Media Centre

Israeli Employment Law – Did you Know? Non-Compete

29 September 2024

Dear Clients and Friends,

We are pleased to present you with our newest quarterly update for 2024, in which we will describe the local Israeli treatment of the always relevant issue of non-compete restrictions.

This update obviously cannot cover all aspects of this important issue, but it will hopefully provide you with some important insights and tips.

Non-Compete Restrictive Covenants – General

Post termination non-compete restrictions (along with other post-termination restrictions) are very common in Israel; However, similar to other jurisdictions, they are hard to enforce, and enforcement is limited to unique and suitable circumstances.

Israeli law generally prefers, prima facie, the employee’s freedom of occupation over the employer’s right that a former employee will not compete with it. Accordingly, an employee is prohibited from competing with a former employer, only if such competition may harm a legitimate interest of the employer (such as the breach of a trade secret, breach of the good faith obligation by the competing employee, the employer had materially invested in the employee’s training or compensation received by the employee).

Did you know? In Israel, all employees are required to maintain confidentiality by virtue of the law, with no time limitation. However, confidentiality obligations do not necessarily lead to non-compete restrictions. Having said that, if it is proven that in their new role the former employee is highly likely to breach confidentiality or intellectual property obligations (and this is very hard to prove), it may lead to enforcement.

Is Consideration a Condition for Non-Compete Enforcement?

No. Contrary to the situation in several other jurisdictions, consideration is not a requirement in Israel. However, if consideration is granted, it may increase (albeit not guarantee) the chances of enforcement.

Did you know? For payment to be considered as compensation for a non-compete undertaking, it should be a sufficient and genuine compensation paid specifically for this purpose.

What is Considered a Reasonable Length for a Non-Compete Restriction?

The common periods are up to 12 months depending on the role and / or the seniority.

Did you know? It is important to tailor the length of the non-compete restriction to the specific employee, their position, seniority, exposure to sensitive information, etc.

What is the Ideal Scope of the Non-Compete Restriction?

There is no ideal scope. Such restrictions should be tailored to specific circumstances. In general, the narrower and more accurate the restriction is (geographical scope /period / definition of competing business), the higher the chances of enforcement.

Did you know? Unlike many other jurisdictions, Israel adopted the “blue pencil” principle rather than the “red pencil” principle. Accordingly, the court is authorized to re-draft non-compete restrictions, as it deems fit.

Are There Alternatives to Non-Compete Restrictions?

As in other jurisdictions, if a “cooling off” period is required, there are other alternatives while the employee is still employed, such as an adjustment period or an extended notice period (both of which are paid). During these periods, the employees generally continue to be bound by all of their employment related obligations.

What Is the Likelihood of Enforcement?

If the Labor Court decides to enforce a non-compete undertaking, the enforcement will only be with respect to an obligation which can be considered reasonable (usually in respect of the areas concerning the scope of the employee’s occupation, the restricted territory to which the clause applies and the length of the restriction).

How Does the Israeli Law’s Position on Non-Compete Restrictions Compare to that of Other Laws?

Non-Compete restrictions are legal although hard to enforce. This is different to the new FTC Rule in the United States (although its coming into effect has also been delayed so-far). The general concept in Israel is similar to many jurisdictions, with the exception that in Israel, consideration is not a condition.

In Israel, the courts examine each case by its specific circumstances and whether it is justified for the employee to be restricted in light of them.

Did you know? Each case shall be examined based on its circumstances. This is true with regard to the drafting of any contractual provision and also with regard to examining whether a contractual provision shall be enforced. Therefore, it is very important to seek legal advise on these issues.

Our team is happy to further advise on the matter as well as assist in analyzing and drafting non-compete and other important restrictive covenants.

The Labor & Employment Department

Herzog