Labor Appeal 30310-05-24 Given on June 22, 2025

Counsel for the appellants and the Histadrut Hanoar HaOved VeHalomed Adv. Osnat Longman, Adv. Yaakov Avid, Adv. Lahan Sarid

Counsel for the Respondent, Adv. Ronen Keinan

Attorney for the Israel Restaurant Association Adv. Galia Marom

Attorney for the Association of Strong Restaurateurs Together Adv. Amit Gross

President (Ret.) Varda Wirth-Livne

1. We have before us an appeal against the judgment of the Tel Aviv Regional Labor Court [Judge Yafit Mizrahi-Levy, Public Representative (Employees) Ms. Deborah Gorin and Public Representative (Employers) Ms. Irit Phillip; Labor Dispute 48424-01-22] [Nevo] (hereinafter: the "Regional Judgment"), in the framework of which the appellants' claim with respect to the manner of calculating their wages, in relation to the gratuity received by the Respondent's customers and the rights deriving therefrom, was partially accepted.
2. The facts that need to be relevant.
3. The appellants (hereinafter also: "the employees") were employed by the respondent in the period between 2014 and 2020. During the period of their employment with the Respondent (hereinafter: "the Employer" or "Segev"), the National Insurance Judgment (National) 44405-10-15 Omri Kiss - The National Insurance Institute [Nevo] (March 26, 2018) (hereinafter: the "Kiss Rule") was issued by this Court, which changed the previous rulings in labor law and National Insurance laws relating to gratuitous income, and its guidelines came into effect on January 1, 2019.
4. In the period prior to the judgment, Segev used a payment method as follows:
   • The workers' wages were paid to them out of the gratuity money collected in a joint gratuity fund, and distributed to each employee in relation to his working hours.
   • In addition to the gratuities, Segev issued a monthly wage slip in which the number of hours worked and days worked, the payment of the hourly minimum wage; travel reimbursements in the amount of 13.5 per working day and up to the cost of a monthly pass and social contributions according to the minimum; convalescence pay in the amount of ILS 1 per workday; Overtime pay, work on rest days and holidays according to the minimum wage; Pension contributions according to the minimum wage. The social rights that appeared on the slip were deducted from the tips.
5. Following the ruling and the entry into force of the Case Rule in January 2019, Segev announced in June 2019 that it intends to change the working conditions of the waiters so that 20% of the gratuities will be deducted for the purpose of financing the payment of social benefits and contributions. Following Segev's announcement, the workers decided to unionize with the Histadrut (hereinafter: "the Histadrut") and to begin negotiations, among other things, regarding the requested change.
6. In September 2019, without the parties being able to reach an agreement regarding the new working conditions, Segev changed the employment conditions of all waiters as follows: the recording of social payments on the pay slip and their actual deduction from the gratuity amount remained in place, Segev began to pay overtime pay in the amount of ILS 15 per hour, and to deduct amounts of 10%-20% of the gratuities.
7. The Proceedings in the Regional Court
8. The first lawsuit in the Regional Court was filed by 28 service chain workers who were employed in Segev between 2014 and 2020 and were united within the framework of the Histadrut, which represented them in the trial court and declared that it was their representative organization.
9. On November 23, 2021, the Regional Court issued a decision in which the employees who sued were required to file their claims separately. The claims were heard in a consolidated hearing, and in a hearing held on June 20, 2023, the parties agreed with respect to some of the plaintiffs to authorize the tribunal to render a judgment by way of compromise in accordance with section 79 of the Courts Law [Consolidated Version], 5744-1984.
10. The other plaintiffs in the Regional Court - who are the appellants in our case - did not agree to the compromise outline of the Regional Court, and in respect of them the Regional Court was required to issue the Regional Judgment, on which the appeal before us is filed.
    • 1. The parties' arguments in the Regional Court
11. The workers made general claims regarding the nature of Segev's employment: wages according to the minimum wage, for an average waiting time of 30 minutes per workday, in which it was claimed that the employees were required to perform general work, while the employer paid for waiting time exceeding only 45 minutes; failure to provide notice of the working conditions at Segev upon the absorption of the workers; withholding severance pay; failure to pay vacation redemption at the end of employment; non-payment of convalescence pay; reimbursement for travel expenses for working days in which the employees claimed that they were forced to pay for travel themselves (by private car or taxi) on days when public transportation was not operating (Saturdays and holidays); Improper pay slips.
12. In addition, the workers made claims regarding the components whose basis for calculating them is disputed: according to the workers, the gratuity amounts should have been credited in full for the purpose of calculating the social benefits and the redemption of the annual leave paid by Segev to the employees, according to an average hourly wage of ILS 60. Prior to January 2019, this was true, according to their claim, in accordance with the judgment in the Labor Appeal Proceeding 300113-98 G.M.B.  Eilat Restaurants in Tax Appeal - .Inbal Malka, PDA 40 (2005) 769 [Nevo] (hereinafter: the "Malka Rule"), and thereafter in accordance with the Kiss Rule.
