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Should employees refrain from accepting alternative offers of employment in cases where acceptance of such offers would constitute a breach of their current employment contract?

From my point of view – yes.

This is the second post in a three part mini series discussing the ethical considerations involved whereby:

• A prospective employer wishes to make an offer of employment to a prospective employee; but
• The act of accepting such an offer would cause the prospective employee to breach his or her contractual obligations under their current employment contract.

The most common type of situation where this could occur is where the prospective employee is currently employed on a fixed term contract basis, with no provisions for early termination. But this can also occur in other situations, for example where non-compete clauses prevent employees from accepting employment with rival firms for a specified time period.

A good example of the latter situation was outlined in last Tuesday’s post, where Microsoft in 2005 attempted to prevent long time senior staffer Dr. Kai Fu Lee from defecting to rival Google. In that case, Dr. Lee was subject to a one year non-complete clause, which Microsoft claimed prevented him from accepting Google’s offer.

Last Tuesday’s post discussed the ethical considerations involved in the situation described above from the prospective employer’s viewpoint.

Today, I would like to focus upon the viewpoint of the prospective employee. In particular, I would like to address the question relating to whether or not the he or she should be obligated to decline alternative offers of employment in the circumstances described above.

 
The employee’s perspective – my initial view
My initial view was that restrictive clauses such as those described above should not be interpreted in an overly strict fashion, and should not be used as a means of unduly restricting the employee concerned from pursuing promising opportunities to advance his or her career.

Under this view, whilst employees are bound to refrain from breaching their contractual obligations in the majority of circumstances, there are exceptions. These exceptions include cases where:

• the time period remaining until the expiration date of the contract or restrictive clause is very short;
• breach of contractual obligations is not anticipated to cause significant disruption or harm to the business operations of the current employer; and
• the employee concerned has served his or her current employer in a loyal and dutiful fashion over a considerable time period (i.e. several years).

 
But a contract is a contract
However, I no longer agree with this view.

A contract is a contract – full stop. As a matter of common integrity, employees must refrain from breaching the terms and conditions of their employment contract under any circumstances. If these means declining alternative offers of employment, then so be it.

There is one exception and one exception only – where the current employer provides their consent for the contractual violation.

In my view, there is no reason why employees who are bound to their current employer by virtue of a fixed term contract or other restrictive cause should not seek leave from their current employer to accept alternative employment offers if they so wish. One possible option is for the employee concerned to agree to some form of financial penalty in order to compensate his or her current employer for losses incurred as a result.

In some circumstances, the current employer may agree to such requests, perhaps as a goodwill gesture or otherwise out of concern for their reputation as an employer.

But they have every right to refuse. If that happens, the employee concerned is bound by an ethical obligation to refrain from breaching his or her contractual obligations.  

In cases where acceptance of such an offer would constitute a violation of contractual conditions under his or her current employment contract, a prospective employee is, in my view, obligated to decline an alternative offer of employment.

Dr. Kai Fu Lee made a highly significant contribution during his seven years of employment with Microsoft, particularly in relation to the company’s operations in China.

His contribution was personally acknowledged by both Steve Ballmer and Bill Gates.

Accordingly, when another technology company offered Lee the opportunity to establish and lead a new research centre in China in 2005, one would have thought that Microsoft would have shown appropriate gratitude and given him their best wishes.

They didn’t – instead, as described by David A. Vise in his book “The Google Story,” they took legal action in an attempt to force him to stay.

The prospective employer was Google, and Microsoft, tired of watching Google poach its best talent, attempted to use the case as a means to tarnish the reputation of its rival.

In 2004, Lee had signed a one year non-compete agreement, which Microsoft claimed prevented him from accepting Google’s offer.

Furthermore, Google, Microsoft said, by making an offer of employment at a time when Lee was bound by the non-compete agreement, was knowingly and improperly attempting to induce Lee to violate the terms of his employment contract with Microsoft.

The case was settled in December 2005 on undisclosed terms, and Lee was free to assume his position at Google.

Nevertheless, the case raised interesting ethical issues relating to situations where employees are under contractual obligation to refrain from accepting alternative offers of employment.

 
Fixed term employment, restrictive clauses and ethics

Today, I would like to commence a three-part mini-series dealing with ethical rights and responsibilities where the following situation occurs:

• A prospective employer wishes to make an offer of employment to a prospective employee;
• The prospective employee concerned is bound to refrain from accepting alternative employment by virtue of his or her current employment contract.

The most common type of situation where this would occur is where the prospective employee is employed under a fixed term employment contract where there are no provisions for early termination. But this could also occur in other types of situations, such the above situation where Mr. Lee was subject to a non-compete clause.

In this mini-series, I would like to examine the ethical rights and responsibilities arising from such situations from the viewpoint of the prospective employer, the prospective employee and the current employer.

Today’s post deals with the prospective employer’s viewpoint. Following posts will deal with the viewpoints of the prospective employee and the current employer.

