Engagement of consultants: when is a consultant an employee?

Potential exposure arises from companies' engagement of consultants because, following termination of the consultancy, the consultant may claim employee status and associated social benefits.

The labour courts have established criteria for determining whether a consultant should be considered an employee, including the degree of their:

• integration into the company and its activities and whether this limits the consultant's ability to provide services to other companies;
• personal involvement in the provision of services to the company; and
• independence in engaging with the company.

If a labour court rules that a consultant is deemed an employee, it may also rule that the consultant must repay the company any compensation received as consultancy fees in excess of the compensation that they would have received as an employee.

However, to obtain such reimbursement, the company must provide evidence that:

• the consultant was engaged in such a capacity through their own volition;
• the consulting fees exceeded the salary that the consultant would have received had they been hired as an employee from the beginning of the engagement; and
• the consulting agreement includes a Gidron clause stipulating the terms of employment should the consultant be deemed an employee and setting out the employee's obligation to indemnify the employer according to the difference between the consulting fees and the salary that the consultant would have received had they been hired as an employee from the beginning of the engagement.

In the absence of such evidence, the consultant could retain their entire compensation even if they were deemed an employee and would then be eligible to receive social benefits from the company as an employee, at an additional cost to the company.

For further information on this topic please contact Moran Friedman at Fischer Behar Chen Well Orion & Co by telephone (+972 3 694 4111) or email (mfriedman@fbclawyers.com). The Fischer Behar Chen Well Orion & Co website can be accessed at www.fbclawyers.com.