A. Who "benefits" from the tip we leave for the waiter (or barber or messenger), and who "loses"?

Following Further Hearing of Supreme Court of Justice 5967/10 The National Insurance Institute versus Esther Cohen (14.4.2013) ("the Cohen Ruling").

The tip raises questions in labor law, tax law and social security law: for example, when should the tip be considered to be the income of the restaurant? When should it be considered to be the income of the waiter? If the tip is considered to be the income of the waiter – is it considered to be income sourced from labor or sourced from a profession? Are the manner in which the tip was paid (to the restaurant or directly to the waiter) and the customer's intention in making the payment of significance? What are the reporting and compulsory payment duties to the tax and national insurance authorities and to whom do such duties apply?

A tip can take various forms: at times the tip is added to the account and is paid as a service payment to the restaurant, and at times it is paid directly to the waiter who pockets the tip or shares it with other employees or deposits it with the restaurant. At times the restaurant records the tip as income and includes the tip in the reports to the tax and national insurance authorities and at times the restaurant only records the tip in the service record. At times the restaurant includes the tip in the salary slip of the waiter and makes compulsory payments (tax and national insurance) in respect of the tip and at times it does not.

There are various interests are at stake regarding the tip: the customer may wish to give the tip to the waiter personally as a tribute to the good service he/she has received and not as an indirect payment to the restaurant; the waiter wishes to receive the tip directly from the customer as net income, without reporting or compulsory payment duties; the waiter also wishes to receive from the restaurant his/her full rights according to labor law (in addition or as a supplement to the tip), and at times the waiter wishes to include the tip in calculating his/her rights according to labor and national insurance laws notwithstanding the fact that the tip was not reported and that compulsory payments were not made with respect to the tip; the restaurant wishes to cut costs and include the tip in the payments to which the waiter is entitled from the restaurant according to labor law (in other words "to take credit" for the tip), but only in respect of that portion of the tip necessary to cover its labor law obligations (the balance, in respect of which the restaurant would not have reporting and compulsory payment duties, could be retained by the waiter); the tax and national insurance authorities wish to collect payments with respect to the full tip, and prevent a situation in which benefits such as national insurance benefits would be payable in respect of a tip in respect of which compulsory payments were not paid.

These issues were recently discussed in depth in a ruling that the Supreme Court handed down on the claim of a widow whose husband lost his life during a voluntary act to save the lives of others: the widow demanded that the National Insurance Institute also include in the dependent's pension to which she was entitled as a widow of a volunteer the tip paid to her husband directly by the customers, notwithstanding the fact that it was not reported and that no compulsory payments had been paid in respect of the tip. The National Insurance Institute rejected her claim and the widow consequently filed a claim in court. The guiding principles of the discussion were as follows:

The underlying principle is that the waiter is the employee of the restaurant and entitled to receive from the restaurant his/her rights according to labor law, calculated at least according to minimum wage.

When the tip is added as service to the bill and is paid to the restaurant, the restaurant must register it as income in the restaurant's books and not only in the service record. If the restaurant pays the tip or part of the tip to the waiter, the payment is considered to be the salary of the waiter, registering, reporting and compulsory payment duties will apply, and it will be included in the calculation of the waiter's social benefits and national insurance emoluments.

When the tip is paid by the customer directly to the waiter, the waiter and restaurant can agree between themselves that the tip (or part of the tip) will be transferred to the restaurant, and taken into account in calculating the payments payable to the waiter from the restaurant according to labor law (such as minimum wage). In such a case, the tip thus transferred will be considered to be the income of the restaurant and the restaurant will be obliged to register the tip as income. In addition, the restaurant will have reporting and compulsory payment duties in respect of the tip.

However, when the customer pays the tip directly to the waiter, and the tip is not transferred by the waiter to the restaurant, it is not considered to be the income of the restaurant, and the restaurant does not have to register it as income, apart from recording it in the service record (according to the tax regulations pertaining to maintaining an accounting ledger), and the restaurant does not have reporting or compulsory payment obligations with respect to the tip. However, such a tip, even though it is paid to the waiter by the customer (who is not the employer of the waiter), is paid to the waiter as an employee of the restaurant, and not as an independent contractor or as an independent professional, and it is considered to be labor income of the waiter, and not his/her business or professional income. The only party which may be relevant for reporting and compulsory payment duties in respect of such a tip is the waiter and not the restaurant which as mentioned neither receives nor pays the tip and has no registration or reporting duties in respect of it. However, according to tax law, the waiter, as a recipient of labor income, as a general rule is not subject to a reporting duty in respect of labor income, and as a result there is practically no enforcement of compulsory payments from the waiter in respect of the tip. Indeed, in several cases it has been ruled that such a tip is not to be included in computing the social benefits due to the waiter from his/her employer, since these derive from the salary payable to the employee by the employer only and not by third parties.

