Ethics in layoff decision

For an owner whose employee’s performance has been superb or even exemplary, it would be very difficult task to tell them face to face that they have been laid off. However, if a company faces liquidity crunch or financial crisis, the most preferred remedy is to resort to lay off tactics. [Mabert et al, 1997]. According to John Rutledge , a good ethical behavior in a business deal is to allow the opponent in a transaction to go away with his self-esteem, humor, and bearing undamaged and with a pretty good deal, which is the right manner to close a business deal.

According to J. C Penny, an ethical behavior is doing a thing to others as one would do to himself.

According to Immanuel Kant, an ethical act consists of the following:

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• It should honor the inherent worth and dignity of those associated or involved;
• Special treatments to parties involved should be avoided and should have harmonized application universally.
• It should be inconformity with the other universal moral standards. Management should be more careful while making downsizing plans for prudent economic reforms.

There should not be any withholding of information and it should be let known to all concerned to avoid to take any crucial decisions like career, family or financial commitments. Utilitarianism is just opposite to universalism which gauges the justification of an action by its consequences. John Rawls’s ethical perception of justice connotes that individual have a commitment to select their own rights in a style that allows others to enjoy their own. [MaCann, 1997].

In a conflict resolution, an employer or an employee union may adopt the following tactics to achieve their aim. [Reitz et al, 1998].

• False statements or lies: This refers to testimonial made in opposition to the negotiator’s comprehension or conviction about incredible material to the negotiation. When an opponent deprives the other party of the truth through lies, the victim of those lies may be forced to take unworthy decisions. One party may resort to lying when he come to know the other party is lying.

In negotiation with the employee’s union, lack of trusts and cynicism involves considerable costs and it may require more enactment of laws, sanctions and surveillance and none of which may not add any value to transaction and to be in place before signing agreements. Lying in negotiations is not advocated by any of the above ethical models. Sometimes, lying is permitted only when it is proved that if it could prevent a great harm to another. For instance, a company should not resort to layoff tactics mainly to bolster its stock market price.

In majority cases, stock price of a company shoots up on the day when the layoff decision is formally declared. [Reitz et al, 1998].

• Deception: Misleading statements to make other party to believe that deal is worthwhile to complete. Employee’s union may resort to false promises or excessive initial demands, empty threats, statements of fact, demanding things not related and lackadaisical statement of fact. Deception is nothing but misleading or deceiving others.

It allows the cheater to make profits at the costs of other’s innocence thereby infringing the principles of utilitarianism. It does not fall under distributive justice as it limits the deceived person’s preferences. Thus, deception will not fit into all four tests of ethical behavior. [Reitz et al, 1998].

• Puffery: It refers to overstating the value of the subject matter in the negotiation. It is exaggerating something. It is simply a euphemism for lying. Exaggerations are those designed to cheat and gain advantages at someone’s expense.

For instance, layoff announcement may trigger stock price up. Investors and financial analysts who always welcome the layoff news by bidding higher price of the company’s stock may be reacting to company’s puffery over projected positive financial results in the near future .

• Strengthening one’s situation: Statements or actions planned to enhance the delegate’s position without openly dampening the opponent’s position. This denotes effort, ability and intelligence by one party during negotiation and does not include any devious means like deception, lying or exaggeration.

One can be more vigilant to strengthen his stand in situations like ‘survival is the fittest ‘scenario especially when facing liquidity crunch or facing economic down trend.

• Nonexposure- This refers to the strategy of keeping aside the key information without exposing to opponent. Nondisclosure of key information to the opponent would be unethical. Withholding some vital or key information like a defect in a product or service, laying off workers mainly to enhance the profits are some examples.
• Exploitation of information - Employing information offered by the opponent to destabilize him by sharing the same with others. One is not authorized to do direct damage to an opponent. On the other hand, if the harm has been done by the other already, one may use such information for his advantage. One is ethically considered as doing a right act if he uses a police report of a burglary which demonstrates that the other party has a larger ability or need to pay for an item over which one is deliberating.
• Maximization- Not considering the opponents payoffs and emphasizing the negotiator’s payoff vigorously
• Distraction- It refers to statements or acts to attract the opponent by overlooking alternatives or information that might be advantageous to him.
• Weakening of position of other party: Weakening of opponent’s status either by economically or psychologically by lowering the opponent’s self-respect, through embarrassment or guilt and by indirect attacks like shutting off’s the opponent’s options.

