An accountant of a company where he was employed for about five years was summoned to a hearing before dismissal. He was accused, after investigation, of embezzling company funds. Although it was decided not to contact the police, the company lost confidence in him and therefore it was decided to dismiss him and deny him his severance pay. Is an employer allowed to deny an employee the severance pay he is entitled to by law?
Receiving severance pay is a legal right granted to an employee, and the employer must set aside every month, in addition to the pension contributions, also to a severance pay fund to which a special clause will apply stating that these funds will be transferred to the employee in a situation where he is entitled to severance pay. However, in some cases the law allows the employer to deny severance pay to an employee when a serious disciplinary offense can be shown. However, the denial of severance pay (or part thereof) is done only in very extreme cases and only when, in the balancing test, it is found that the severity of the employee's actions and the damage proven to have been caused to the employer, exceed the personal circumstances of the employee that protect him from the denial of severance pay. A decision to deny severance pay need be made immediately and close to the date of the hearing and dismissal. It is required to show a causal connection between the employee's actions and his dismissal under these circumstances and it is not possible to retroactively decide on the denial of compensation.
Thus, for example, in a case discussed at the Tel Aviv Regional Labor Court in May, 2022, an aide was dismissed from a children's daycare center due to allegations of violence against toddlers and severance pay was denied to her - funds that during the term of employment were deposited for her in the provident fund. In that case, the Court held that her serious actions are a material breach of discipline that requires the application of the sanction regarding the denial of severance pay in full.
In another case discussed at the National Labor Court in August, 2021, a company ceased operation due to financial difficulties and all the employees were terminated. The company denied the severance pay from one of the employees on the grounds of using the company's resources for his own personal use, and the company contended that the employee's actions caused the company's financial deterioration. The Court found that the burden to prove the serious acts is on the shoulders of the employer and it is a burden that increases the more serious the accusation is, such as theft. In that case, the Court did not accept this employer's contention because no direct causal link was shown between the employee's actions and his dismissal. In contrast, in the matter discussed at the National Labor Court in July, 2023, the denial of only half of the severance pay money was approved even though it was proven that the employee stole money from the company and this was based on consideration of the personal circumstances of the employee who was employed for a considerable time in the company in a managerial position and now in fact lost the possibility of future employment and because the acts of theft – as per to the Court's approach - was not in a significant scope and in a systematic way. In another case discussed at the Regional Labor Court in Haifa in October, 2023, it was found that although the employee's actions are at a high level of severity, and the employer was able to prove that the employee sold company equipment against cash, in the balance test and because it is an employee who worked for a long period of time to the employer's satisfaction, the denial of a his main livelihood source and the fact that he was terminated at an old age justify forfeiture of only 65% of the severance pay.
Thus, it can be seen that the employer must perform delicate and complex balance between the desire to deny severance pay and between the ability to do so. Thus, before such a decision is made it is suggested to consult with a lawyer specializing in the field.