Legal Updates

As of the date of receipt of an order to stay proceedings in a company employees are deemed terminated and rehired by a new employer

May 28, 2025
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An employee who worked for a company that underwent economic rehabilitation pursuant to an issuance of a stay of proceedings order, was terminated several years later and demanded severance pay for the entire duration of his employment with the company, including before the company's economic rehabilitation.

The Supreme Court held that the employee is not entitled to severance pay for the period prior to the stay of proceedings order against the company. An insolvency proceeding is intended to manage the repayment of debtors' debts, with the aim of bringing about economic rehabilitation as much as possible, while determining the limits of the debt owed to creditors. The main aspect of the proceeding is the settlement of existing debts and allowing a company to start over with "new leaf". Thus, from the date of the issuance of the stay of proceedings order, the company is regarded as a different and separate entity, and as of the issuance of such an order, even when the employee continues to work for the company, the employer is deemed to have been transferred to a different and new entity unburdened by past debts. Here, when the stay of proceedings order was granted the employee was deemed to have been terminated by the original company, which created the company's obligation to pay him severance pay prior to the rehabilitation proceeding and marks it as a past debt, which must be settled in the framework of the aforementioned stay of proceeding process. After his dismissal, the employee is deemed to have been re-hired by another employer and upon his dismissal he is now entitled only to severance pay for the period of his employment for that new employer.

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