Labor Law
Unpaid Leave
Written by: Adv. Kobi Hatan
At the end of February 2020 the coronavirus pandemic burst into our lives and affected every area of life — and of course employment relationships and the ability to earn a living. More and more employees and employers found themselves facing many challenges with regard to their work, and there were even those whose livelihood and source of income were suddenly cut off entirely.
During March 2020 an old-new term entered our lives, which until then had been reserved for exceptional circumstances — “chalat” (unpaid leave). Employers and employees were, and are, forced to grapple with this new practice, and do not always fully understand its implications. We will therefore try to put things in order:
Unpaid leave is, in effect, leave without pay, which either the employer or the employee may initiate — but the consent of the other party is required.
An employee who goes on unpaid leave on their own initiative and without the employer’s consent risks having their going on such leave regarded as resignation by way of abandoning the job, or at the very least as a serious disciplinary offence justifying dismissal — possibly with forfeiture of prior notice and/or severance pay.
An employer who places an employee on forced unpaid leave risks this being regarded as dismissal (if the unpaid leave is not limited in time or is for a very extended period), and at the very least this will give rise to the employee’s right to resign as a dismissed employee on account of a tangible deterioration in the conditions of employment and/or circumstances in which an employee cannot be expected to continue working.
The ordinary course, then, is to go on unpaid leave by agreement.
Where unpaid leave is by agreement, its duration is not limited in time and is subject to the parties’ agreement. Thus, there may be a situation in which an employee asks their employer to take a year’s unpaid leave for the purpose of studies, for example. Where the unpaid leave lasts more than one month, the employee may be entitled to unemployment benefits — all subject to the eligibility conditions determined by the National Insurance Institute.
It should be noted that where the employee is protected by law from dismissal and from harm to their conditions of employment (for example, an employee undergoing fertility treatments, a pregnant employee, an employee on maternity leave, and so on), placing them on unpaid leave is conditional on obtaining approval from the officer in charge of the Employment of Women Law at the Ministry of Labor. The process of issuing these approvals was greatly streamlined during the coronavirus period, and all applications are now submitted online and handled efficiently within a short time.
At the end of the unpaid leave, the employee is supposed to return to work on the same terms on which they worked before going on unpaid leave, unless otherwise agreed between the parties.
During the unpaid leave period, the employment relationship between the parties is suspended, but not entirely severed.
This means that during the unpaid leave period the employee is not entitled to any payment of wages from the employer, including for vacation or, heaven forbid, illness, and is likewise not entitled to various benefits granted to them as part of their employment, such as: a company car, a phone line, holiday gifts, and so on.
Nonetheless, during the first two months of the unpaid leave the employer must bear the cost of the National Insurance contributions, which it may subsequently offset against the employee’s wages upon their return to work.
During the unpaid leave period the employer is not required to make contributions to the employee’s pension fund, and care should be taken — where the unpaid leave is prolonged — for the employee to continue the contributions, so as not to lose the rights in the fund.
The unpaid leave period is not counted towards seniority at the workplace. Thus, for example, an employee who worked for two years, was on unpaid leave for a year, and returned for one further year of work, will have three years’ seniority at the workplace.
To the extent an employer wishes to end an employee’s employment at the end of the unpaid leave period, because it is unable to take them back to work, it must hold a lawful hearing for the employee before making the final decision in their case.
To the extent the employee is dismissed, they will be entitled to prior notice by way of payment, or to payment in lieu of prior notice (immediate dismissal with payment of the prior-notice amount due to the employee, without social benefits). Although there is no statutory provision addressing this, it is very reasonable to assume that the labor courts will not accept an overlap of prior-notice days with unpaid-leave days, since this would mean, in practice, a failure to give prior notice.
The above constitutes general information only and is not a substitute for specific legal advice.
© Kobi Hatan, Adv.
