Sample Case: A Domestic Garment Company

Sample Case: A Domestic Garment Company
You are on the management team of a rapidly growing, privately-held apparel company that had
$80 million in sales last year and is projecting $150 million for next year. The company’s
operations are entirely U.S.-based, an anomaly in an industry that has moved almost all
manufacturing to foreign countries in search of cheap labor. Your company has succeeded by
targeting a niche market that will pay more for fashionable styles, making the speed and flexibility
of operations more important than the price. Your company is also unique in its employee
policies. Poor working conditions are common at many apparel factories in the U.S. and abroad,
and the industry is besieged by public criticism of labor practices. Yet a fundamental tenet of your
company is the belief that apparel manufacturing should be profitable without exploiting workers.
Management has worked hard since the company’s inception to treat employees as well as
possible, and it has developed a reputation for these efforts.
This summer your team found the company could not keep pace with orders. You added a second
shifty and hired 1,000 new sewers to staff it, bringing the total number of sewers to 3,000. During
the summer months, all employees worked full-time (eight-hour shifts, five per week) and often
overtime to meet sales needs and replenish dwindling inventories.
The date is September 1 and it has become clear that the company’s inventory is growing too
large. Sales across the industry are usually slow during the winter months, and you know the
company must slow its production. Each of the 3,000 sewers assembles an average of 20 dozen
pieces per day. Based on projected orders and the maximum inventory you can afford to carry,
production cannot exceed 4,000,000 dozen pieces between October 1 and April 1. Therefore, you
must determine how to reduce your actual production over that six-month period to only twothirds of full capacity. Wages for sewers are not based on the number of pieces they sew. The
efficiency of production at your company is partly responsible for the high wages workers earn.
Typical industry practice in the U.S. and abroad is to lay-off excess labor for the winter season,
with no severance pay or other assistance and no promise of rehire. Many of your sewers have
lost their jobs elsewhere during the slow season for several years. However, if your company
made such a move it would contradict the company’s philosophy regarding the treatment of
employees as valued partners. Laying workers off seems like it would be a significant defeat in
this respect, with possible repercussions in employee motivation and public relations. Also, your
team has invested several thousand dollars in training each employee, and you are concerned that
new sewers may not be skilled enough to meet the steep climb in orders anticipated in the spring.
If workers are laid off, there is no guarantee that you will be able to rehire the same people in the
spring. However, the company cannot afford to pay workers to do nothing for six months, and
many workers will likely return to the company if they fail to match your wages or working
conditions elsewhere.
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Assume you are the manager that must address the company’s excess labor problem during the
upcoming period of slow sales (i.e., you are the decision-maker). What would you do now? Keep
in mind, there is no union and there are no other specific policies or agreements that mandate the
basis (e.g., seniority) for prioritizing which sewers might be affected by your decision. Analyze
and format your analysis according to the case instructions given in class.
Sample Answer
Step 1: Ethical Issue(s)
One ethical issue in this case is compliance with the Worker Adjustment and Retraining
Notification Act (WARN). As discussed in Chapter 8, WARN protects workers, their families,
and communities by requiring employers to provide notification 60 calendar days in advance of
plant closings and mass layoffs. A covered mass layoff occurs when 50 to 499 employees are
affected during any 30-day period at a single employment site, if these employees represent at
least 33 percent of the employer’s workforce where the layoff will occur, and the layoff results in
an employment loss for more than six months. If the layoff affects 500 or more workers, the 33
percent rule does not apply. It is now September 1 and it has become clear that the company’s
inventory is growing too large. I presently employ 3000 sewers and must reduce the capacity by
two-thirds during the months of October – March. If I choose to reduce the overcapacity by
laying off a proportionate number of sewers, this would result in approximately 1000 sewers
temporarily losing their job. Since this would qualify as a mass layoff under WARN, the earliest I
could provide the minimum 60 day’s notice and then layoff 1000 sewers would be November 1.
Therefore, I must consider the requirements of WARN when making my decisions.
