The ethics of layoffs

The ethics of layoffs

7 December 2010

Managing For Society, The Manila Times

Philippine Airlines (PAL) has announced its plan to lay off 2,600 ground employees as part of its cost-cutting program. PAL president, Jaime Bautista, has argued for the necessity of this step to ensure the survival of the company. The Department of Labor (DOLE) has ruled the move legal as management's prerogative to do what it takes to keep the company afloat. The PAL Employees’ Association (PALEA) has questioned the move, labelling it as mainly profit-motivated and a preparation for massive contractualization in the airline.

Whichever side one takes on the issue, the PAL-PALEA conflict has called attention to one of the most painful events in the life of a company -- restructuring. Ensuring that the company stays viable and competitive is clearly a legitimate business goal. What needs closer scrutiny, especially from the ethical standpoint, is whether laying off thousands of workers is a legitimate means for the airline to achieve this goal at this time.

Analyzing the ethics of layoffs begins with applicable core principles. The Constitution provides two such principles. First is the principle that “the use of property bears a social function, and all economic agents shall contribute to the common good”. Second is “the principle of shared responsibility between workers and employers and the preferential use of voluntary modes in settling disputes”.

The common good principle reminds capital owners that their decisions must properly respect the dignity of those affected as well as their need for human development. Corporate decisions involving livelihood have the greatest impact on the common good since these affect the employees’ survival and personal growth, while indirectly impacting these employees’ families and other dependents.

The shared responsibility principle reminds both capital owners and employees that they are essentially “partners” in ensuring the health of the business. Partners are responsible for each other and commit to support each other. Business challenges should be met through collaborative and creative approaches which manage costs, on the one hand, and enhance business value, on the other. Thus, the sacrifices that come with turning around a business situation, as well as the fruits of its successful outcome, must be shared by the partners.

It is important to ask whether the PAL management (as influenced by capital owners) and the employee union observed these two principles in their approach to the business challenges facing the airline. Both sides may use legal arguments to support their respective positions but these do not suffice to make their behaviors ethical. More importantly, a legalistic approach does not build the high-trust situation crucial for a creative business turnaround.

Perhaps PAL and PALEA can learn from the experience of Universal Motors Corporation (manufacturer and distributor of Nissan vehicles) some years ago. Faced with a slump in demand, the company had the option to lay off employees. Elizabeth Lee, then chief operating officer, found the resulting loss of jobs and the negative impact on families morally unacceptable. Instead, she rallied the management team and employees to create the “UrVan, UrBusiness” program. The program provided buyers with easy-payment terms and entrepreneurial ideas for using Nissan vehicles. The program has saved jobs, increased the company’s revenues and market share, and improved the lives of thousands of families.

A business downturn is a challenge to the creative partnership between capital and labor. The company’s problem is not merely managing its costs but inspiring the shared vision to pull everyone together for the good of the company and all those who depend on it. Does PAL management and PALEA have what it takes to turn a “We vs. Them” situation into an “Us” situation? I certainly hope so -- for the common good.