Friedman Kaplan Deepens Investment in Resources for Israeli Companies

Asaf Reindel
January 2, 2019

In 2018, Friedman Kaplan launched our Israel Practice, headed by Asaf Reindel. The Israel Practice represents Israeli companies in connection with their US operations (including entity formation, employment matters, commercial agreements, debt and equity financing, M&A transactions, litigation, and many other aspect of their U.S. operations). We also represent U.S. clients doing business in Israel.

Employment Considerations for Israeli Companies Doing Business in the U.S.

In this newsletter, we chose to focus on employment law.  U.S. employment law has multiple layers and is based on federal, state, and local (city) laws and regulations (i.e., it changes based on the specific jurisdiction in which the employer and employee are located), and is obviously very different than Israeli employment laws. We advise clients on everything from the hiring process (including, for example, how to avoid violating anti-discrimination laws), the employment period, and termination. Israeli attorneys are unable to advise on such laws, and as a result our attorneys advise many of our Israeli clients in connection with employment matters.

At the hiring stage, not all companies are aware of the New York City law which became effective in October of 2017, which prohibits asking a prospective employee about their salary history. (For more information click here).

Further, Israeli companies are used to having employees sign employment agreements before they start work, which is a good practice in the U.S. as well. But we still see companies using their Israeli form of employment agreement for U.S. employees, which usually results in violations of U.S. laws as well as lack of legal protections that a U.S. employer would want to include in an employment agreement. Other companies use forms that have been prepared with U.S. law in mind but either have not been updated to reflect recent laws, rules, case law, etc., or are not attuned to certain legal nuances (resulting in unlawful contractual terms). Since these are templates, they are being used multiple times, increasing the risk of legal problems.

As one example of a recent update, the Defend Trade Secrets Act (DTSA), enacted in 2016, requires employers to provide notice to employees as to certain immunities and protections afforded to them under the DTSA in connection with certain disclosures of trade secrets. Younger companies typically provide such notice in their agreement with employees governing their confidentiality obligations. While the consequences of non-compliance are not severe, it is advisable for employers to provide such notice to their employees. While this law has been in effect for more than two years, we still see agreements lacking this notice, especially when they are based on an Israeli form.

We also continue to see commission plans that are not always in full compliance with applicable U.S. laws (including laws that are specific to payment of commissions). This is particularly important since most Israeli startup companies hire a sales team when commencing U.S. operations. For example, under New York law the plan should state clearly when a commission is earned, and there are specific requirements with respect to the timing of payment of commissions. Recoverable draws and advances are also subject to certain legal requirements. Further, there are specific terms of New York law that govern salespersons who are independent contractors.

At the employment separation stage, we advise our employer clients to have departing employees sign a separation agreement and release of claims whenever the employer pays anything of value at separation that the employee would not otherwise be entitled to receive. In light of the high cost of litigation in the U.S., obtaining a release of claims from a departing employee is valuable to an employer in the U.S. In order for the release of claims to be enforceable, among other things the employee must receive consideration for signing the release, and therefore some consideration (on top of payments the employee is already entitled to) should be provided under the separation agreement. There are many other legal considerations involved in ensuring that a release is enforceable, and therefore companies would be well advised to have U.S. counsel prepare or review such an agreement.

Companies coming to the U.S. from Israel (and elsewhere) could also benefit from training on certain U.S. employment laws that they may not be aware of. We have received positive feedback from clients on training sessions we have conducted, where we focused on issues relevant to Israeli/non-U.S. employers who are not used to the U.S. employment environment (for example, tips on employee search and the interview process).

One point of emphasis in our training and our practice is discrimination matters. Discrimination claims are much more prevalent in the U.S. than in Israel, in part because termination of employment is easier from a legal perspective (leaving discrimination as a much more common avenue for unlawful termination claims). In light of the high cost of litigation, employers are well advised to try to minimize the risk of discrimination claims.

Seminar in Tel Aviv for Members of the Israeli Hedge Fund Association

In November 2018, Friedman Kaplan co-sponsored (with the Israeli law firm Barnea Jaffa Lande & Co.) a seminar for Israeli hedge funds. Corporate Partner Asaf Reindel spoke about insider trading and hedge fund research in the U.S., and Litigation Partner Scott Berman discussed how to avoid becoming a party in a hedge fund litigation. The event also featured a talk by Dr. Zvi Gabbay, Head of Barnea’s Capital Markets Department, on international enforcement.  Based on the feedback we received, we see an increasing interest of Israeli hedge funds and financial institutions in investments in the U.S., which makes U.S. compliance matters important for them to consider.

When an Israeli hedge fund trades in U.S. securities, it becomes subject to U.S. securities laws, including with respect to insider trading law. It is therefore important to conduct the investment research in a manner that would not result in possession of material non-public information that has been obtained in breach of a duty of trust or confidence. Friedman Kaplan’s Corporate Department regularly advises hedge funds on such compliance matters.