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Case:
Supreme Court of Israel
Civil Appeal 239/92
“Egged” Cooperative Society for Transportation in Israel Ltd. v. Isaac Mashiach (and 13 other respondents)
Date:
06 March 1994
Translated by:
Yuval Abrams
Copyright:
Professor Basil Markesinis

Given at the Supreme Court on 06.03.1994
Justices D. Levin, Matza, Tal
Appeal was rejected unanimously.
Opinion of the Court – J. Dov Levi

1. Facts of the case (summary)
The case is an appeal of the decision in Originating Motion 571/90 given at the District Court in Tel Aviv. Appellant (Egged) is a Cooperative Society. Respondents are former Egged members that went into early retirement, and their relatives. The Social Articles of Egged grant free bus rides to members and family members, including those who retire before age 65, for the duration of the member’s life, on condition that the member doesn’t violate article 14(a)(4) of the Egged Cooperative Charter, which stipulated (at the time of the first instance) that members may not engage in work that competes with the cooperative’s business for three years following the cessation of their membership.

This Regulation (14(a)(4)) was ruled void in Civil Case (Tel Aviv) 2541/87 by virtue ofits being contrary to public policy. In consequence of this decision (as well as that ofCivil Appeal (Supreme Court) 157/88 Egged v. Meiron, which states that theregulation’s restriction of freedom of occupation is too broad), Egged modified14(a)(4) in a manner it claimed limits the extent of the restriction, but added Regulation14(a)(7), which states that retirees who work for competing companies, within three yearsof retirement, lose their (and their family’s) right to free transportation.

The respondents retired from Egged before the aforementioned decisions (and theconsequent Charter amendments). When Egged amended the Charter it decided to reissue allfree-transport cards and decided not to reissue cards to the respondents, since these werefound to be working for competing companies.

The respondents filed for a motion asking for the following remedies: A declarationthat Egged’s decision not to renew the cards is null and void; a declaration thatthe amendments of Regulation 14 are null and void; alternatively, a declaration that,since the amendment transpired after their retirement, it would not apply to them; and theaccording operative orders.

The court of first instance accepted the claim that the amendments to 14(a)(4) have nobearings on the respondents, since they transpired after their retirement. Therefore, thedecision not to renew their free-travel pass was nullified as well. However, since thiswas sufficient to determine the proper remedy, the court saw no need to decide regardingthe claim that the amendments themselves are contrary to public policy.

The case at hand is Egged’s appeal.

2. Freedom of occupation v. freedom of contract – balancing the conflictinginterests by means of the principle of public policy (translated in full)

Before dealing with the grounds for appeal themselves, it would be appropriate todefine and clarify the normative framework within which to solve the dispute before us.

Freedom of occupation is a fundamental human and civil right in Israel. Already in theearly days of Israeli statehood, Justice S. Z. Hashin stated the nature of this right:

“ It is a significant principle that every man has a vested and natural right to engage in any profession or occupation that he may choose, so long as the profession or occupation is not prohibited by law…
… this right is not written, but is derived from the natural right of every individual to seek sustenance and to find for himself a trade that supports him.”
(High Court of Justice [Bagatz] 1/49 Bejarno v. Minister of Police, PD 2, 80, 82-83)

Another reason for the freedom of occupation lies in the public welfare, as explainedby J. Bernson:

“ The idea that the courts placed at the foundations of the doctrine of preventing the restriction of freedom of occupation is the need to preserve free trade and competition in the market and the workplace. The freedom to compete, within certain limitations, is an important principle and the courts are obligated to maintain and encourage it as much as possible.”
(Civil Appeal 4/74 Berman v. “ Amal” Ltd., PD 29, 718, 722-23
See also Civil Appeal 1371/90 Damti v. Ganor, PD 44(iv) 844,853; Civil Appeal 901/90 Nehemias v. Columbia Ltd. PD 47(i) 252, 263)

This basic right of freedom of occupation has been adopted in a long sequence ofdecisions given by this court, and has been established as a legal right which stemsdirectly from the nature of our state as a freedom promoting democracy (see M. Goldberg“The Limitation of the Freedom of Occupation of a Worker by Virtue of aContract”, Mechkarei Mishpat 5 (1987), 7, which surveys the decisions on thistopic).

3. (translated in full)

The Basic Law: Freedom of Occupation, which was passed in the Knesset on the 3rd ofMarch 1992, granted this right constitutional recognition and supra-legal status. Itbecame a protected basic right, standing on a higher normative level than“regular” legislation or than Israeli Common Law (see A. Barak “TheConstitutional Revolution: Protected Basic Rights”, Mishpat veMemshal 1 (1992) 9).

