By Hamael Aamir

Q1. Analyze the advantages and disadvantages of contract of employment for Mr. Zaid.

Contract of employment is a legal document that sets out the terms and conditions governing a worker’s
job, providing protection and clarification for both the employee and the employer. If the clauses stated
in the contract are neglected, either of the two are liable to initiate legal proceedings. Generally, the
contract of employment benefits and safeguards both the parties, however, there are few
disadvantages especially in the prevailing situation of covid-19 across the globe and the company owned
by Mr. Zaid has no exception.

Since Mr. Zaid believes in laissez faire style of leadership where virtually all authority and decision
making powers are delegated to the workers by the managers, therefore, any clauses in the contract of
employment regarding the maintenance of a standard of performance will be extremely beneficial to
him. It will ensure the duties are being fulfilled with honesty, on time and to the best of the employee’s
abilities when left alone to work, given that laissez faire style is adopted. As per the contract, the
employees will be obligated to work to full potential, resultantly, improving the overall efficiency and
quality of the workforce leading to greater output of garments. Breaching of these terms by the
employees will allow the employer to press legal charges against them, thus, the contractor i.e; Mr. Zaid
will remain protected by the law. A contract of employment can also benefit Mr. Zaid by preventing any
interruption in the production during the current COVID 19 situation. If there are any clauses
highlighting the continuity of work during a pandemic given that safety measures are taken, the workers
will be required to continue with their routine and execute their tasks as usual. This will help Mr. Zaid
maintain the sales of his business with consistency without having to bear losses during the pandemic,
given that other factors remain constant. A contract of employment will also help Mr. Zaid safeguard
sensitive business information given that confidentiality clause is mentioned. It will ensure such
information is dealt with upmost care and responsibility by the employees, minimizing the risk of leaks
for e.g details of upcoming projects. This will prevent the competitors from getting their hands on
proprietary information and using it to their advantage to ruin the business’s reputation and negatively
impact its sales revenue. It will also prevent an employee from stealing the company’s private
information to compete with it after leaving it.

Furthermore, a contract will help Mr. Zaid control the number of days taken off by the employees. This
clause will be extremely useful for him especially during the current situation of COVID 19. It will prevent
employees from using the pandemic as an excuse to take additional days off once the factory reopens,
given that they are not bounded by any health issues. If otherwise is done, Mr. Zaid will be able to
legally act against it for e.g. make reductions in their salaries as per the number unauthorized days taken
off. This will avoid a delay in the operations of the firm, which would affect productivity and lead to a
decline in overall sales. A clause concerning job security of the employees is beneficial for them, but will
also be of significant importance for Mr. Zaid. If he manages to ensure job security during the outbreak
for e.g he didn’t lay off his workers during closure of the factory, it will boost the levels of employee
motivation and they will become more devoted to the success of their company. After the factory
reopens, these employees will be determined to work even harder to help the organization achieve its
objectives. Other benefits of the contract to Mr. Zaid includes clauses stating protection of copyrights. It
will ensure the original works of the employees done for the company remains authentic and belongs to
the employer. The contract will save Mr. Zaid valuable time, which has an opportunity cost, as the duties
and responsibilities of the employees do not have to be constantly reminded to them.

However, there can also be potential disadvantages Mr. Zaid might have to face. The first and foremost
is the payment of wages despite the closure of the factory with null ongoing production, given that a
clause regarding job security of employees is mentioned in the contract. This would put additional
burden on Mr. Zaid as he will have to bear those expenses against, which almost no production is being
achieved. In this context, State Bank of Pakistan (SBP) has introduced new refinance scheme to avoid
layoff of workers due to COVID 19 impact. This scheme will ensure payment of wages to employees
through banks. Another drawback concerns the medical charges of the employees in case they get
affected due to the outbreak of COVID 19, given that a clause regarding health insurance of employees is
mentioned in the contract. In this case Mr. Zaid will be required to pay the medical bills of his workers
without having the guarantee that the individual would be recovered and available for future projects of
the company. Also, construction of a contract employment will demand Mr. Zaid’s time, money and
effort as a lawyer will have to be appointed to draft the agreement. Lawyer fee is costly and legal
procedures can be extremely time consuming. The above discussed costs will also have a negative
impact on the profit position of the company once production resumes. Last but not the least Mr. Zaid
has to formulate and implement SOPs (standing operating procedures) regarding precautions against
the pandemic once the company is reopened for production. This would entail financial effects for
provisioning of equipment to ensure safety of employees against COVID 19.

