Legal Updates

In a set of agreement that are part of an M&A transaction if one agreement does not cancel the other both will be in force

July 17, 2017

Two shareholders of the Company agreed on acquisition of the company by one of them and signed a frame agreement for the transaction, a share purchase agreement and an employment agreement under which the seller continues to be employed in the company. The frame agreement set that the employment will continue until the seller reaches the age of 60 in one manner and for additional seven year in another manner, even if the seller dies within such 14 years period, all unless the seller commit a serious breach of the obligation to maintain confidentiality.  The employment agreement did not contain such provisions.  About four months after the execution of the agreement the selling shareholder was called for a hearing, after which his employment was terminated.

The Labor Court held that although there is a contradiction between the frame agreement and the employment agreement, because the employment agreement did not cancel the frame agreement, it only replaces parts thereof to which it refers.

When no fixed period of employment has been fixed, it is possible to terminate an employee at any time, even without cause, but subject to the obligation to act in good faith and with fairness. In contrast, a contract of employment for a fixed period that does not include a right to terminate it will limit the freedom to be released from the contract and therefore must be unequivocal or it will be considered a contract for an unlimited period. In this case, from the frame agreement one can learn that the parties had the intention to continue the labor relations for a fixed period, but no unequivocal undertaking exists in the employment agreement.  Thus, the seller could have been terminated. The two parties acted improperly; the purchasing shareholder took unilateral actions and acted in lack of good faith; and the selling shareholder abused his understanding that he could not be terminated and acted in a manner unacceptable from an employee. Therefore, he could have been terminated but he will still be entitled to compensation for the lack of good faith during his dismissal and for the rest of his rights as an employee.