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Labor Law

If an Israeli business is sold, must the new owner keep employees and honor their severance?

Largely, yes. When an Israeli business changes hands as a going concern, employees' accrued rights, including seniority and severance, are protected. Under the Severance Pay Law 5723-1963 and established case law, a sale of the business that keeps the workplace operating is treated as continuous employment, so the buyer generally inherits the staff with their accumulated rights. The new owner is not forced to retain every worker, but dismissing an employee in connection with the sale triggers the usual severance and notice obligations.

Israeli labor law focuses on continuity of the workplace rather than the identity of the corporate owner. The Severance Pay Law 5723-1963 provides that where a business is transferred and the same enterprise continues, the employee's service is regarded as unbroken, and the buyer steps into the seller's shoes for accrued severance and seniority unless the parties lawfully arrange otherwise. The seller and buyer must settle between them who funds the severance accrued up to the sale, often by the seller paying it out at closing or the buyer assuming the liability with the employee's consent. Either way, the employee's entitlement is not erased by the change of ownership.

For a foreign buyer acquiring an Israeli company or its business, this means the workforce and its accrued liabilities are part of what you purchase, and due diligence must quantify outstanding severance, pension, and vacation accruals before closing. A share purchase leaves the employing entity unchanged, so employment simply continues. An asset or business purchase is where the continuity rules do their main work. If the new owner wants to reduce headcount, that is a dismissal carrying notice pay and severance, not a costless consequence of the deal. Our guide on Israeli employment law for foreign companies and expats covers these obligations. Allocating the severance liability clearly in the purchase agreement avoids disputes with both the seller and the employees afterward.

⚖ In Practice
  • Governing law: Severance Pay Law 5723-1963; continuity-of-employment principles in Labor Court case law
  • Competent authority: Regional Labor Court (Beit HaDin HaEzori LaAvoda)
  • Core rule: a business sold as a going concern preserves employees' seniority and accrued severance
  • Buyer's position: inherits the workforce and its accrued rights; may still dismiss, subject to severance and notice
  • Severance rate: roughly one month's salary per year of service, payable on dismissal
  • Due diligence: quantify and allocate severance, pension, and vacation liabilities in the sale agreement

From the full guide: Israeli Employment Law for Foreign Companies and Expats

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Get a Free Consultation with Adv. Eli ShimonyPrepared under the direction of Adv. Eli Shimony, Eli Shimony Law Office · Editorial policy

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