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Is an Israeli employee entitled to severance pay if they resign voluntarily?

Generally no. Voluntary resignation does not trigger the severance entitlement under Section 1 of the Severance Pay Law 5723-1963, which applies on dismissal after at least one year of continuous employment. Two important exceptions apply. First, constructive dismissal (piturin beshikum): if the employer's unilateral changes to fundamental employment terms made continued work impossible, Israeli courts treat the resignation as a deemed dismissal and full severance applies under Section 11. Second, Section 14 pension arrangement: employees enrolled under a properly implemented Section 14 agreement receive the accumulated pension severance component on any termination — including voluntary resignation.

Section 1 of the Severance Pay Law 5723-1963 grants severance at a rate of one month's salary per year of employment only to employees who were "dismissed" after completing 12 months of continuous service. Resignation is excluded from the statutory entitlement as a default. Section 11 of the same law creates the constructive dismissal (piturin beshikum) exception, which the National Labor Court has applied in cases where the employer unilaterally and materially changed the terms of employment to such a degree that a reasonable employee could not be expected to continue. Qualifying circumstances under established case law include: forced geographic relocation without adequate justification, a significant unilateral reduction in salary, persistent demotion to unsuitable responsibilities, and systematic workplace harassment. The employee must resign within a reasonable time after the triggering change — resignation many months later without explanation may undermine a constructive dismissal claim. The practical framework for foreign workers facing termination in Israel is covered in Wrongful Termination in Israel: Rights, Procedures and Remedies.

The Section 14 pension arrangement is the most reliable way to ensure severance protection regardless of the reason for leaving. Under a properly documented Section 14 agreement, the employer deposits 8.33% of the employee's gross monthly salary into the employee's pension fund as a designated severance component. On any termination — including voluntary resignation — that accumulated fund balance is released directly to the employee. This structure is particularly important for foreign workers: without Section 14, a worker who resigns receives no severance from the employer regardless of how long they worked, unless they can establish constructive dismissal. Israeli attorneys consistently recommend confirming the existence and proper documentation of a Section 14 arrangement at the start of any employment relationship. A retroactive Section 14 agreement signed after dismissal is not valid, so this must be arranged at the beginning.

⚖ In Practice
  • Governing law: Section 1 (dismissal entitlement) and Section 11 (constructive dismissal), Severance Pay Law 5723-1963
  • Competent authority: Regional Labor Court (Beit HaDin HaAzori LaAvoda)
  • Standard severance rate: one month's salary per year of service (or fraction thereof), payable on dismissal after 12 months of employment
  • Constructive dismissal trigger: unilateral employer changes to fundamental terms — salary, location, role — that a reasonable employee could not be expected to accept
  • Section 14 advantage: with a properly documented Section 14 pension arrangement, the accumulated severance fund is released on ANY termination including resignation — the key protection for foreign workers to secure from day one of employment

From the full guide: Wrongful Termination in Israel: Rights, Procedures and Remedies

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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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