 
From the viewpoint of the prospective employer

Under one possible viewpoint, prospective employers face an ethical obligation to refrain from making offers of employment in cases where they are aware that acceptance of such an offer would cause the prospective employee to violate the conditions of his or her current employment.

According to this viewpoint, the current employer has every right to expect the employee concerned to fully honor his or her contractual obligations. The prospective employer should respect this, and should refrain from making offers of employment which would in any way entice or encourage the prospective employee to breach such obligations.

I do not agree. To be sure, in such cases, prospective employees themselves may face ethical obligations to decline such offers. But any obligations to honor existing contractual commitments rest with the employee, not the prospective employer.

Prospective employers, in my view, are free from an ethical standpoint, to make offers of employment to any prospective employees who they feel are suitable for the position. This is the case regardless of any outstanding contractual obligations between the prospective employee and the current employer.

In the case above for example, it could reasonably be argued that Dr. Lee was obliged from an ethical standpoint to honor his contractual obligations to Microsoft. Under such an argument, Dr. Lee would have been obliged to reject Google’s offer.

However, Google did not breach any form of ethical protocol in making the offer.

Dr. Lee’s existing contractual obligations were a matter between himself and Microsoft. They were not Google’s problem, nor did they in any way compel Google from an ethical standpoint to refrain from making an offer of employment to a coveted employee.  

Do you have a dream to travel the world?

Are you twenty-five years old, five foot eight inches tall, and pretty?

Then why not be a flight attendant?

If you’re Chinese, you’re too old – that’s why. You’re also too tall.

That’s the situation which confronts those who seek employment within the airline industry in China. Many of the recruitment practices which are common throughout the industry are highlighted in a reality TV program, which shows the annual recruitment drive of China Southern, the country’s largest carrier.

According to a report in the Los Angeles Times last year, the program, which is partly funded by the airline, resembles more of a beauty contest than a serious recruitment process. Requirements for qualification are simple – you must be aged between eighteen and twenty-four, and you must be between five foot three and five foot seven inches tall. If you do not meet these requirements, you are not considered suitable for passenger service.

The airline does hire male flight attendants, but these are hired in the traditional way, not on the program. (refer article)

 
Unethical in some countries, encouraged in others

From the viewpoint of many in the western world, such practices are discriminatory and should not be legal. Not so in the world’s fastest growing aviation market, where many passengers equate beauty with excellence.

To be fair, the airline industry in China is in the early stages of development, and for many years, discriminatory practices occurred in western countries as well. In the US for example, discrimination against men or married women was only made illegal in 1971, many years after the birth of the industry. (refer article)

In China, hiring specifications may well be relaxed as the industry matures over time, particularly as demand for staff increases in line with strong industry growth.

Business practices, it seems, that may be considered unacceptable in some parts of the world are actually encouraged in other parts of the world.

Debates about the setting of minimum wage levels typically result in a range of perspectives and approaches being put forward by different parties.

Unions and workers, along with some social groups, tend to place strong emphasis upon increases in the cost of living and the financial pressures confronting low income workers.

Employers, on the other hand, feel that the need to control inflation, in addition to any uncertainties in the economic outlook, should be given paramount importance.

Whilst the debate may involve a certain degree of self interest, both camps raise legitimate concerns. 

In this post, I will not deal with the debate about whether or not a minimum wage should exist at all – that debate will probably be the subject of another post at some stage. Instead, I would like to focus on the question of where the minimum wage should be set.

Here are my thoughts – readers are encouraged to add their own:

 
(1) Minimum wage levels should exceed the poverty line.

The earnings of full time workers should be sufficient to cover the cost of food, clothing, accommodation and other basic necessities for a reasonable sized family.

To be sure, workers on the minimum wage should not expect to be able to afford luxury items. However, every employee who puts in an honest day’s pay should expect to provide bare necessities for their family.

There appears to be little point in having a minimum wage at all if the level at which it is set is not sufficient to meet basic needs of workers.

 
(2) Minimum wages should comfortably exceed unemployment benefits.

Personally, I am not opposed to the concept of unemployment benefits, particularly for the majority of recipients who actively seek gainful employment.

Nevertheless, I do feel that there should be a significant gap between those who are in gainful employment and those who are recipients of unemployment benefits.

(Let me stress that my comments here relate specifically to unemployment benefits. My comments do not relate to other forms of welfare, such as disability support pensions or old age pensions)

 
(3) Minimum wages should at least keep pace with inflation.

To be sure, adjustments to minimum wages should be modest so as not to cause unnecessary inflationary pressures.

However, low paid workers should at least be entitled to expect their incomes to keep pace with the cost of living, particularly in cases where workers achieve productivity gains on a consistent basis.

There are, I believe, two temporary exceptions. The first exception occurs where the economy experiences a period of stagflation – where high levels of inflation are accompanied by economic stagnation or recession. The second occurs in a period of hyperinflation.