As to the national insurance emoluments, the Supreme Court accepted the claim of the widow of the volunteer to include the tip in the dependent's pension payable by the National Insurance Institute but did so emphasizing that the emoluments to a volunteer (or his/her dependents) are funded by the state treasury and not by the national insurance budget and therefore are not dependent on collection, while the legal result with respect to other emoluments, such as injury emoluments, which are funded from the national insurance budget and dependent on collection, may be different, and that they may be calculated according to the salary paid to the waiter by the restaurant only, in respect of which the restaurant has reporting and compulsory payment duties.

Prima facie, there is justice in the contention that the waiter, who receives a tip directly from the customer as a net payment, without the restaurant having received or having paid the tip, and without the tip being at the expense of the waiter's rights from the restaurant according to labor law as calculated on basis of the salary exclusive of the tip, agrees that the tip reflects the full benefit he/she is entitled to, and that the employer should not have to bear the costs of social benefits in respect of such a tip, and for the same reason the National Insurance Institute should not have to bear the costs of emoluments in respect of a tip for which national insurance payments were not paid.

On the other hand, there is no doubt that the result according to which a tip payable directly by the customer – which usually constitutes a major portion of the waiter's income – is not reported, and in respect of which compulsory payments are not paid, and which is not taken into account in computing the social benefits and emoluments according to the labor and national insurance laws, does not concur with the purpose of the labor laws, tax laws and national insurance laws.

The situation discussed in the Cohen Ruling exemplifies the point: had the claim been not for a volunteer's emoluments but rather for an employee's injury emoluments, the volunteer's widow might have been deprived of the benefit in respect of the tip.

In the petition for a further hearing the attorney general argued that the court should change the ruling according to which a tip paid directly by the customer to the waiter is not considered to be the restaurant's income, and rule instead that such a tip is to be considered to be the restaurant's income and that it should be treated in the same manner as a tip paid directly to the restaurant, and in this manner solve the problem of reporting, compulsory payments and taking the tip into account in computing the waiter's rights to social benefits and emoluments according to labor and national insurance laws.

However, the Supreme Court ruled that it would not be appropriate to create, by way of case law, a new legal arrangement with respect to the status of the tip paid by the customer directly to the waiter, since this issue raises problems of social and economic policy which, due to their complexity and ramifications, should be addressed by the legislature.

Meanwhile, the customer benefits, the restaurant benefits, the waiter at times benefits and at other times loses, and the tax authorities and National Insurance Institute mainly lose.

B. Take note: by means of legal acrobatics the Minister of Finance plans to impose a discriminatory tax upon employees in the public sector ("public employees")

Towards the bill on Public Service Employee's Participation in Coping with the Budgetary Deficit in the Treasury during the Years 2013-2014 (Temporary Order) of 2013.

If our typical middle class employee1 is by chance a public employee, he/she will soon be called upon to pay the treasury an additional tax, over and above the other decrees. This tax is euphemistically described as "participation" but make no mistake – it is essentially a tax.

The imposition of the tax is being effected by means of questionable legal acrobatics. The state – alongside other employers in the public sector including municipalities, the large cities, regional councils, the national insurance institute, the institutes of higher education and the major medical insurance fund – has recently signed a collective agreement with the main union in Israel (the "Histadrut"), combining a "stick" and a "carrot" ("the Collective Agreement"). The "stick" is the deferment of a year and a half in the payment of a salary supplement to which the employees are entitled. The "carrot" is the increase in pension contributions.

The declared and explicit aim of the Collective Agreement is to bring about the participation of the employees in the burden of stabilizing the fiscal situation of the State of Israel, by means of deferring the date of entitlement of employees to a salary supplement. The deferral brings about a decrease in salary expenditure and thereby contributes to stabilizing the economy. The Collective Agreement does not stop there. The union gave its advance consent that the Collective Agreement apply to other public employers, either as is or with the necessary adaptations. Finally, the Collective Agreement conditions its coming into force on the passing of a law for the participation of public employees in coping with the budgetary deficit at the treasury during the years 2013-2014.

