Israeli National Labor Court Rules Investors Are Not Employers

The Israeli National Labor Court recently issued a ruling addressing a claim to “lift the corporate veil” in a dispute between two groups of shareholders in a company. The National Labor Court’s ruling did not allow the lawsuit against the shareholders to move forward, allowing only deliberations on the lawsuit against the employer (the company).

The case started as a dispute between shareholders. As a result, the company’s former CEO, who is also the company’s founder and a shareholder, filed a lawsuit against the company, his actual employer. He also filed a lawsuit against the investors (the other shareholders). The CEO raised various allegations, inter alia, unlawful dismissal.

Concurrent with the proceeding initiated in the labor court, the CEO filed a similar and parallel lawsuit with the district court, which is still sub judice.

The National Labor Court’s Ruling

The National Labor Court ruled the CEO may not adjoin the investors (the other shareholders) to his lawsuit because the investors had no involvement in the company’s routine management.

As a rule, the labor courts’ policy is to deliberate actions and resolve disputes between parties on their merits. Thus, dismissing a claim in limine is not at all routine. However, in this case, most of the CEO’s allegations were against the investors and related to their mode of conduct toward him as a shareholder of the company. The National Labor Court ruled the clarification of such allegations (i.e., discrimination against minority shareholders, which is not in the labor court’s wheelhouse) is outside of its substantive jurisdiction. The National Labor Court further held that, in any case, the CEO’s allegations regarding the investors’ actions against him do not justify “lifting the corporate veil.”

The court also found the CEO’s allegations in the labor court case were identical to the allegations he raised in a parallel proceeding underway in the district court between the CEO and the other shareholders. The court found that holding parallel proceedings could lead to conflicting rulings. It, therefore, determined it would be more appropriate to clarify the issues in the district court proceeding.

In closing, the National Labor Court added that this case warrants the unusual decision to dismiss the lawsuit, because the CEO holds 45% of the company’s shares, while the investors hold only 10%.