In either case, minimum wage adjustments which keep pace with inflation may be deemed to be inappropriate on economic grounds.

 
(4) Executive salaries should not be a major factor.

Frustration on the part of low paid workers at sky-rocketing levels of executive remuneration is understandable, particularly in cases where those same executives preach about the need for wage restraint. 

However, the issue of appropriate levels of executive remuneration should be considered independently to that of appropriate minimum wage settings.

Minimum wage settings should take into account factors such as the need to provide reasonable living standards for the low paid, the need to reward workers for productivity gains and the economic impact of minimum wage settings on the broader economy.

These considerations are of paramount importance, and whilst executive remuneration is an important issue in itself, there are more important factors to be taken into account in the process of setting minimum wage levels.

 
(5) Minimum wages should be linked to productivity growth.

Productivity growth should be a key factor in determining the appropriate size of minimum wage adjustments, both from a viewpoint of social equity and fairness as well as from an economic standpoint.

From a viewpoint of social equity, employees should be entitled to share in the benefits of productivity gains. The process of linking minimum wage adjustments to productivity helps to ensure that workers who are not in strong bargaining position receive their fair share of such benefits.

Also, productivity growth is a critical factor in determining the size of minimum wage adjustments that is sustainable without causing undue inflationary effects. Adjustments which do not exceed the growth in productivity have no inflationary effect. The increase in the price of labor resulting from such adjustments is offset by the increase in labor productivity. Furthermore, adjustments which marginally exceed productivity growth will be inflationary, but their impact will be moderate.

However, minimum wage adjustments which exceed productivity growth to a significant degree fuel domestic inflation to a considerable extent, not to mention their impact upon economic growth and job creation. Such adjustments are unsustainable from an economic viewpoint.

“We blew it”

Back in the year 2000, a BBC report documented the story of twelve year old girls working sixteen hour days, seven days per week at a Nike factory in Cambodia.

This prompted an admission that the company “blew it” by employing child labor, despite earlier assurances to the contrary. It also critically dented public confidence, and added credibility to other allegations about poor labor practices - poor wages, excessive overtime, unsafe work practices, physical and verbal abuse and denial of rights to form unions –  at Nike contract factories in emerging economies.

Now, in 2008, an important question remains: given its poor history, can Nike be trusted nowadays to ensure fair and reasonable conditions for workers in factories which manufacture its products?

I don’t think so. As shown below, the company has taken some positive steps to clean up its act. But with results of audits into its supplier contract factories suggesting that conditions on the factory floor are still pretty darn awful (see below), Nike has a long way to go before it can be trusted to deliver decent outcomes for those who make its products.

 
Some positive moves

Over the years, Nike has taken some positive action steps to address the problems. These include: 
  
• being an instrumental member of the Fair Labor Association (FLA), a global coalition between large companies, unions and NGOs, dedicated to promoting fair labor practices in third world countries; 
 
• revising and strengthening its Code of Conduct in (1998), which stipulates minimum labor conditions with which the company’s supplier are required to comply; 
 
• being the first in its industry to fully disclose the location of all supplier contract factories (2004); and 
 
• making public disclosure of the aggregate results of audits into supplier contract factories. (2004/05 and 2005/06)

The last two steps were particularly constructive. Full disclosure of the location of supplier contract factories has enhanced the ability of NGOs, labor rights organizations and the media to conduct independent investigations into labor conditions. Moreover, the publication of aggregate audit results allows the general public to make more informed assessments of overall performance in relation to workplace standards.

 
Performance still lacking

But the results are not satisfactory.

According to the company’s 2005/06 Corporate Social Responsibility (CSR) report: 
 
 
• Approximately 90% of contract factories were non compliant with Nike’s code of conduct on work hours. Of these, more than half required overtime which exceeded legal limits; 
 
• More than 80% were non-compliant in relation to at least eleven categories of occupational health and safety issues, including protective equipment, hazardous materials, injury management, ergonomics, and electrical and fire safety; 
 
• Almost 30% were non-compliant with legal requirements relating to wages and approximately 32% were non-compliant with legal requirements relating to non-wage benefits.

These figures are appalling. Worse still, reports from independent sources paint a more dire picture still. In one Indonesian factory in 2005, workers were paid just fifteen per cent of the legal minimum wage over a three month period!

 
No excuses

Nike has no excuse for these outcomes.

Size is no excuse. Global corporations are expected to manage their supply chains effectively, even if this may be a complex task when we are talking about almost 700 factories in 52 countries. 

Nor is the fact that Nike contracts out its manufacturing to external suppliers rather than owning the factories themselves, especially given that the company has publicly accepted responsibility for conditions at these factories.

 
Conclusion

Nike’s efforts have fallen well short of what was required in this area. Greater transparency and accountability is encouraging, but until results of audits start improving, the general public is well justified in linking the company to poor labor practices and labor rights abuses.