Business Ethics and Social Responsibility

The Role of Business in Social and Economic Development

Some Ethical Issues in Employer-Worker Relations

Learning Objectives:
▪ Discuss some of the ethical issues in relation to employer-employee relations
▪ Explain what is involved in the issue of labor contractualization
▪ Articulate how a wage can be considered as fair and just
▪ Describe the good intentions of a labor union
▪ Explain the meaning of fiduciary duties
▪ Describe conflict of interest and whistleblowing

A business cannot prosper without the workers who carry out the daily activities of the
business. Ethical issues in relation to workers can be seen from two perspectives:
1. Issues focused on the employer’s duties toward the workers
▪ Contractualization
▪ Just wage
▪ The right to form a labor union

2. Issues focused on the worker’s duties toward the employer

▪ Fiduciary duty
▪ Conflict of interest
▪ Whistleblowing
 Issues focused on the employer’s duties toward the workers
Ethics of Labor Contractualization
The legal term for contractualization is fixed-term employment and defined “as a contract of
employment for a definite period which terminates by its own terms or the end of such
period.” The progressive Filipino legislator Satur Ocampo defines contractualization as:
“hiring workers for short-term, non-regular employment without the benefits accorded by
the law to regular workers.”

Contractual workers are usually found in retail sales job such as in the malls and department
stores, janitorial, and security services. Even schools apparently practice the
contractualization of teachers.

Contractualization in the Philippines is a highly debatable labor practice leading to relevant

ethical implications that the business institution cannot dismiss as insignificant.

Why do employers want to contractualize?

▪ Reduce business cost
▪ Avoid workers to join unions
Cost-reduction is a legitimate strategy for business but what becomes ethically
questionable is when businesses desire unreasonably big profit at the expense of the
workers.

What are the benefits of contractualization?

Those who generally favor contractualization point the following benefits:
1. Employers do not encounter the ordinary problems of workers who become lax and
less productive because of the protection of job tenure
2. Many employers believe that when a worker is contractual, he or she is likely to be
more serious and productive for at least two reasons:
▪ Fear of being terminated
▪ Aspiration to be rehired
 3. Frees the employers from the many headaches brought by the high cost of employee
benefits
4. More workers are given opportunity to work because after five months, contractual
workers would be replaced by a new batch of contractual workers.

Criticisms against contractualization:

▪ Unconscientious contractualization undermines many basic rights of the worker such as:
o Right to security of tenure
o Right to other benefits of workers (insurance, maternity benefits)
o Right to organize union
o Right to join unions

The law defines clearly that the contractual worker has several rights of the same
nature with regular workers. However, this is usually mere lip-service. Workers
cannot exercise these rights because they are afraid of losing their job.

▪ Contractualization of workers degrade the value of work and the worker

Worker is reduced to a commodity that can easily be replaced on the whims and
caprice of the employer. The contractual worker is usually marginalized in the
workplace.

▪ Contractualization violates fundamental justice

Business establishment accumulates huge profits with the help of contractual worker,
but the workers only receive minimum wage and benefits mandated by law.

▪ Labor contractualization is also an open invitation to more abuses of the rights of the
workers such as:
o Poor working conditions
o Unsafe workplace
o Wages below what is prescribed by the law
o Other violations of mandated rules that protect contractual workers
Contractual workers hesitate and fear to question these unjust and exploitative practices
because it would endanger their job. Thus, it is likely to assume as well that one of the main
reasons why poor Filipinos decide to work abroad even if it is against their wished and
despite the many dangers that accompany it, is the absence of job security of labor
contractualization.

Labor contractualization raises ethical issues mainly because it is an open invitation to labor
exploitation and the unjust treatment of contractual workers.
 The Issue of Just Wage
The issue of just and fair wage is another hotly contested issue in the Philippines. The
dilemma arises mainly because the employer and the worker usually come from opposing
interests. The main interest of the employer is to reduce the cost of his or her business, and
worker’s salary is part of the cost. On the other hand, the main interest of the worker is to
increase their wage because it is usually their main way of supporting their family.

