Criminal fine of 904,000 for failure to provide pensions for employees
Aug 24, 2018
John Geva and Shlomi Hadar, Attorneys and Mediators
The construction industry has become heavily regulated, with requirements spanning safety and hygiene standards all the way to business management.
Managing a business usually includes managing employees—whether skilled workers, administrative staff, or even foreign workers. What they all share is a statutory obligation imposed on employers to deposit funds for a managerial insurance policy or a pension fund.
In managerial insurance and pension funds, beyond the risk component of death, there are additional elements that provide support to the employee in case of illness, even if it is not work-related.
The following case illustrates the exposure employers face on the criminal level and the importance of being aware of employees’ rights.
An investigation by the Criminal Division of the Regulation, Enforcement, and Welfare Department in the Ministry of Labor, Welfare, and Social Services led to the filing of an indictment against a nonprofit organization that conducted Torah study sessions.
According to the indictment, the organization and its manager violated the Wage Protection Law by failing to transfer amounts deducted from employees’ salaries to their intended destination (the prosecutor’s representative claimed 58 separate offenses over a period of approximately two years). These are serious criminal offenses, as they involve the misappropriation of funds that were meant to be allocated to employees’ pension funds.
It should be noted that the maximum fine for each individual offense is ₪1,130,000.
The court's decision
Before the Regional Labor Court proceeded to decide on the defendant's sentence, it noted that the importance of the social value that was harmed as a result of the defendant's commission of the offense cannot be overstated. According to the court, these are sums of money intended to ensure the social and pension rights of the employees, which were deducted from their salaries and were not transferred to their destination, and therefore "the offense is likened to the employer putting a hand in the employee's pocket, while actually harming him and his most elementary rights."
In the same matter, the court determined that the appropriate penalty range was 10% to 20% of the maximum fine and deemed it appropriate to leniently impose the fine on the association due to a number of reasons that stood in its favor. At the end of the day, the court imposed a fine on the defendant in the amount of 113,000 (10% of the maximum fine) multiplied by the number of employees - 8, for a total of 904,000 NIS.
Following this ruling, a statement from the spokesperson for the Ministry of Labor, Welfare and Social Services was published, pointing out a statistic that should be of concern and draw the attention of every employer in Israel.
Please note - from the beginning of 2017 to the present, the Regulation and Enforcement Administration (in the Ministry of Labor, Welfare and Social Services) has issued 612 warnings and 501 sanctions totaling NIS 48,400,000 for failure to transfer deductions to their destination in violation of the Wage Protection Law. In addition, 2,039 warnings and 545 sanctions totaling NIS 8,725,000 were issued for violating the pension extension order. In addition, 19 indictments were filed under the Wage Protection Law and 20 judgments were issued under this law.
Now imagine how such sanctions could affect each and every one of you.
The need to prepare and avoid such exposure therefore begins at the employee onboarding stage, and to this end, the correct selection of professionals who are knowledgeable in the field is essential.
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