Another ethical issue in this case concerns the ethical process of dismissing employees through
layoffs. Also in Chapter 8, the authors state that before dismissing an employee, management
should follow a rational and unbiased decision-making process and analyze carefully the reasons
leading to that decision. The organization must ask itself whether its treatment of the employee
follows the appropriate procedures for that type of discharge. In addition, the company must
guard against preferential treatment. Although I am contemplating reducing the company’s
overcapacity through layoffs, I must carefully analyze the situation keeping in mind that one of the
fundamental tenets of my company is the belief that apparel manufacturing should be profitable
without exploiting workers. Management has worked hard since the company’s inception to treat
employees as well as possible, and it has developed a good reputation for these efforts. Therefore,
as an ethical manager I need to carefully analyze the situation taking into account the effects of
my decision to solve the excess capacity problem on the key stakeholders while making sure my
decision solves the problem.
Step 2: Key Stakeholder Analysis
Manager/Decision Maker (Me)
1. I hope to find a way to effectively reduce production capacity to only two-thirds of full
capacity for the months of October through March.
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2. I hope to maintain as much speed and flexibility of operations as possible since this is of vital
importance to our organization.
3. I hope to uphold one of my company’s fundamental beliefs of being profitable without
exploiting workers.
4. I am concerned that new sewers may not be skilled enough to meet the steep climb in orders
anticipated in the spring.
5. I fear a poor decision will demotivate my present employees.
6. I fear a poor decision will result in negative public relations for our company.
7. I want to make a decision that shows my superiors that I am a capable manager.
Sewers
8. They fear losing their job and having no income from October through March.
9. If they do not lose their job, they fear having their wages reduced since production must be
cut and they are paid on a piece rate basis.
Shareholders/Owners
10. They hope to maximize the return on their investment which usually translates into increased
profits.
Company
11. It hopes to maintain its level of profitability (it cannot afford to pay workers to do nothing
for six months).
12. It does not want to exploit workers.
Customers
13. They desire quality, fashionable clothing.
Community
14. Local businesses fear losing business due to the loss of income of laid-off workers or the
reduced income of all workers if there is no layoff.
Step 3: Decision(s) and Analysis
Decision(s):
Decision #1: I would gather the 3000 sewers together in a meeting and tell them of the need to
reduce capacity to only two-thirds of full capacity for six months. I would then tell them that each
sewer’s pay will be reduced up to one-third in amount for the six-month period. I would also tell
the sewers that if any person cannot take such a drastic cut in pay, those persons will be laid-off
and 60 days thereby qualifying for state unemployment benefits. I would also tell those sewers
who chose to be laid-off that they would have hiring preference when sales increased after the
slow winter months. (Note the amount of reduced pay for the remaining sewers would depend on
how many sewers chose to be laid-off thereby increasing the work for those who chose to remain,
and the cost savings generated by Decision #2 below.)
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Decision #2: I would gather managers and administrative personnel whom I had authority over an
offer them the same deal as the sewers: they could either be laid-off with the ability to draw state
unemployment benefits or continue working at a reduced pay level which would depend on how
much cost savings are generated by this decision and Decisions #1 and #3. Any manager or
administrative personnel who chose to be laid-off would also have hiring preference when sales
increased after the slow winter months.
Decision #3: I would tell each group of employees at their respective meetings that I plan on
continuing to work for the company at up to one-third less pay for the six-month time period.
How These Decisions Resolve the Ethical Issue: The ethical issues dealt with complying with the
WARN Act and how I should address my company’s excess labor problem during the upcoming
period of slow sales. By asking employees to work at one-third less pay, I avoid laying off those
employees and the violating the WARN Act. Those employees who do choose to be laid-off will
be given 60 days notice before the layoff becomes effective which also complies with the WARN
Act. Finally, by giving employees the choice of continuing to work at reduced pay, I am using
layoffs as a last resort. By asking all employees of the organization, including myself, to work at
reduced pay instead of just the sewers, I am treating all workers fairly.