There is no exact mathematical formula in determining a fair and just wage. Using the ideas
of other prominent business ethicists, Manuel Velasquez identifies at least seven factors that
must be considered in determining a fair and just wage:
1. Comparative wage. A business owner must consider the prevailing wage in the
industry and in the area.
2. Capability of the business. A business owner must consider the capability of the
business. When the business is already profitable, the owner has a moral duty to also
increase the salary of the workers.
3. Nature of the job. Velasquez says: “Jobs that involve greater health risks, offer less
security, require more training or experience, impose heavier physical or emotional
burdens, or take greater effort should carry higher levels of compensation.”
4. Cognizant of the laws of minimum wage. Obeying the law on minimum wage is the
least that the business owner can do for the workers. A business owner must also be
sensitive enough to see whether a minimum wage is enough for the needs of their
workers.
5. Consider the relative proportionality and similarity of the nature of the job of the
workers within the organization. Substantial difference in salary between two
employees who perform similar work duties may lead to the loss of morale among
the employee with the lower salary.
6. Both the employer and the employee must consider the fairness of wage negotiations.
Collective Bargaining Agreement (CBA) between the employer and the workers must
be done in good faith. The situation becomes more problematic if there are not formal
avenues for wage negotiations.
 7. Account the cost of living within the specific locality where the business operates.
This is called the “living wage”, defined as the amount of money a full-time employee
needs to afford the necessities of life, support a family, and live above the poverty line.
Every business owner must take into consideration the state of living condition
therein in determining the salary of the workers. Furthermore, a strict compliance
with the minimum wage law may not necessarily be fair for the worker.

Every business owner must be convinced that the worker is an integral part of the business.
The worker is a human person usually with a family to feed and support. The determination
of wage must not be confined to a strictly legalistic framework.

The right to a just and fair wage must be recognized not just because of its legal foundations
but because it is rooted in an ethical relationship between persons (employer and worker).
 The Right to Form Union and to Strike
The employer is usually more powerful than the worker thus, there is a need for mechanisms
that would render support to the plight of the workers. The labor union is usually the most
effective mechanism that gives power and leverage to the workers. It assures that workers
are not exploited, abused, and subjected to inhuman working conditions.

A labor union is an association of employees that advances member interests through

collective bargaining with an employer. Areas of negotiation include wages, benefits, work
rules, and other conditions of employment such as hiring, discipline and termination of
employees.

The right to organize is part of the fundamental human rights,

▪ United Nations’ Universal Declaration of Human Rights (UDHR), Article 20 states:
“Everyone has the right to freedom of assembly and association”
▪ 1987 Philippine Constitution Article 3 or the Bill of Rights declares: “The right of the
people, including those employed in the public and private sectors, to form unions,
associations, or societies for purposes not contrary to law shall not be abridged.”

Business owners have the right to form peaceful organizations to advance their interests as
owners of business. Likewise, workers have also the inherent right to form organizations to
advance their common interests. Democrito Mendoza, a former president of the Trade Union
Congress of the Philippines (TUCP), summarized the objectives of a union as: “decent work,
decent pay, decent lives.”

Objectives of Union:
▪ Democratization of wealth
This refers to the labor union’s objective of ensuring that the workers receive just
wage and safe working conditions. A labor union must assure that the employer does
not abuse and exploit the workers.
 ▪ Democratization of power
This pertains to the labor union’s objective of balancing the power between the
employer and the employee. There is a sort of equality and interdependence between
the employer and the worker. Through the labor union, workers can actively and
meaningfully participate in the formation of policies and business decisions that
would greatly affect their working conditions and their lives.

▪ Humanizing the working class

This pertains to the function of the labor union to educate the workers, the employers
and the society regarding the value of human labor and dignity of the workers. People
must not consider laborers as inferior individuals.

Workers have the right to organize, to form and to join a labor union. This is important in
ensuring that they will have a voice in the company and so that their basic rights are
protected and respected.

Collective Bargaining Agreement (CBA)

It is among the concrete results of the negotiation between the employer and the workers.
It is a written contract that stipulates, among others the specific rights, benefits, and duties
of the workers.

Labor Strike
When all attempts to reach agreement between employer and workers fail, the workers
usually resort to a labor strike. A strike occurs when an organized body of workers
withholds its labor to force the employer to comply with its demand.

Workers have the basic right to join a labor strike; however, this right must not be abused.
The right to strike is a basic right however, there are economic and social disadvantages
when workers decide to stop working. The conditions for a morally justified labor strike are:
▪ There must be a just cause such as unjust wages and inhuman working conditions.
▪ There must be proper authorization from the members of the union and from the
proper government body (Department of Labor and Employment, DOLE)
▪ The labor strike must be the last resort, which means all attempts and efforts by both
parties had already been exhausted.

Building a healthy relationship between the employer and the labor union would improve
worker’s efficiency and productivity. A smoothly functioning labor union contributes to a
steady workforce and a more stable economy. Thus, a labor union is a valuable component
in the aspiration to reduce the inherent tensions between capital and labor.
 Issues focused on the worker’s duties toward the employer
Fiduciary Duty of the Employee
If the employees have fundamental rights to ensure that their work and working condition
improve their lives and well-being, they also have corresponding moral duties toward the
employer they serve.

