Rabbi Moshe Pinchuk
Former Rosh Kollel (Melbourne, 1998-2001)
Currently Head of the Beit Midrash in Netanya College


Severance compensation in Jewish and Israeli Law

A key component of downsizing is the dismissal of workers. In recent years, corporate downsizing has become an increasingly common phenomenon. This in turn, has brought about an increased interest in the “ethics of downsizing”. Questions of ethics and morality range from the executive decision to initiate downsizing; to determining what measure and considerations should be applied to decide which workers should be dismissed; and finally to obligations the company may have to the dismissed workers. In this article I wish to focus on the last issue, on severance compensation.

The appropriate Israeli law is entitled: severance compensation (פיצויי פיטורים). The choice of words, “compensation” rather than, say, “pay” is quite revealing as to the moral underpinning of this law. Compensation implies damage or hurt has occurred, compensation is required to put that damage right. Indeed, dismissal of a worker will usually cause him substantial financial loss and difficulty. The bible views mere holdover of payment as a life-threatening criminal act, “In the same day thou shalt give him his hire, neither shall the sun go down upon it; for he is poor, and setteth his heart upon it: lest he cry against thee unto the LORD and it be sin in thee” (Deut. 24, 15). How much more so when a permanent loss of income is at stake.

Viewing severance pay as compensation has some legal and practical ramifications: First, if the dismissed worker is the “damaged party”, it is incumbent upon him to sue the “damaging party”. As plaintiff, the burden of proof lies upon the worker. It is up to him to demonstrate the existence and extent of the damage. Second, in cases where the worker chooses to quit his job, be the reason what it may be, it is quite difficult to view the employer, in any way, as a “damaging party” and there is no basis for legal action against him.
The Israeli law is aware of this limitation and has artificially defined some scenarios of resignation as dismissal: A worker forced to quit for health reasons; a mother quitting on grounds of child rearing; a worker who quits on account of change of address. All of these cases are to be legally viewed as a dismissal, thus entitling the worker to severance compensation.

The Jewish law concerning the termination of a slave’s work for his master offers an alternate ethical model for severance pay. Among the commands of Deuteronomy we find: “If thy brother, a Hebrew man, or a Hebrew woman, be sold unto thee… And when thou lettest him go free from thee, thou shalt not let him go empty. Thou shalt furnish him liberally out of thy flock, and out of thy threshing-floor, and out of thy winepress; of that wherewith the LORD thy God hath blessed thee thou shalt give unto him” (Deut. 15: 12-14). The “furnishing” required here may readily be viewed as a gift, a token of appreciation for the work done by the slave and a stipend to help him on his new path. This command inspired the anonymous author of Sefer HaChinuch (command 482) make the following recommendation: “Nowadays,’the wise man may hear, and increase in learning’ (Prov. 1:5), when one employs an Israelite over an extended period or even a short period, it is proper that he bestow to him upon termination, from that which has been blessed with”.
This model presents severance pay as a gift and token of appreciation to the employee on behalf of the employer. According to this model, severance pay is forthcoming regardless of whether the worker has been dismissed or quit. The employee is not a plaintiff required to sue. The burden of proof is no longer incumbent upon him to demonstrate damage. To the contrary, it is upon the employer to demonstrate unsatisfactory work in order to relieve himself of the gift of appreciation.

The difference between “severance compensation” and “gift of appreciation” can perhaps best be shown in a court ruling of the chief rabbinate of Israel:
“the plaintiff…is suing for severance compensation as if he has been dismissed. He claims he was forced to quit because the employer was not paying him… he views this as a worsening of conditions which justifies his leaving and requires compensation… but as he has been unable to prove this claim, there are insufficient grounds to obligate the defendant to compensate him. However it would seem fitting to obligate the defendant to pay a certain amount, ex gratia, in appreciation of the plaintiff’s dedicated work

Curiously, despite the ethical gap between compensation and appreciation, when Mr. Yigal Alon, then Minister of Labor, introduced the severance compensation law in the Knesset in 1963, he alluded to the above mentioned biblical law as the basis for the Israeli law: “compensation to a dismissed worker is perhaps the first social right the workers in this country have attained…in continuation to ancient Jewish tradition of bestowal to the slave who has fulfilled his period of enslavement”

Very recently, an amendment to the Israeli law has been proposed. Its essence is that workers not entitled to severance compensation will by law receive a “termination of employment” grant. If this amendment is adopted, the Israeli law will incorporate both ethical perceptions of severance pay: compensation and gratitude.