The directives of Basic Law: Freedom of Occupation, which are directed at governmentauthorities, spread, in practice, also to the relations between private individuals. Theprivate law includes numerous doctrines, such as good faith and public policy, whichfunction as a conduit through which the basic principles of the legal system, in general,and basic human rights, in particular, flow from public law to private law. (Civil Appeal294/91 Hevra Kadisha v. Kastenbaum, PD 46(ii) 464, 530; see the elaboration and detailedexplanation of the different approaches to this issue in A. Barak “Protected HumanRights and Private Law”, Klinghoffer Book on Public Law (1993) 163).

On the duty of private individuals to respect the freedom of occupation of their peers,in light of the Basic Law: Freedom of Occcupation, Justice Barak has stated:

“ In the importing of basic legal principles, in general, and basic human rights in particular, from the realm of public law to that of private law, these undergo a change. The duty of the government to preserve human rights is not equal in content to the duty imposed on individuals. Obviously, the government’s obligations here are stricter and the protection of human rights from violation by government is more extensive. Nonetheless, every individual is also obliged to respect the human rights of others. Indeed, the obligation of an individual to maintain his neighbor’s rights stems from the same source as that of the government’s obligation – the basic social conceptions and the basic legal principles upon which the legal system is built. Therefore, not only the government is obliged to respect the human right of freedom of occupation, but employers, too, must respect the freedom of occupation of their employees. Hence the notion, that an unreasonable restriction of freedom of occupation is opposed to public policy” (Civil Appeal 294/91 supra, 531).

4. (translated in full)

The law does not protect the entirety of the scope of freedom of occupation. As againstfreedom of occupation stand other values that the law seeks to protect:

“ The protection granted to freedom of occupation is the product of a balancing that arises from the conflict between freedom of occupation on the one hand and other personal freedoms (such as freedom of property, freedom of association [as part of human dignity and freedom]) on the other, and from the conflict between freedom of occupation and the public interest (such as the public interest in the preservation of trade secrets). An expression of this conflict is found in Article 1 of the Basic Law: Freedom of Occupation, according to which freedom of occupation may be restricted “By law, for a worthy purpose and for reasons of the common good…” From here is our fundamental conception that freedom of occupation – like all other freedoms – is ‘relative’ and not ‘absolute’.”
(Bagatz 1683/93 Yavin Plastics Ltd. v. National Court of Labor, not yet published)

The formation of a contract is an expression of the autonomy of the private will, andthe freedom to do so is, consequently, protected today in the principles of Basic Law:Human Dignity and Freedom.

When the contents of a contract infringe on freedom of occupation a balance is requiredbetween the conflicting principles. When the contractual arrangement is based on aninfringement that exceeds that which would be tolerated in the appropriate balance betweenfreedom of occupation and freedom of contract, it is requisite to nullify it in virtue ofits being contrary to public policy (Civil Appeal 294/91 supra, 533-4).

Public policy is a valve-concept which enables flexibility in the workings of privatelaw, and is particularly sensitive to constitutional considerations. It enables theexpression of human rights and public interest as dictated by circumstance, without anyneed to formally alternate the inner balances of private law. By employing the principleof public policy the court balances between the stated freedom to determine the contentsof a contract and other human rights and constitutional values, such as freedom ofoccupation (see expansion on this issue in A. Barak “Protected Human Rights andPrivate Law”, supra, 193-196).

Grounds of the Appeal

5. (translated in full)

Egged’s claims in this appeal can be summarized in these three points:

(a) The decision in Civil Appeal 157/88 dealt with the preventing of employment by acompetitor, and stated that the limitations imposed by 14(a)(4), in its previous version,which spread out over so many areas of employment, were too broad and did not accord withpublic policy, therefore they were not to be implemented. In other words: The courts shallnot impose a restraining order prohibiting the respondents to engage in any “competing” activity which contradicts that article. However, the decision did notnegate the use of 14(a)(4) for the purpose of revoking other privileges (by Egged), suchas free-travel passes, that are granted to Egged retirees.

(b) Even if Egged’s right to revoke free-travel passes stems only from theamendments to the Charter (and not from the original version), these amendments apply tothe respondents.

This change is not inappropriately retroactive, since Egged did not charge therespondents for the use of the free-travel passes in the duration prior to the change, butonly revoked their right to such passes from that day hence.

(c) A distinction should be made between the right to a pension, which Egged undertakesto pay to its members upon their retirement, and is thus a vested right which cannot bedetracted from, and the right to free travel, which is simply a privilege, has no suchprotection, and is to be seen as a conditional gift. Egged reserves the right to revokerights granted as conditional gifts from those who engage in competitive activities.

