Financial Case Appeal – Supreme Court by Law (Tel Aviv) 59680-11-24 Shai Alon – Ministry of Defense – Employment Committee

Judgment

We have before us an appeal against the decision of the Employment Committee under the Discharged Soldiers (Return to Work) Law, 5719-1949 (hereinafter: "the Committee", "the Committee's Decision" and "the Law", respectively) of November 3, 2024.  The committee determined that it permits the dismissal of the appellant after the end of his reserve service, after it was convinced that the dismissal was not related to his reserve service and that special reasons justifying the dismissal had been proven.

Factual background is required as it emerges from the pleadings and the committee's decision

1. The appellant is one of the founders of respondent No. 2, a company for the production and marketing of pasta and food products from Italian cuisine (hereinafter: the "Company"). The appellant served as the company's CEO and as a member of the company's board of directors.
2. In 2019, 51% of the company's shares were purchased by Tnuva (hereinafter: "Tnuva"), which subsequently became the controlling shareholder of the company. Against this background, an agreement was signed with the appellant and his partner, by virtue of which they were granted an option to sell the remaining of their shares to Tnuva.
3. In June 2023, the appellant and his partner requested to exercise the sale option, when disputes arose between them and Tnuva regarding the determination of the value of the shares in their possession for the purpose of the purchase. Against this background, the appellant and his partner initiated a number of legal proceedings against Tnuva and its directors, which are currently pending in the District Court (Civil Case 65492-08-23, Civil Case 54377-11-23, Civil Case 25134-02-24, see details in paragraph 28 of the Notice of Appeal).
4. At the same time, with the outbreak of the "Iron Sword" War, the appellant was called up for reserve duty, which began on October 29, 2023. As stated in the committee's decision, as of September 2024, the appellant had served more than 200 days of reserve duty (see details on pp.  15-16 of the committee's decision).
5. On May 2, 2024, the appellant was summoned to a hearing before the termination of the transaction, in accordance with the decision of the board of directors from that date (the summons letter was attached as Appendix 3 to the statement of appeal). In the reasons detailed in the summons letter, it was written, inter alia, that against the background of the disputes between the appellant and Tnuva regarding the value of the shares in his possession, the appellant harnessed the company for the purpose of his struggle against Tnuva, abusing his position as CEO.  Thus, it was claimed that the appellant systematically violated the decisions of the board of directors, thwarted appointments that Tnuva tried to promote, bullied and intimidated the employees it appointed, incited the company's employees against Tnuva, accused the chairman of the board of directors of withholding payment from the company's suppliers, created chaos at board meetings, filed many lawsuits against the board members, and more.
6. Among other things, the company also referred in the letter to the fact that the appellant was on reserve duty at the time, and noted that since the law limits its ability to fire him, the appellant must also address in his response the possibility that if a decision is made to terminate the employment relationship with him, he will be appointed as a business development manager without affecting his salary, for the period in which the legal limitation applies.
7. The date of the hearing was set for May 9, 2024, but it was postponed to May 27, 2024, at the appellant's request, due to his and his attorney's trips abroad. Subsequently, correspondence between the parties took place and the appellant was informed that if he did not approve his appearance for the hearing, he would be able to relate to the written summons.
8. On June 6, 2024, the appellant, through his counsel, sent a letter of response to the letter summoned to the hearing (Appendix 4 to the statement of appeal). At the beginning of the response, the appellant complained that he had been summoned to a hearing while he was on active reserve duty in a manner that severely impaired his ability to defend himself against the allegations against him.  He also claimed that the board of directors is unable to hold the hearing in his case willingly, and therefore it should be held by an external body.  The appellant then referred to the company's arguments on the merits of the matter, denied the allegations against him, and claimed, inter alia, that Tnuva's conduct in his case was part of its attempt to reduce the value of the company against the background of the business dispute between the parties, in order to minimize the value of the consideration that it would have to pay to the appellant and his partner for the purchase of their shares.
9. On June 11, 2024, the appellant was served with the decision of the board of directors to terminate his employment, as it was made at a meeting held the day before, detailing the reasons on which this decision was made, including the intense dispute between the appellant and Tnuva, which the appellant did not deny, and the existence of a strained employment relationship that prevents cooperation between him and the board of directors and the company's service providers. At the end of the decision, it was written that due to the appellant's reserve service, the decision was subject to the receipt of a permit as required by law, and that until it was received or until the period of legal impediment to his dismissal had passed, the appellant would no longer serve as the company's CEO, but rather as a business development manager without affecting his salary, as detailed in the letter of summons to the hearing (Appendix 5 to the statement of appeal).
10. Accordingly, on June 27, 2024, the company submitted an application to the committee for a permit to dismiss the appellant. In the application, the company relied both on the arguments detailed in the letter summoning the hearing and on another claim that it claimed was discovered after the dismissal letter was issued, namely that the appellant had signed a collective agreement on behalf of the company with the National Workers' Union without its knowledge.  After a number of lengths, the appellant submitted his objection to the application to the committee, and the company submitted a response to his arguments.
11. At the same time, on July 17, 2024, the company sent the appellant a letter of summons to a hearing regarding the possibility of making a decision on the denial of advance notice and adjustment fees to which he is entitled by virtue of his employment agreement, in light of the claim of signing the collective agreement without authority.
12. On September 11, 2024, a hearing was held before the committee via Zoom, in which the employer's attorney, the chairman of the company's board of directors, Mr. Simhon, the appellant and his counsel, as well as other representatives on his behalf, were present. At the end of the discussion, the parties informed that they were conducting an informal dialogue to end the disputes, and therefore were asked to update the committee on the aforesaid.  On September 15, 2024, the parties announced that they had not been able to reach agreements, and a day later the appellant submitted a request to the committee to schedule an additional hearing for the purpose of hearing testimonies.  The committee rejected the request on the grounds that no special or unusual reason was found in the application that would allow testimonies to be heard.