In developing countries like Pakistan, the legal contracts such as the contract of employment are not
being respected in true letter and spirit. In this regard, government has already shown serious concerns
and has initiated many reforms to respect the contract.

Good Analysis.
Evaluation wasn’t needed

Q2. Do you think Mr Zaid was right in taking this ethical decision?

Ethics are the moral guidelines that determine decision making of a company. Any unethical decision
leads to criticism on the policies of the company. This would be more significant in case of
demonstrations and use of social media. During the current situation of Covid- 19, laying off workers will
help cut down the financial cost of the company given that there is no production due to the pandemic.
However, this has a huge opportunity cost which is discussed in the proceeding paragraphs. I support
Mr. Zaid’s decision in not laying off his workers during the outbreak and my argument is based on facts
which are discussed below. 

If Mr Zaid had laid off his workers during the pandemic, he could’ve been faced with a number of legal
risks. As per section 46 of the industrial relation ordinance of Pakistan, employees can file a lawsuit
against the employer if they feel unfair termination has taken place. Labour courts have been assigned
with special powers to investigate the reasoning of the termination as justified or otherwise. In Pakistan,
the legal process takes a significant amount of time, effort and financial costs. Therefore even if Mr Zaid
would have won the case, he would still have to spend huge sums of money throughout the process
such as appointment of a lawyer and legal fees. On the other hand workers may join hands and share
the financial cost of the legal procedure which would result in a smaller per person cost compared to the
payment made by Mr Zaid. Also, Mr Zaid could potentially face discrimination lawsuits if the layoffs
negatively impacted a certain group. For example layoff of younger employees while retaining older
employees would be considered age discrimination. According to a “New York Times” article, the
number of laid off employees who filed a case against their employer increased by 15 percent in 2008
during a period of recession. 

Laying off workers would lead to low morale and a sense of job insecurity amongst the retained
employees due to witnessing fellow colleagues and friends leave the company. This would increase
workload on the retained employees which would further lead to increased stress levels causing health
issues. As a result, the productivity of Mr Zaid’s factory will suffer. This may also compromise the quality
of garments as the workers will be mentally pre occupied i.e they will only think about aspects that will
guarantee their job security.  Also, lack of new ideas to expand production will be delivered by these
burdened individuals. Under these circumstances, the working environment of the company will not be
cohesive and would be rather tough. Consequently, the retained employees will know the company is in
financial crisis and rather than working additional hours, they will start to seek employment elsewhere.
This would lead to depletion of highly skilled staff negatively impacting the overall performance of the
factory. 

After the factory reopens, the laid off workers might reject to rejoin it and seek employment elsewhere
due to lack of job security therefore Mr Zaid will have to face numerous drawbacks hiring new
employees. After hearing the news of layoff, potential candidates might feel the company will be unable
to provide them with job security in the future therefore become hesitant in applying for the job. This
can make the recruitment of new employees extremely challenging and can also lead to the loss of
potential talent for the company. Recruitment of new employees can also be difficult due to huge costs
involved and a lot of time consumed. Job advertisements to attract potential candidates and conducting
interviews requires immense finance and effort. Once employees have been recruited, they will have to
be provided with adequate training programmes to enhance their skills until they become highly
competent for the job. Therefore training and management of new employees can be an extremely
costly investment. Furthermore, new employees require additional assistance and time to become
familiar with the company’s environment and structure which could resultantly slow down its
operations. Mistrust can also emerge between the former and the new employees. On the other hand, if
the laid off workers rejoined Mr Zaid’s factory in the near future, their morale and motivation levels will
be rather low which will negatively impact the productivity of the firm. 

If Mr Zaid had laid off his workers, the reputation of his factory would have also been at stake due to
several reasons. Laying off will send a negative signal to the investor such that the company is going
through financial turmoil which would restrict them from making investments in Mr Zaid’s company due
to high financial risk involved. Taking this unethical decision will also give rise to pressure groups and the
formation of strong trade unions which would lead to strikes and demonstrations against the policy of
the company. This would also impact the sentiments of the customers in the favor of laid off employees
resulting in a shift towards substitute brands. Consequently, the overall sales revenue of the company
will be severely affected.

In developing countries like Pakistan, labor laws are not followed in true letter and spirit  despite the
fact government of pakistan has initiated schemes like refinance scheme to avoid the layoff of workers
during the pandemic i.e covid-19. Lay off of workers would cut down the expenses of the company in
the short run, however, ethical behaviour will pay off the company in the long run. In the long run, it will
improve the brand image of the company, develop brand loyalty of customers and reduce chances of
potential legal action. 

Good Knowledge, Application & Analysis

Some weak Analysis?