Michael Gutman provided funding and taxation advisory services to Shikun & Binui Holdings Ltd. for approximately 20 years.

In 2006, Gutman filed a lawsuit for ILS 3,907,000 against Shikun & Binui with the Tel Aviv Regional Labor Court. In his claim, Gutman argued that he ought to be recognized as Shikun & Binui’s “employee”, and hence Shikun & Binui must pay him what he is entitled to due to those years, including severance pay and pay in lieu of advance notice.

Among other things, Shikun & Binui claimed that Gutman was an independent service provider and his wages as a freelancer vastly exceeded a comparable salaried employee’s wages, as Gutman was paid ILS 100,000 a month (as of the termination of their relations) as a “contractor”.
The parties are in disagreement on the reasons why Gutman and Shikun & Binui entered into contract as “contractor and ordering party” rather than “employee and employer” Gutman claims that although the parties formally agreed that payment will be made against an invoice, the parties knew full-well that Gutman was seen as an “ordinary employee”. Shikun & Binui claimed, in response, that it offered Gutman to hire it as an employee several times, but he refused.

The court was not convinced by Gutman’s account, and found, among other things, that Gutman impressed him as a skilled, opinionated man who is knowledgeable on the law, not someone who will do as he is told against his wishes. The court also noted that it seemed more reasonable considering all evidence that the employment structure was more convenient for Gutman, and there was nothing to suggest that he was prevented from becoming Shikun & Binui’s “employee”.

Case law, as recently decided in several judgments, determines that the main test for deciding if there are labor relations is the “mixed test” that comprises of several tests, none of which is conclusive and in of itself - but rather the “big picture” is considered.

In Gutman’s case, the court concluded, after examining the circumstances, that no labor relations persisted between the parties in the first period, but they did persist in the second period. According to new case law, Gutman’s rights must be calculated according to the wages he would have received had he been considered an “employee” in the first place.

It was decided that Shikun & Binui lifted the burden of proof that Gutman’s wages vastly exceeded what he would have received had he been considered an “employee” in the first place. Shikun & Binui claimed that the extra funds Gutman received as “contractor” must be deducted from any sum Shikun & Binui will be charged due to his recognition as employee.

For the purposes of deducting, the court decided that as Gutman was paid almost twice (if not more than that) what he would have been paid as an “employee”, and as Gutman was offered to become an “employee” but he refused, the “extra wages” he received as contractor must be deducted from any wages to be sentenced to his favor as an employee, all the more so considering that labor law is meant to create a balance between the employee’s inferior position and the employer’s superior position, but in this case the person does not need the protection conferred by labor law - on the contrary. Shikun & Binui needed this person a great deal and did a lot to keep him, including giving him very large pay raises.

Accordingly, Gutman’s claim for severance pay and pay in lieu of advance notice was defined, and Gutman was charged with costs and attorney’s fees at a total of ILS 35,000.

Gutman was unhappy with the result and he appealed against it to the National Labor Court.

The National Court supported the Regional Court’s conclusions and added that case law that recognizes contractors as employees is meant to protect underprivileged employees, but oftentimes, powerful workers who make much more than ordinary wage workers file lawsuits based on this case law, and hence this case law must be implemented carefully, on a case by case basis, while examining the parties’ good faith and the profitability of their engagement.

Accordingly, the court dismissed the appeal and even charged Gutman ILS 50,000 in costs due to his bad faith in lodging the claim.

The National Labor Court’s recent decision reinforces its decisions in recent years in the Anat Amir case and in the Shachar Zarfati case. The trend toward dismissing claims by freelancers is very good news for employers, who often find themselves facing unjust lawsuits.

*Case 55425-09-11 Michael Gutman v. Shikun & Binui Holdings Ltd., awarded on September 5, 2017, in the National Labor Court.