Nonconsequentialist Analysis of Decisions
Integrity: Consistency between our stated values and behavior; demonstrating the courage to do
the right thing regardless of the costs (a.k.a. moral courage). All of my decisions show that I
acted with integrity, but especially Decision #3. By voluntarily taking a pay cut along with the
other employees, my behavior is consistent with the stated values of my company even though
this will cost me a significant amount of money. I am doing the right thing even though it is going
to cost me up to one-third of my salary.
Autonomy: Exercise authority in a way that provides others with information they need. Decisions
#1 and #2 show that I have provided others with the information they need to make an informed
decision. In Decision #1, I explained the need to reduce production costs to the sewers and gave
them the option of being laid off or working at a reduced rate. Similarly, in Decision #2, I
explained the same situation and gave the same options to my managers and administrative
personnel.
Loyalty: A special moral responsibility to promote and protect the interests of certain people,
organizations, etc. In this situation, I have a moral responsibility to all of my key stakeholders to
protect their interests the best I can given the situation. Decisions #1, #2, and #3 financially hurt
the sewers, managers, administrative personnel, and myself, but this harm is spread evenly over all
of these stakeholders instead of just one stakeholder.
Impartiality: Rules are applied equally among every human being involved or affected—no matter
who the human being is—or what his or her relationship is with the person administering the
rules. Again, Decisions #1, #2, and #3 spread evenly the financial harm to the sewers, managers,
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administrative personnel, and myself. I could have simply allowed the sewers to bear the brunt of
the cutbacks, but that would violate my company “rule” not to exploit workers thereby also
violating the impartiality subcharacteristic.
Consequentialist Analysis of Decisions
Costs:
2. Some speed and flexibility will be lost to the extent that sewers choose to be laid-off under
Decision #1.
5. All three of my decisions will cause a reduction in employee pay, no matter what option is
chosen, which will have some demotivating effect.
9. Sewers who choose to stay based on Decision #1 will have their wages reduced.
14. All three of my decisions will reduce total employee income thereby harming local
businesses.
Decision #2: Managers and administrative personnel will also have their income reduced up to
one-third or be laid-off.
Decision #3: I will have my income reduced by up to one-third.
Benefits:
1. All three of my decisions effectively reduce production capacity to only two-thirds of full
capacity for the months of October through March.
2. Most of the speed and flexibility will be retained because I feel that most workers will choose
the option of reduced pay over being laid off in Decision #1.
3. All three of my decisions uphold one of my company’s fundamental beliefs of being profitable
without exploiting workers.
4. In Decisions #1 and #2, I believe most of my present workers will choose the option of
reduced pay over being laid off therefore requiring the hiring of few new workers in the
spring.
6. I believe my three innovative decisions where I treated sewers, management, and myself the
same will garner positive public relations for our company.
7. Although somewhat risky, I feel my three innovative decisions will more than show my
superiors that I am a capable manager.
8. Since Decision #1 gives sewers the option of keeping their job or being laid off, they will get
to keep their job if they want it.
10. All three of my decisions maintain current company profitability thereby allowing
shareholders to continue to maximize the return on their investment.
11. All three of my decisions allow the company to retain its level of profitability since
production capacity will be reduced by one-third.
12. None of my decisions exploit the workers.
13. Since I believe most sewers will elect to keep their job under Decision #1, we will retain most
of our quality sewers thereby allowing us to continue to meet customer needs for quality,
fashionable clothing.
Decisions #1 and #2: Since laid-off employees will be given re-hiring preference after the
slowdown, we will be able to rehire mostly former employees who have already been trained
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and know the company. This policy should help maintain morale and productivity both in the
short-term and long-term.
Decision #3: Since I am willing to reduce my pay along with my coworkers, I believe they will
view me in a more favorable light leading to enhanced team cohesiveness and higher job
satisfaction.
Analysis:
The benefits clearly outweigh the costs in this situation. Although our company will lose some
flexibility and motivation of our workforce during the downturn, this is far less than if the sewers
were simply laid off. In return, our company will be able to remain profitable without exploiting
workers, maintain most of its flexibility, maintain a highly skilled and motivated workforce over
the long-term, and meet our customer and community demands and obligations.
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