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Employee Rights When a Company Enters Liquidation in Israel
When an employer becomes insolvent and enters liquidation or bankruptcy proceedings, employees are often left without receiving their wages. In these circumstances, affected employees may file a claim with the National Insurance Institute, which steps into the role of the employer and pays outstanding wages for a period of up to 12 months, subject to the statutory maximum.
By Igal Mor, Adv. & Notary
Accuracy in Legal Advice. Excellence in legal support.
What Payments Are Employees Entitled to Receive?
Employees whose rights have been violated due to the liquidation of their employer—or the bankruptcy of a sole proprietor—are entitled to file a claim with the National Insurance Institute. The benefit covers unpaid wages, severance pay, and pension contributions that were not made during the employment period. It is important to note that the National Insurance Institute does not necessarily pay the full amount owed by the company. The benefit is capped at 12 months of wages and is subject to a maximum amount set by regulation. The wage components included in the calculation go beyond base salary and encompass overtime pay, commissions, and travel expenses. The benefit also covers unredeemed vacation days and unpaid convalescence pay.
Pension Insurance and Severance Pay
In addition to unpaid wages, an employee may receive pension contributions and severance pay through the National Insurance benefit. Since 2008, Israeli law has required every employer to make monthly pension contributions on behalf of each employee, covering both a pension savings component and a severance compensation component. If the employer failed to make these contributions—in whole or in part—the National Insurance Institute will supplement the shortfall up to the statutory ceiling. Regarding severance compensation specifically, because the law mandates a contribution of only 6%, the Institute will cover the gap needed to reach full severance entitlement. In cases where the employer made no pension or severance contributions at all, the National Insurance Institute will pay the employee full severance pay directly.
Eligibility Requirements for the Benefit
To qualify for the National Insurance benefit, an employee must satisfy three cumulative conditions. First, the claimant must be an employee—self-employed individuals and controlling shareholders who lack a genuine employer-employee relationship with the company are not eligible. Second, a court must have issued a liquidation order for the company, or, in the case of an individual employer, a bankruptcy declaration. Third, the court must have appointed a trustee or liquidator to manage the proceedings. All three conditions must be met; failure to satisfy even one disqualifies the employee from receiving the benefit.
Where to File a Claim
Every claim for benefits from the National Insurance Institute must be formally filed. As a general rule, claims are submitted to the local branch where the insured person is registered. However, when a company is in liquidation or an individual employer has been declared bankrupt, the process is different: the employee’s claim is submitted to the court-appointed trustee or liquidator, who centralizes all creditor claims against the company. Only after the trustee has reviewed and approved the claim is it forwarded to the National Insurance Institute, which then decides whether to pay the benefit in full, in part, or to deny it altogether. Wage claims always follow this procedure. Claims for severance pay and pension contributions, however, require an additional determination: if the employer maintained a pension fund and made contributions during the employment period, the claim should be directed to the insurance company managing the fund rather than to the National Insurance Institute. In most cases, once a liquidation order is published, the insurance company itself files a collective claim with the trustee on behalf of all affected employees, relieving individual workers of the need to submit separate claims.
The employment law team at Mor & Co. provides experienced legal representation for employers and employees navigating company liquidation and insolvency proceedings in Israel.
We understand the urgency and complexity of protecting employee rights during corporate dissolution. Our attorneys offer professional, personalized guidance at every stage of the claims process.
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