Legal Updates

An employment agreement of the control holder of a company that was not duly approved by the company will not be upheld

October 28, 2016

A CEO and director of a company, that upon its establishment and until the entrance of an investor was the majority shareholder, filed a claim after his dismissal for increased severance pay and leave notice pursuant to his employment agreement that included extreme liquidated damages provisions.

The Court held that under the circumstances the relevant clauses of the employment agreement are extremely unreasonable and illegal in a manner that justifies intervention and cancellation. The liquidated damages set by the agreement is extreme and sets that it is sufficient that the employee worked for one year (in this case the employee worked for less than two years) to grant the employee damages of more than two million shekels. Moreover, the agreement was signed without the approval of relevant institutions of the company and was not presented to the investor before investing. Therefore, the Court held that the increased compensation clauses are unreasonable, contrary to the good of the company and public policy and should be canceled.