Question

Scenario 1 - Ethical Dilemma - Reclassify Employees

You are on the management team of Crystal Clear Electronics (CCE) Inc., a company that specializes in high-quality home theater systems. In addition to selling these systems, CCE provides custom installation on all purchases and is known for the professionalism of its installation staff. This reputation is due to the rigorous policies its home installation staff must follow. All employees are required to attend bi-monthly training sessions, wear CCE uniforms, observe the installation dates and times agreed on by CCE and the customer, and follow any instructions given by CCE as to how to perform the installation.

Faced with shrinking margins and cash flow problems, CCE is looking to cut costs and increase cash flows. You realize that by reclassifying the installation staff as independent contractors, CCE will be able to accomplish both objectives. Because the installation staff would be independent contractors, the company would not have to pay payroll taxes, social security, and Medicare expenses. The reduction in these costs and the corresponding increase in cash flow would certainly help the company's liquidity. Furthermore, such a change would not affect the quality of the service provided and would be virtually invisible to customers.

Question: Discuss the ethical implications of this reclassification.

Answer 1

This case is very similar to the recent Case verdict of UBER drivers , in which drivers were given tag of salaried employee and not independent person.

As this practice continues of slotting long term workers as self-employed (regardless of the position, control or longevity of service), it does bring up some issues for a company’s reputation and business ethics.

There are two fronts where the largest “gig” companies are treading on uncertain ethical ground:

• The use of behavioral science to create psychological incentives and lures to work longer hours during peak times has brought attention to Uber’s tactics, and verges on the ‘control’ relationship to an employee.
• Deliveroo has gone so far as creating a mandatory company vocabulary to ensure that workers are not tempted to see themselves as employees, and reinforces the arms-length relationship with workers named as “independent suppliers” who work at a “supply center”.

These methods clearly dehumanize and disempower ICs, and have eroded the reputation of companies that are going to great lengths to retain a self-employed workforce. When a business must resort to these types of measures, it brings up the question of whether the IC relationship is truly agreed to, or in some way coerced and imposed simply to maintain a cost reduction strategy.

Of course, the contractors have a choice of whether to continue working, but many are recently unemployed, lack education or are otherwise without many options for full-time employment. If a company is viewed as taking advantage of this stark reality solely to support the bottom line, then there could be lasting damage to their business potential and customer loyalty.