Legal Updates

In a closely held company it is more likely that the corporate veil will be pierced in case of employees’ rights

November 3, 2019

Electricians who worked as day laborers at a company dealing with industrial electricity works were summoned to the hearing and dismissed after a company customer suspected them of engaging in embezzlement at the customer. The employees demanded their wages and rights both from the employer company and from its shareholder and manager.
The Labor Court accepted the employees’ claim for wages and terms but dismissed the personal claim against the shareholder and manager. As a result of the recognition in the special status of employee-employer relations and the special obligations of trust derived therefrom, the circumstances under which the corporate veil is pierced in case of employees' claims were widened. This will be the case, inter alia, when a company ceases to operate without the employees' rights being guaranteed, circumstances under which the controlling shareholders of the company operates while ignoring employees’ rights, and more. However, the fact that the employee's social rights were infringed, by itself does not constitute grounds for piercing the corporate veil and usually the mixing of assets or the emptying of the company from assets or fraudulent activity and bad faith, is also required. When it comes to small family company it is more likely that the corporate veil will be pierced but this will not always be the case. Here, the company infringed upon employee rights, but there was complete separation between the company and its shareholder, although from time to time the shareholder transferred money to the company to pay bills and repay loans. For this reason, the personal claim against the shareholder and manager was dismissed.