Following the Collective Agreement, a bill has been prepared providing that the salary of a public employee to whom neither the Collective Agreement nor a different collective agreement authorized by the Minister of Finance applies will be decreased for the one and a half year period during which the salary supplement is deferred according to the Collective Agreement, and at the same rate.

The declared and explicit aim of the bill is identical to that of the Collective Agreement – to bring about the participation of all public employees in the burden of stabilizing the fiscal situation of the State of Israel. To this end the bill provides that the sum not paid to the employee as a result of the law ("the saved amount"): (a) will not be returned to the employee; (b) will be transferred by the employer to the state treasury ("the provisions as to the forfeiture of the saved amount and its transfer to the treasury").

It should be mentioned that the Collective Agreement itself does not include provisions as to the forfeiture of the saved amount and its transfer to the treasury. Such provisions were not included despite the fact that the Collective Agreement applies also to employers other than the State of Israel, so that the provisions of the collective agreement themselves cannot achieve the end of transferring the saved amounts to the treasury. The bill, on the other hand, addresses this issue by providing that the provisions as to the forfeiture of the saved amount and its transfer to the treasury will apply to all saved amounts, whether they are effected by the bill, by the Collective Agreement, or by another collective agreement authorized by the Minister of Finance.

In my opinion, we are facing an act of legal acrobatics which has various aspects which are cause for concern. Firstly, it appears that the aim of the Collective Agreement – to assist in the stabilization of the fiscal situation of the State of Israel – is a political aim, which completely exceeds the permitted subjects for a collective agreement under law. This is true not only with respect to employees who are not civil servants but also with respect to employees who are civil servants. Prima facie the contribution demanded from the public employees has characteristics of a tax payment, camouflaged by means of a mechanism for deferring the date of entitlement to a salary supplement according to a collective agreement. Indeed, it is quite common to include in a collective agreement concessions on part of the employees for recovery of the workplace, but such concessions can only refer to the relationship of the employer vis-à-vis the employee in the workplace. On the other hand, the aim of the Collective Agreement is to promote a political purpose which has no connection to the employment relationship. This is certainly true with respect to those public employees who are not civil servants, but also with respect to civil servants. It is doubtful that a collective agreement may be the vehicle for imposing tax, and in any event, the attempt to impose tax on public employees is flawed in that it discriminates against public employees as compared to other Israeli residents.

The fact that the drafter of the Collective Agreement and the bill were aware of the problematic nature of the steps they have taken is apparent from the fact that the Collective Agreement does not include provisions as to the forfeiture of the saved amount and its transfer to the treasury, despite the fact that such provisions are necessary for accomplishing the aim of the Collective Agreement and should be considered as an integral part thereof. These provisions are effected by means of the bill. It can be assumed that the drafters of the Collective Agreement were perfectly aware that such provisions completely overstep the permitted provisions of a collective agreement and that their inclusion will expose the true nature of the deferment of the date of entitlement to the salary supplement as a camouflaged tax and the problematic nature of imposing a discriminatory tax by means of a collective agreement. This is an additional measure to camouflage the true nature of the deferment of the salary payment under the collective agreement as tax.

The bill is also undemocratic in the sense that it forces the parties to the collective employment relations to reach a collective agreement to the satisfaction of the Ministry of Finance the effect of which will be imposing tax for the benefit of the state treasury (since the sum to be deducted according to the Collective Agreement is to be transferred to the state treasury) by means of the provision that if such a collective agreement is not reached, the law with respect to the deduction will apply. In fact, the bill forfeits the ability to conduct genuine collective negotiation autonomously from the parties to the collective employment relations.

It is only surprising that there has been as yet no outcry on these steps the effect of which is discrimination against public employees, who will be called upon to pay a discriminatory tax beyond the other decrees applicable to the residents of Israel.

C. A whistleblower's complaint against his/her superior

Thoughts following Labour Appeal 48067-10-11 Moshe Hazut versus Israeli Railway Ltd (4.6.2013) (the "Hazut case" or the "Hazut Ruling").

The recent ruling of the National Labor Court in the Hazut case revolved on the protection afforded to an employee under the Protection of Employees (Exposure of Offences, of Unethical Conduct and Improper Administration) Law of 1997 ("the Law"). The Hazut case deals with an employee who submitted complaints against various people in the workplace, including members of the employees' committee. The employee was subjected to harassment which was manifested in his being ostracized, in the annulment of his candidacy for election to the employees' committee, in verbal and physical attacks against him and in threats against him. In addition, many complaints were filed against the employee, including false complaints which were filed with the police. The employee was subsequently placed before a disciplinary tribunal and dismissed in a very flawed process.

