Severance Pay
By Eli Lichtenstein
Before firing a worker, the employer must consider the costs of doing so. Most employees who have been employed for at least one year are entitled to severance pay when they are fired. These employees by law must receive at minimum one month’s salary as compensation for every year they have worked. This severance pay can be drawn from two places. Severance pay can first be taken from the pension fund, to which the employer contributes an amount equaling 6.5% of the employee’s salary each month. If that is exhausted, the remainder must be paid directly by the employer at the time of the termination. Alternatively, the employer and employee can agree beforehand to a system where the employer sets aside an amount equaling 8.33% of the employee’s salary each month, with that money being made immediately available to the employee in case of termination or resignment, regardless of the circumstances. A fired employee must also be compensated for any paid vacation time that was not taken that year.
Some employees who voluntarily resign may be entitled to severance pay as well even without a specific agreement with the employer. This is the case if the resignation is due to a justification listed in the Dismissal Compensation Law (5733-1963). This applies even to those employed for less than a year. Protected justifications include, but are not limited to: reaching retirement age, needing to care for a newly born or adopted child, personal or family-member illness or disability, a deterioration in working conditions, workplace harassment, workplace relocation, and enrollment in the IDF, police, or civil service. The employee may be required to give advance notice in some of these cases in order to be eligible for severance pay. In cases of voluntary resignment that are not protected, the employee does not need to be paid severance pay and the employer can keep the severance fund money meant for that purpose. All former employees, fired or retired, are still entitled to receive remaining monthly pension payments when relevant, such as healthcare benefits. The employee can alternately choose to withdraw all money in the pension at once for a large fee – about one-third of the pension.
There also may be cases where an employer can fire an employee without severance pay, subject to the terms of the binding collective agreement. Justifications for payment-free severance commonly include malpractice issues such as theft and embezzlement. For an employee not covered by a collective agreement, the regional labor court could reduce or remove the severance payment based upon the circumstance of the firing. If the employer is required to provide severance pay but does not, the employee can submit a complaint to the Labor Law Enforcement Unit, and has seven years to open a case against the employer at a regional labor court. An employer may also be required by the court to provide severance pay to an employee fired shortly before one year of employment was completed. Further, failure of the employee to satisfy mandated prerequisite before the firing, such as by not providing a pre-termination hearing, may lead to the court increasing the amount of severance pay.
