ; inclusin f detailed prvisins regarding the cmpnents f salary r wages, mandatry payment and deductins that will apply t the cntractr s emplyees; express adjustment mechanisms fr payment f increases in minimum wage and ther mandatry payments; ensure that existing service agreements be updated t include the freging prvisins in advance f the cming int effect f the Law (i.e. within the next six mnths). * * * We wuld be pleased t answer any questins yu may have and t assist in preparing yur business r rganizatin fr cmpliance with requirements f the Law. Please feel free t be in cntact with us. Ben Sandler Shira Lahat bens@arnn.c.il shiral@arnn.c.il (+972) 2 623 9200 (+972) 3 608 7835-5-