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Ethical and legal aspects of employment relations

Introduction

Since the 1970s progressive reductions in tariffs (taxes placed on imported goods) in the textile, clothing and footwear industries have dramatically changed business conditions in these industries for managers and employees. These changed business conditions have in turn created significant ethical and legal problems for employees, employers and governments.

This tutorial was written by Michael Lembach, HSIE Project Officer, Curriculum Support Directorate.

Outcomes
Overview
Revision
More

Outcomes

HSC Topic 4: Employment Relations is covered in the Board of Studies NSW Stage 6 Business Studies Syllabus (June 1999) on pages 32-33. The specific outcomes for this tutorial are:

H2.2	evaluates processes and operations in global business
H4.1	critically analyses the social and ethical responsibilities of management
H4.2	evaluates management strategies in response to internal and external factors.

Overview

The role of governments in reducing trade barriers

Since the end of World War II governments throughout the world have progressively reduced barriers to trade and investment. The role of governments has generally enabled many international businesses to grow in the global market place.

In Australia progressive government reductions in tariffs (taxes placed on imported goods) in the textile, clothing and footwear industries have dramatically changed business conditions over the past generation. In turn, these changed business conditions have created a number of significant ethical and legal problems for stakeholders in the employment relations process.
Effects of tariff reductions

The immediate effect of Australian tariff reductions was to lower the price of imported clothing and shoes. As consumers switched to cheaper imported products thousands of workers lost their jobs.

Faced with shrinking domestic demand and falling profits Australian business owners and their managers had to consider their alternatives. Basically, their choices were to:
- stop trying to compete and go out of business
- sell their businesses
- move their production facilities overseas to take advantage of lower priced labour
- lower their Australian costs of production and attempt to become more efficient and cost competitive.
The increasing use of subcontractors and outworkers in Australia

Many of the businesses that decided to lower their Australian costs of production began to employ subcontractors to manufacture their products. A subcontractor may be a business or an individual. They are commonly employed to do work as part of a larger project.

For example, in the construction industry subcontractors are commonly employed by builders to do plumbing and electrical work.

In the clothing and shoe manufacturing industries, subcontractors in turn, commonly employ outworkers (workers paid by the amount produced) to either work at home or in premises provided by the subcontractor. It has been estimated that there are as many as 300 000 outworkers in Australia.
The development of ethical and legal problems for outworkers

Subcontractors naturally try to make a profit on each piece. Because until very recently there have been no strict or enforceable rules governing wages or working conditions for outworkers, some subcontractors have violated acceptable ethical and legal standards, in their relations with outworkers. For example in some situations subcontractors have:
- paid outworkers far less per piece than they received from the business for manufacturing the item
- forced outworkers to work long hours in crowded and unhealthy conditions
- set up small cramped sweatshops in rooms or garages where they employed people for low wages.
Outworkers often are isolated and vulnerable to subcontractors who take advantage of them. They may receive below award wages and are typically not represented by a trade union. How ethical and how legal is that?
The increasing use of subcontractors and outworkers worldwide

The Sunday Telegraph published a detailed study titled Shame of Sydney’s sweatshops on March 18, 2001. The study included comments made by Michael Quinlan, Professor at the University of NSW, School of Industrial Relations and Organisational Behaviour. Professor Quinlan said the closure of the Speedo (an Australian manufacturer of swimwear) factory and the outsourcing of work are “symptomatic of what is happening in a number of industries”.

Extracts from Professor Quinlan’s comments

“I would regard what’s happening with places like Speedo, if they are outsourcing locally as well as overseas, as part of a general and rather worrying trend. This issue isn’t just tied to NSW. It’s an international problem and the only way to address it is to target the major beneficiary (the retailer) at the end of the chain.”

Professor Quinlan says the problem with outsourcing is that it leads to work passing down through a downward spiral of smaller and smaller operators.

“You have all sorts of outsourced arrangements across a range of industries, and it’s creating incredibly disorganised work settings. What What happens is that as these workplaces proliferate and move people out of factories, where inspectors can check conditions, you end up with a situation that is impossible to police. The whole system basically becomes unenforceable.”
What is being done in Australia?

Fairwear is a coalition organisation of churches, community organisations and unions working to address what they describe as “the gross exploitation of workers who make clothing at home in our Australian community”. Students interested in knowing more about this organisation should visit the Fairwear web site .

In New South Wales, legislation enabling outworkers to sue fashion houses at the top of the manufacturing chain, is a key part of a package of new laws, aimed at shutting down sweatshops. The Textiles, Clothing and Footwear Union has been working with the NSW Government to help end outworker exploitation by giving legislative support to its Behind the Label strategy.

In late March 2001 the NSW Government announced that textile outworkers are to be brought under the coverage of the Industrial Relations Act. All retailers and manufacturers must sign a code of conduct within twelve months. The code will stipulate conditions, such as maximum number of hours outworkers are allowed to work, guarantees of pay and entitlements for outworkers such as holiday leave.

Revision

Talk to a relative, family friend or member of the community who has had direct experience working in the garment manufacturing industry. Find out what impact, if any, management strategies have had on their careers. (Outcome H4.1 and Outcome H4.2)
Place yourself in the position of owner or manager of a small local manufacturer of custom clothing faced with shrinking local demand and falling profits. What strategies might you try to correct the situation? (Outcome H4.2)
Review Professor Quinlan’s comments. What is your opinion? Is global outsourcing a “rather worrying trend”? Is outsourcing likely to affect you or your friends during your working lives? Support your argument with examples from several kinds of global business operations. (Outcome H2.2)
Do you agree with the comment:
“It’s an international problem and the only way to address it is to target the major beneficiary (the retailer) at the end of the chain.” Why or why not? (Outcome H4.1)

Go beyond the basics presented here. Fairwear has an interesting and comprehensive web site that includes frequently asked questions with answers that may be useful to you in assessment and examination situations.
Try to locate a copy of the Agenda section of the 18 March 2001 Sunday Telegraph. Read the in-depth study by Sarah Harris, titled “Shame of Sydney’s Sweatshops”. The article details some of the production methods used by Speedo, a well-known Australian swim wear manufacturer.
Conduct web searches under the headings outsourcing and outworkers for up-to-date commentary on this growing trend in global business.