Being an owner – CEO of a small job shop machine tool company and having 35 employees, I fed up with employee’s union stand in opposing my decision to announce layoff to save the company. The union does not understand that by laying off about 15 employees will not only save the company from bankruptcy but also save the jobs of remaining 20 employees. Union has argued that employees have a fundamental right to life and laying off randomly is morally wrong. Further, employee’s union advocates have argued that workers have a right to their jobs and hence, the management has a duty not to lay off them.

Union is not understanding the fact the company is in real danger of going out of business and minimizing the labor costs through lay offs is the only available alternative as the employees have not accepted to downsize their pay by 50 percent. Further, union has not understood that layoff is a preventive measure. Company’s competitive scenario is deteriorating due to escalation in labor costs and hence unless labor cost is brought to the minimum, the company may ends up in life or death position. (Gilbert, 2000).

In this case, employees are doing very satisfying job and have actually contributed to the company’s success but some of them have to sacrifice to save the sinking company. Utilitarian concept may condone the decision to layoffs but we should realize that layoff is necessary to save the company and is not pursued to enhance its performance. Surviving through price reduction may hamper the financial situation of the company unless it is followed by cost reduction like labor cost or material cost. Surviving through product enhancement or through introduction of new products may take a long gestation period . Also read utilitarianism and business ethics essay

Likewise, increasing the marketing efforts may not be productive as it involves costs. However, labor cost can be reduced immediately and many companies have resorted to layoffs in the past. If the situation continues, the company has no other way but to file chapter 11 bankruptcy and reduce its workforce by declaring layoffs. In utilitarian concept, filing of bankruptcy petition would usher unhappiness for many stakeholders like creditors, shareholders and suppliers than would occur with layoffs alone.

Union’s argument as layoff may increase the workload of remaining workers and concern of uncertainty of their future with the company is totally unacceptable that in a scenario where layoffs can presently prevent a crisis later and hence, selecting layoff strategy can be the best choice. Union is vehemently pointing out that in case of layoff , reverse seniority should be applicable with new entrants should be laid off first rather than counting on performance of employees and not realizing that senior employees cost will be always high. (Gilbert, 2000).

In USA, whether layoffs can be declared at will differs from state to state. Further, federal law proscribes termination of employees on the ground of gender, age and disability. It is to be noted that with some exception, employees in U. S. do not have legal rights to retain their job as long as they are doing satisfactory performance of their job. It is to be remembered that under rights and duties method, it is not morally prevented from declaring layoffs. In USA, employees who lost their jobs due to layoff are having the right to sue their former employer later and however, they cannot reverse the layoff decision. (Hallbert & Ingulli, 1997).

As owner of the business, I have not practiced any puffery, exaggeration and have given full facts and figures to the employees and their union. Still if they decide not to cooperate with me, I have no other way but to announce legally layoff within the parameters of present laws to avoid filing of chapter 11 bankruptcy petition later.

References

1. Gilbert, Joseph T. (March 22, 2000). Sorrow and Guilt: An Ethical Analysis of Layoffs. SAM Advanced Management Journal. http://www. allbusiness. com/management/543491-1. html.
2. Hallbert, T. , Ingulli E. (1997). Law and ethics in business environments, Minneapolis/St. Paul: West Publishing.
3. Mabert, V and Schemnner, R (July-August, 1997). Assessing the roller coaster of down-sizing, Business Horizons, 49(4), p. 45-53.
4. MaCann, D. (March, 1997). Catholic social teaching in an era of downsizing: A resource for business ethics, Business Ethics Quarterly, 7(2), p. 57-70.
5. Reitz, H. Joseph, Wall Jr. , James A and Love, Mary Sue. (May /Jun 98). Ethics in negotiation: Oil and water or good lubrication? Business Horizons, Vol 41(3), p 5-1

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