Revoking a benefit - an indirect limitation of freedom of occupation

6. (translated in full)
In Civil Appeal 157/88 (supra) it was decided that article 14(a)(4) of the Egged Charter, in its previous version, which prohibited Egged retirees from engaging in a broad spectrum of “competing” positions, is not in accordance with public policy and is therefore not to be implemented. I cannot accept Egged’s claim that this is not sufficient to prevent Egged’s right to revoke various privileges from the respondents, if these fail to comply with the very same article. Indeed, article 58 of the Social Articles does not directly restrict freedom of occupation, but an agreement that restricts freedom of occupation is not only an agreement that instills an obligation or a prohibition on workers to refrain from engaging in the forbidden activities, but also an agreement that deprives the worker of a benefit if he does so, since any temptation or encouragement which constitutes a consideration or an incentive for someone not to engage in his work is seen as a restriction on freedom of occupation, and when such is contrary to public policy – it is not to be implemented either directly or indirectly (see also J. Netanyahu in Civil Case [Haifa] 1770/74 Saadia v. Zim Ltd., PM 1976 (i) 76, 86-87).

This is also the law in England:

“ It seems to me that to say to a man he should be deprived of a benefit if he fails to restrain himself from a particular trade, when such restraint would be a general restraint, is just as much contrary to public policy and deprives the public of his services equally as if he made an express covenant.” (Wyatt v. Krelinger and Fernau [1933] ALL E.R. 349, 354. See also: Bull v. Pitney-Bowes Ltd. [1967] W.L.R.1 237, 282).

The English courts have also reaffirmed this rule recently:

“ The effect of Wyatt v. Krelinger and Fernau and Bull v. Pitney- Bowes, which I find impossible to distinguish, is that a financial incentive to limit a former employee’s activities amounts to restraint of trade.” (Sadler v. Imperial Life Insurance Co. of Canada Ltd. [1988] IRLR 344, 388).

Egged’s Charter amendments

7. (translated in full)

Article 58 of the Social Articles refers to article 14(a)(4) of the Egged Charter, anddetermines:

“ All rights to free-travel shall be entirely revoked if:
a) A member, whose membership in Egged has ceased, violates the directives of article 14(a) (4) in the Cooperative Charter…”

Does the amendment of article 14(a)(4), done after the respondents retired, affect the respondents themselves and, thus, can it act as the basis to revoke their free-travel passes?
Indeed, from the very nature and essence of the charter of a cooperative society it follows that every member implicitly agrees that the charter can be changed via a process that does not require unanimous consent. Since the charter should be viewed as a contract between the cooperative and its members, the agreement of the members to the directives of the charter includes within itself the agreement that the charter can be legally changed, periodically, without their expressed consent, and that their rights will be changed accordingly (see Civil Appeal 524/88 “Pri Haemek” Agricultural Cooperative Society v. “Sdeh Yaacob” PD 45(iv) 529, 542, 547-8).

Clearly, despite the Cooperative Society’s right to alter the Charter, “(T)his authority is not unlimited. In addition to the regular limitations, according to whichthe changes must be made according to good faith, for the sake of the cooperative, and notin exploitation of the minority, there is a general restriction, according to which theamendment may not include changes that significantly alter the basis of agreement uponwhich membership in the cooperative is built.” (Civil Appeal 524/88, supra, 548).

A fortiori the Cooperative may not introduce changes that essentially change the basisof agreement upon which the cessation of membership is built, regarding those who retiredbefore the amendments. The conditions of retirement between Egged and its members(according to the Charter) stood before the retirees/respondents at the time theyconsented to early retirement. The right to free travel, which Egged grants to retireesand their family members, is of significant economic value, and refusing it to therespondents significantly alters the conditions of their retirement from the Cooperative,and undermines their legitimate expectations that these conditions will remain to theirbenefit and that new conditions will not be set.

8. (translated in full)

A restriction of freedom of occupation of a worker after his retirement requires acontractual obligation on the part of the worker towards his employer (see Civil Appeal312/74 Israeli Cable and Electric Pillar Co. v. Christianfuller PD 29(i) 316, 319).

This point is now subsidiary in light of the normative framework that applies in thecase at hand and the need to balance the conflicting interests (freedom of contract v.freedom of occupation).

Freedom of occupation, which is now constitutionally based, requires that its in acontract be done through the explicit consent of the employee. Therefore, when a change inthe Cooperative’s Charter relates to a restriction in the freedom of occupation ofits members at their retirement, this change has no bearing on those members that retiredprior to its introduction, if the change was made without their expressed consent.

In light of the aforementioned point, we see no need to determine if article 14(a)(4)of the Egged Charter, in its current form, stands in accordance with public policy, aquestion that was not determined by the court of first instance either.

9. This section deals with the question of whether the free-travel passes are socialrights that are essentially part of the retirement conditions or whether they areconditional gifts. Levin rules that it is a social right and part of the retirementpackage.

10. (translated in full)
Therefore the appeal is rejected.

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