The main points of the committee's decision

13. On November 3, 2024, after the parties submitted their summaries, the committee issued its 22-page decision (see Appendix 1 to the notice of appeal). After reviewing the relevant facts, the background and the conduct of the proceeding, the committee rejected the appellant's threshold arguments regarding lack of authority due to an "act of dismissal".  Later on, the committee determined that this was a proceeding of an administrative nature and that this was the result of its decision not to hold an evidentiary hearing unless an application was filed based on special exceptional reasons, which was not submitted by the appellant.
14. After these remarks, the committee turned to examine whether the company met the burden imposed on it to prove that in the circumstances of the case the conditions for granting a dismissal permit were met. As to the first condition required, regarding the lack of connection between the dismissal and reserve duty, the Committee noted that the appellant did not claim such a connection in the framework of his response to the summons to the hearing, but claimed it for the first time only in a proceeding before the Committee, which impairs the credibility of his arguments.  Even on the merits of the matter, the committee was of the opinion that the company had proven the absence of the aforementioned connection between the reserve duty and the dismissal, when among the reasons it detailed it noted that the business dispute between the appellant and Tnuva began in the summer before the outbreak of the war, that the company did not dismiss the appellant when he was serving in the reserves almost continuously, but rather during a period when the frequency of service decreased, because his absence from work was not the basis of the permit application.  Rather, allegations of acts he committed before and during the period of reserve duty, and that it did not emerge that the appellant did anything in order to disavow the events or allegations attributed to him or to improve in any way the situation that arose as a result.
15. The committee also determined that the company also proved the fulfillment of the second condition required for the granting of a dismissal permit - the existence of "special reasons" for granting the permit. In this regard, the Committee noted the fact that the position of CEO of the Company is a senior and sensitive position, and significant weight should be given to the trust that exists between him and the Board of Directors and the cooperation between these two organs.  The committee also addressed the company's claim that the appellant signed a collective agreement with the company's employees on its behalf and ruled that it was not denied that this was done without coordination and without updating the board of directors.  The committee addressed the company's additional arguments and finally determined that there were the same special reasons that justified the granting of the permit.  Before concluding, the committee noted as follows:

"With all of this, we must ask, why is it necessary to fire the employee during the reserve period and it is not possible to keep him in the temporary position that was created for him until the end of his career