Part of the conditions for a tender of the Ministry of Defense the supplier was required to be held at least 50% by an engineer. For that reason an engineer working for a company was registered as a shareholder and received separate monthly consideration for the holding in escrow in addition to the salary. Upon termination of the employment the company argued that the engineer is not entitled to severance pay and other social terms because the engineer is a shareholder.
The Labor Court held that employer-employee relationship may exist in parallel to the status of a shareholder or a director and the Court will check whether there are severable relationship between the ownership and control and the work for the company. Inter alia it will be checked whether had the shareholder not supplied the services to the company the company would have been required to hire another employee; whether the company was the only place of employment; was the person named as “Employee” in the engagement agreement; how was the person declared to the Tax Authority; etc.
In this case the engineer was an employee of the company inter alia because the registration at the Companies Registrar was for the tender purposes only, the engineer did not receive any dividends or utilized any other right of a shareholder and, in fact, there was a separate agreement on remuneration for the holding of the shares, in addition to the salary. The engineer was reported to the Tax Authority as an employee and also the engineer was subjected to the real owner of the company who set the engineer’s salary, terms and even terminated the employment.