The employee's claim against the employer was almost fully accepted. The labour court did not stop at ruling that the employee should be compensated monetarily for breach of the law, but also ruled, in an exceptional ruling, that the employee be reinstated in the workplace, despite the fact that 7 years had elapsed between his dismissal and the ruling. In addition, the labour court also awarded the employee with compensation in the amount which would have been paid to him as salary had he not been dismissed, in respect of the full period from the day of his dismissal until the date of his reinstatement (less the sums paid to him upon his dismissal and the sums paid to him during such period from other employment or from unemployment benefit). In addition, the labour court ruled that the letters of complaint filed against the employee following the employee's complaint should be removed from his personal file in the workplace.

The Hazut Ruling is an example of the types of events and issues characteristic of cases in which employees expose corruption in the workplace. The course of events which typically occurs, and which also occurred in the Hazut case, can be simplified as follows:

An employee ("the employee complainant") submits a complaint against his/her direct superior ("the superior complainee") of an act of corruption or improper administration ("the employee's complaint"). The superior complainee on his/her part, submits a complaint against the employee complainant, accusing the employee complainant of bad performance and incitement. The employee's complaint is transferred to the internal controller and the complaint of the superior complainee against the employee is transferred to a disciplinary investigation. The employee complainant is often ostracized and tries to enlist other employees, most of whom usually do not wish to become involved. Sometimes the employee complainant succeeds and as a result groups "for and against" are formed. The fabric of relationship in the workplace unravels. The atmosphere in the workplace becomes fraught with tension and hostility. A lot of energy is invested in the conflict. The work is damaged.

The law protects the employee complainant. The protection of the law is expressed in the special remedies afforded by the law to the employee complainant – both procedural and material. However, it is important to emphasize that an employee who wishes to receive the protection of the law must fulfill several cumulative conditions:

Firstly, the employee's complaint must have been submitted in good faith. The test for good faith is not the truth of the complaint. However, if the employee does not believe in good faith in the truth of the complaint, then the condition of good faith is not fulfilled. The timing of the submission of the complaint may cast light on the issue of the good faith of the employee complainant. For example, if it transpires that the employee complainant knew of the act of alleged corruption for some time but chose to turn a blind eye, and he/she submits the complaint only after a dispute erupts between him/her and the superior complainee (for example the superior complainee withholds his/her promotion), suspicion may rise that the complaint has been submitted as an act of revenge. If this is the case, then the employee's complaint has not been submitted in good faith, and the employee will not be entitled to the protection of the law. This is because the purpose of the law is not to protect employees who suppress complaints of unlawful or improper actions in the workplace and accumulate them as an arsenal for a rainy day in order to remove colleagues or superiors who put obstacles to their promotion or to take their revenge against them.

Secondly, the employee's complaint must relate to actions as defined in section 4(2) of the law as "breach of law in the workplace, or breach of law relating to the employee's employment or to the business or activity of the employer and in a public body – also if the complaint relates to unethical conduct or improper administration". Thus for example, a complaint which relates to a familial or financial crisis of the superior complainee, or his/her private habits, which have no relation to the workplace, is merely gossip spreading and not a complaint protected by the law.

Thirdly, the law protects the employee only if he/she submits his/her claim to the person authorized to deal with it in the workplace (such as head of human resources). For example, an employee who spreads the complaint in all directions will not be protected by the law.

Fourthly, the law protects the employee complainant against being injured as a result of the complaint but does not protect a justified measure against the employee which is not related to the complaint. For example, in the Hazut case, after the employee complainant submitted the complaint, the complainees submitted many complaints against him. Not only was the labour court unimpressed by the merits of these complaints – against which the employee had not received a genuine opportunity to defend himself - but it also was under the impression that these complaints were born of the employee's complaint. Therefore, the labour court ruled that the complaints be removed from the personal file of the employee. It could be, however, that complaints against the employee complainant are justified. Clearly, submitting a complaint does not provide the employee complainant with immunity against disciplinary measures taken in response to improper conduct on his/her part. There is a third possibility, that the superior complainee's complaint against the employee is motivated by a mixture of lawful and unlawful considerations. Although in order to receive the protection of the law, the employee does not have to prove that the injury he/she incurred was caused only because of the employee's complaint and he/she is entitled to protection even if the complaint was one of several causes for the injury against him/her; however, the fact that the injury was also motivated by lawful considerations may be taken into consideration by the labor court, in determining the remedies to which the injured employee is entitled. If the conduct of the employee has contributed to the injury, and the injury is for example, dismissal, the employee complainant will probably not be reinstated, but may nevertheless be awarded damages.