The basic principle that underlies the duties of the employees toward the employer is
captured in what is famously known as the Theory of Agency. The Theory of Agency (from
online Legal Dictionary) is a consensual relationship created by contract or by law where
one party (the principal) grants authority for another party (the agent) to act on behalf of
and under the control of the principal to deal with a third party.

An employee is entrusted to do the business dealings in the employer’s absence or because

of his/her lack of knowledge, skills, and expertise. The employee is called the agent of the
business owner, while the business owner is called the principal.

Fiduciary duty is the legal and technical term to refer to the obligations of the employee
(agent) to always act on behalf of the employer (principal). The online Business Dictionary
defines fiduciary duty as: “a legal obligation of one party to act in the best interest of another.
Fiduciary: Latin root word, fidere which means “to trust.”

▪ A fiduciary relationship is a relationship of trust between two parties.

▪ A fiduciary duty is one’s obligation to carry out the tasks entrusted to him or her.
▪ A fiduciary is a person “who has been entrusted with the care of another’s property
or other valuables and who has a responsibility to exercise discretionary judgement
in this capacity solely in the interest if this other person’s interest.
Three main principles of fiduciary duty:
▪ Candor
Refers to the agent’s moral duty to be always truthful and honest to the principal.
Thus, the fiduciary must always disclose all relevant and vital information to the
principal.
▪ Care
Refers to the duty of the employee to take good care of all the assets entrusted to him
or her by the owner of the business. The employee must not be negligent regarding
company time, company property and other company assets.
▪ Loyalty
Pertains to the employee’s obligation “to act in the interest of the beneficiary and to
avoid taking any personal advantage of the relationship.”

Fiduciary duty is important because not everything can be stated in the contract between
the employer and the employee. It aids in keeping the integrity of the employee intact.
 Conflict of Interest
A conflict of interest is an actual or a potential violation of a fiduciary duty of loyalty to the
business owner. One simple definition of conflict of interest states that it exists when “the
independence and impartiality of decision-makers is compromised due to competing
interests influencing the outcome of a decision, for personal benefit in particular.”

Conflict of interest may occur in the following practices:

▪ Nepotism
Favoring one’s relatives and friends. This is a common practice in the organization
here in the Philippines
▪ Self-dealing
These are transactions wherein the employee (usually, somebody who has the power
in the company) uses his or her position to gain personal profits to the detriment of
the company where he or she has the duty of loyalty and care.
▪ Direct competition
When the employee has another business activity that directly competes with his or
her current employer.
▪ Use of confidential information
Examples of confidential information are trade secrets and patents rights. When an
employee uses this information for his or her personal interest, then he or she is also
disloyal to the company.
▪ Acceptance of bribes
▪ Bribes in the form of money or privileges would always work for the advantage or
interests of the employee who receives it. The acceptance of a bribe by a fiduciary is
not to the interest of the firm.

A dilemma may arise when one finds it difficult to distinguish between a bribe and a
gift.
o Employee must be knowledgeable about the polices of the company regarding
gift-giving
o If there are no clear guidelines, the employee must see to it that the gift would
not result in partiality or favoring the gift-giver
o The employee must be attentive to determine whether the gift-giver does not
expect anything in return or whether the intention is an honest token of
gratitude or an attempt to influence the receiver of the gift.
o A very expensive gift may not really be a gift at all but a bribe.
 Whistleblowing
The employee has a moral duty to break its loyalty towards the company and think of his/her
greater responsibility towards the public in cases of company activities that are illegal,
unethical and harmful to the public or to the environment. This leads to the rise of the
phenomenon called whistleblowing. Whistleblowing is an attempt by a member or former
member of an organization to disclose wrongdoing in or by the organization.

Velasquez maintains that whistleblowing is morally justifiable under certain conditions:

1. The whistleblower must have enough and accurate evidences of the wrongdoing
2. The whistleblower must have already exhausted all means to resolve the issue
internally with his or her superiors
3. There should be high probability that whistleblowing would lead to the correction of
the wrongdoing
4. The wrongdoing must be something so serious that it justifies the potential harmful
effects to the whistleblower and his or her family and to other involved parties.

Effects of whistleblowing:
1. Financial
• The whistleblower may lose his or her job.
• It might become difficult to look for another job.
2. Psychological and physical
• Restless sleep, fatigue, headaches, insomnia, increased smoking, anger,
anxiety, and disillusionment
• Alcohol problems, nightmares, paranoid behavior at work, overwhelming
distress

A culture of reporting and accountability may lessen cases of external whistleblowing.