Over the past decade, with the flourishing of Israeli innovation and increasing accessibility to global markets, a growing number of Israeli companies have chosen to expand into the United States.
The move is enticing—an enormous market, a wide range of customers, and great investment potential. However, alongside these business opportunities lies a complex legal environment that can be especially challenging—and at times even hostile—for organizations unfamiliar with local rules of engagement.

The gaps between labor laws and practices in Israel and those in the U.S. can lead to costly lawsuits, exposure of sensitive information, and significant financial loss.
This article—the first in a three-part series—explores one of the most common and significant legal traps: U.S. labor and employment law.

Managing Employees in the U.S.: A Common Regulatory Pitfall

Unlike Israel’s centralized legal system, which includes dedicated labor courts, the U.S. operates a decentralized model. Employment disputes are handled by civil courts at the federal, state, and sometimes even local levels. Relevant legislation can vary dramatically from state to state—and even between counties. As a result, Israeli entrepreneurs and executives, accustomed to clear concepts such as severance pay and basic personal employment agreements, often discover—too late—the scope of their legal exposure in the U.S.

Consider the following hypothetical case:
An Israeli cyber company opens a sales office in California and hires an American VP of Sales based on a short offer letter and verbal promises. When the employee fails to meet expectations, management terminates his employment. The employee files a lawsuit alleging wrongful termination, discrimination, and unpaid commissions.

California, known for its strong worker protections, will enforce extensive document discovery, require the company to disclose internal communications, and compel testimony from senior executives located in Israel. Legal proceedings will drain the company’s time and resources, and even if a settlement is eventually reached, the cost (not to mention legal fees) will far exceed the cost of a proper employment agreement from the outset.

The Myth of “At-Will Employment”

Many Israeli business executives assume that the American principle of “at-will employment”—which theoretically allows either party to terminate the employment relationship at any time, for any reason—grants employers wide latitude. In practice, however, many U.S. states have significantly limited this doctrine through court decisions and legislation. Common exceptions include:

• Implied contracts: Verbal promises or informal writings that may not be formal contracts but can be interpreted as commitments to continued employment.
• Public policy exceptions: Terminations that violate explicit or implied public policy, such as firing an employee for refusing to commit an illegal act.
• Anti-discrimination protections: Prohibitions on discrimination based on race, gender, age, disability, religion, and more.
• Wage and hour laws: Regulations that protect employee rights regarding minimum wage, overtime pay, breaks, and related issues.
• Whistleblower protections: Safeguards for employees who report illegal or unethical conduct by their employer.
• Any of these exceptions can serve as the basis for a lawsuit, even when an employer believes they acted appropriately.

How to Reduce Legal Exposure in the U.S.

To avoid costly legal entanglements—even before hiring your first U.S. employee—consider taking the following steps:

1. Draft detailed employment agreements that comply with local law: Contracts should reflect the legal requirements of each relevant state, including commission structures, incentives, confidentiality, non-compete clauses, and termination provisions.
2. Implement a customized employee handbook: This critical document defines company policies regarding employment practices, complaint procedures, performance evaluations, and termination processes—all tailored to the applicable jurisdiction.
3. Train Israeli management: Senior executives should be educated on U.S. workplace norms, especially in areas such as performance management, documentation, feedback, and termination protocols.
4. Purchase appropriate risk insurance: Companies should consider obtaining Employment Practices Liability Insurance (EPLI) to help cover the costs of employee-related lawsuits.
5. Consult with qualified U.S. legal counsel: Local expertise is essential for navigating the regulatory maze in the U.S.

The American legal system—particularly in the area of employment law—is complex, constantly evolving, and generally unforgiving toward foreign companies that fail to meet local standards. Proper planning, early legal consultation, and culturally informed management practices are key to a safe and successful expansion.