D. Employers' adaptation to the cancellation of the automatic compulsory retirement age following the Weinberger ruling

Following Request to Appeal 46934-11-11 SHIBA Entrepreneur and Investments Ltd. v. Tamar Printing Jerusalem (2004) Ltd. (August 2, 2012).

In the Weinberger ruling, which I addressed in the seventh edition of the Anecdotes, the national labor court effectively annulled automatic retirement at the compulsory retirement age under section 4 of the Retirement Age Law of 2004 ("the Retirement Age Law") by ruling that an employer who receives a request from an employee to continue working despite the employee having reached the compulsory retirement age must consider the employee's request on its merits, and is not entitled to refuse the request only in reliance on section 4 of the Retirement Age Law. The compulsory retirement age remains a default retirement age for those employees who do not want to continue working beyond said age.

The Weinberger ruling is the first attempt of the courts to cope with the discrimination inherent in section 4 of the Retirement Age Law, and to sweeten its bitter bite.

We are witnessing the adaptation to the Weinberger ruling by many employers. Following the Weinberger ruling, various public employers have published new instructions as to the manner of submitting a request to continue employment after compulsory retirement age, and as to the manner of dealing with such requests.

The most salient indication of the adaptation of the Weinberger ruling by employers is the fact that the Civil Service Commission promulgated a directive on "Extending service beyond compulsory retirement age for personal reasons" (directive number 8.1 from the 13th of February 2012) ("the Civil Service Directive"). This directive reflects the acceptance of the State of Israel, as the largest and most important employer in the market, of the Weinberger Ruling.

However, the Civil Service Directive also reflects the flaws existing (in the opinion of the undersigned of course) in the "solution" of the Weinberger Ruling to the discrimination inherent in section 4 of the Retirement Age Law. The Civil Service Directive provides:

"Following a recent ruling by the National Labor Court, and appeals which have been received, the Civil Service Commissioner has decided to consider also the possibility of extending the service due to special personal circumstances, such as financial difficulties, family circumstances etc, providing there are also management considerations justifying the extension of service."

The manner of presentation adopted by the Civil Service Directive makes apparent that the Civil Service Commissioner does not regard an employee who has reached compulsory retirement age as having equal rights to those of any other employee of lower age and does not recognize the constitutional right of the older employee to equal opportunities in the workplace. The default remains retirement at compulsory retirement age, whereas the employee who wishes to extend his/her service must submit a special application to this end, with the result being that the older employee who has reached compulsory retirement age does not stand before the commissioner as an employee of equal rights with those of any other employee to continue working, but rather as a petitioner petitioning the state for a relief, the state having discretion whether or not to acquiesce. Additionally, the employee carries the burden to prove that the extension of his/her employment is justified and the state is not obliged to accept the application even if the employee is at the height of his/her abilities. And the burden is not an easy one at all. According to the Directive, the commissioner will be willing to consider the employee's request to extend his/her service beyond compulsory retirement age for humanitarian reasons only if the employee is in real personal difficulties. It is not enough that the employee is at the height of his/her capacity and wishes to continue working and to contribute to the workplace. It is also not enough that the work is important for the mental and physical well-being of the employee. It is also not enough that the employee needs to work in order to make a decent living. In addition, even "material personal difficulties" are not enough to make up for the absence of "managerial considerations to justify extending the service". Needless to say, if the State does not accept the employee's request, the employee will find himself/herself outside of the workplace, his/her only fault being his/her biological age – a factor over which he/she has no control, as compared to another employee whose age is lower than the compulsory retirement age.

The flaws existing in the "solution" of the Weinberger ruling, which are reflected and even underlined by the Civil Service Directive, emphasize the urgent necessity for the High Court of Justice's ruling on the issue of whether age is at all a relevant consideration in the continued employment of older employees, or whether it is an unlawful consideration which must not be taken into account, as indeed is provided in the Equal Opportunities in the Workplace Law of 1988.

The undersigned represents her husband and others in a (private) petition to the High Court of Justice to annul compulsory retirement due to age.