Software Companies No Longer Subject to Expansion Orders in the Field of Industry?

The question of categorizing high-tech companies as software industry companies arises in many due diligence inquiries. The operative meaning of this categorization suggests that the application of transaction terms set in expansion orders for various industries is applicable to high-tech companies as well. It also concerns the duty of such companies to pay organizational management fees to the Manufacturers’ Association of Israel.

A new decision handed down by the Jerusalem Regional Labor Court in the matter of Mobileye addressed the question of whether Mobileye’s activity should be classified as an (knowledge rich) industry and thus if to impose upon the company organizational management fees payable to the Manufacturers’ Association.

The Labor Court answered these questions in the negative. It ruled that an expansion order applicable to the metal, power, electronics, auto shops, and software industries does not apply to companies active in software development, because the word “software” was added in handwriting to the collective agreement expanded by the order. Additionally, it was held that the expansion order for pension insurance in the industry, which relates specifically to the software fields, applies to factories and manufacturing centers and not necessarily to companies who work in research and development. In light of this analysis, it was decided that Mobileye is not required to pay organizational professional management fees to the Manufacturers’ Association.

The decision regarding Mobileye was handed down by the Regional Labor Court and therefore does not constitute binding precedent. In light of the matter’s importance, it is possible the National Labor Court will also adjudicate the issue. We, therefore, believe this is not the last word on the matter. In light of the Mobileye decision, and for the time being, we recommend rigorously examining the question of the applicability of expansion orders in various industries to high-tech companies, on a case-by-case basis.