An employee who invents something or receives a patent as part of his or her work is allowed to demand payment for it from the employer, the Supreme Court ruled.

In a precedent-setting decision, Justices Esther Hayut, Isaac Amit and Zvi Zylbertal determined that employees have the right to such payments even if their contract specifically states otherwise and the employee has forgone all intellectual property rights on behalf of the employer.

The decision will affect a large number of firms, especially in high-tech, where contracts almost always deny employees any rights to patent royalties or other unique business processes the employee created.

In the present case, Dr. Nimrod Bayer sued high-tech company Plurality, of which he was one of the founders. The semiconductor firm is now in the process of being liquidated.

Bayer sued the company in district court after he asked for compensation for his patents. Bayer claimed he invented the technology that was the basis of Plurality's entire business, and therefore he had a right to compensation.

Bayer also claimed the matter should have been the subject of arbitration by the Justice Ministry's committee on compensation and royalties, which was established as part of the law on patents.

The district court ruled against Bayer in a briefly-worded decision mentioning his contract with Plurality, which specifically rejected any such rights over his inventions or intellectual property.

Bayer appealed to the Supreme Court, which overruled the lower court's decision that the contract ruled out arbitration.

The justices ruled that the lower court decision violated Bayer's basic rights laid out in the Basic Law on Human Dignity and Freedom. The Supreme Court decision stated that a contract which rules out the right to royalties and compensation does not rule out the possibility of arbitration by the Justice Ministry committee on compensation.

Such a right may not be waived, the justices wrote, and is part of the protections under labor law. In such a case, the committee is authorized to discuss the dispute over compensation. The contract does not necessarily shut the door on the employee to claim his rights over his invention, ruled the court.

Plurality develops the HyperCore CPU technology, which designed a multi-core processor on a single chip. Bayer and Dr. Ran Ginosar, two of Plurality's founders, received a U.S. patent for the company's core technology in 1993.