13. The workers also claimed that the basis for calculating overtime pay should have been ILS 60 per hour in accordance with the average wage, including gratuities, when in practice this remuneration was calculated based on the amount of the minimum wage. In addition, they claimed that prior to the change in the terms of employment in September 2019, this remuneration was not paid at all, in violation of the law.
14. After the Kiss ruling: The employees' main argument deals with the proper interpretation of the judgment. First, with regard to the question of what is the default payment of gratuity funds according to the Kis Rule, and secondly, what is the consent required to apply the deviant stipulation as defined in the Kis Rule and the employment agreement as a rule.
    • 2. The Regional Court's Judgment
15. With regard to the period prior to the entry into force of the Kiss Rule, the Regional Court ruled that the employees' claim that they did not receive notice of the Respondent's working conditions should be accepted. At the same time, the Regional Court ruled that the actual employment agreement between the employer and the employees was known to the parties, and therefore the payment arrangement that was actually applied also reflects the employment agreement that applied between the parties.  Therefore, it was determined that the arrangement whereby the convalescence pay, social rights, travel and vacation were deducted from the employees' gratuities, and the social rights were paid according to the minimum wage, was determined lawfully and in a manner agreed upon by the parties.  It should be noted that due to the determination that no notice was given to the employee, the employees were given financial compensation for the fact that the notice was not given.
16. With regard to the pay slips, the Regional Court ruled that the pay slips issued to the employees were in good condition, since they faithfully reflected the rights, working hours and working days of the employees both in the period before the case ruling, in the period after it, and in the period after the change in working conditions. This is regardless of whether the wage components contained in them were paid lawfully.
17. As to the wage components, the Regional Court ruled as follows:
    • The workers were unable to provide a minimum factual basis to prove their claims regarding waiting times and payment for travel on days when public transportation was not operating, and therefore the claim for payment of these components was rejected. With regard to the claim of holiday pay, the Regional Court ruled that the workers had abandoned their claims to this component, and that in any event, the calculation that was made did not allow for the establishment of an appropriate basis for calculating the entitlement, and therefore this argument was also rejected.  The claim of withholding wages and withholding of severance pay was rejected because the claim was filed a year after the termination of their employment, and hence the statute of limitations applies to it.
    • With regard to the change in the terms of employment as of September 2019, the court ruled that the change was made in accordance with the provisions of the Kiss ruling, since the workers gave their tacit consent to the change, even though the workers were represented by the Histadrut at the time. Therefore, the tribunal ruled that the employees' conduct should be regarded as consent to the application of the deviant stipulation that the employer had enacted.
    • With regard to the payment of convalescence pay and travel expenses on public transportation, the Regional Court ruled that since the argument that Segev should not have paid them their rights out of the gratuity money was rejected, the claim for these components was rejected.
    • With regard to payments whose basis for calculation remains in dispute, the Regional Court ruled that the overtime pay prior to the Kiss rule was lawfully paid to the appellants out of the employer's remaining portion of the gratuities for the payment of social benefits. After the Kiss ruling, the court ruled and Segev even admitted it herself during the proceeding, that Segev should have paid overtime pay on the basis of the average wage that includes the gratuities - ILS 60 per hour.
    • Regarding the claim for unlawful deductions, the Regional Court ruled that the employer was entitled to deduct 20% of the amount of the gratuity to finance its expenses in accordance with the Case Rule.
    • With regard to the pension contributions and severance pay, the Regional Court ruled that in accordance with the employment agreement and the determinations relating to the basis of the salary for calculating the rights, the employer lawfully based its calculations on the minimum wage until the entry into force of the KISS rule, and as of January 2019 it was required to set aside these components from a salary of ILS 60 per hour.
    • Regarding the redemption of the vacation, the Regional Court ruled that the hourly value for calculating the redemption of the vacation is ILS 60 before and after the entry into force of the Kiss Rule.

• The arguments of the parties in the appeal
  • 1. The Appellants' Arguments

16. The employees' claims are divided into three levels:
    • The Regional Court's rulings regarding the legal situation and the validity of the employment agreement between the parties prior to the Kiss ruling and in the period from January 1, 2019 to September 2019:

According to the employees, the legal situation prior to the entry into force of the Kiss Rule, and in accordance with the Malka Rule, determined that in order to recognize the gratuity as the waiters' wages, Segev had to include the full amount of the gratuity as a basis for calculating the social rights to which the employee was entitled.  Therefore, the determination that Segev's conduct according to which part of the gratuity amount (up to the minimum wage) constituted a wage for calculating social rights was proper, is erroneous.