Winter 2010

What does the Church say about layoffs?

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By Professor Joe Holt

In a recent study of 2,000 American managers cited in the book Managing as if Faith Mattered, 50 percent claimed that religion had a significant impact on their business decisions. But only 16 percent of the managers saw the issue of plant closings—which can mean hundreds of lost jobs and a devastating blow to local communities—as having a religious or ethical implication.

Many executives would be surprised to learn how extensively the Catholic Church has focused on questions of economic justice and the morality and implications of business decisions, such as layoffs. Catholic Social Teaching (CST) is generally comprised of a broad body of teaching issued by the popes or the Catholic bishops concerning social and economic justice.

These public documents are addressed to Catholics and other Christians, but also to all “people of goodwill,” to foster and inform fruitful discussion about social and economic issues which ultimately concern all of us. The following inquiry examines the relevance of CST to the question of employee layoffs.

When are layoffs morally acceptable?

The problem in much executive decision-making is that attention is too often focused on the question of “What should we do?” in a particular situation before adequate attention has been given to the prior question of “What fundamental values and principles should guide our decision-making?” CST sheds helpful light on the latter question and so helps executives exercise sound moral judgment.

It should be noted that CST typically does not provide specific solutions to a particular situation. Rather, it provides an overall framework. It seeks to form the conscience of those who will have to make particular judgments in light of complex, changing and demanding circumstances within their area of responsibility.

It should also be noted that the Church does not assert that layoffs are wrong in and of themselves. Rather, the Church recognizes that layoffs may sometimes be necessary as a last resort for the survival of the company in question.

What is at stake here?

At stake are two fundamental principles. The first concept is that all human beings, because they are made in God’s image, have an inherent dignity which cannot be denied. Business leaders should see the human beings affected by their decisions as ends to be served by their companies rather than means to be exploited for narrower goals such as profit maximization. They should also bear in mind that work is a principal means through which employees realize their human capacity for self-expression and self-realization.

“Work is a good thing for man—a good thing for his humanity—because through work man not only transforms nature, adapting it to his own needs, but he also achieves fulfillment as a human being and indeed, in a sense, becomes‘more a human being’.” Laborem Exercens, section 9

The second principle to consider is solidarity. According to this concept, human dignity can be fully realized only in community with others. We can never be indifferent to the needs of one another. Consistent with this perspective, businesses themselves are regarded as communities of persons who strive to meet their own basic needs and to serve society. In these communities, the well-being and voice of each community member matters. This view of business as community differs from the legalistic view of business as a piece of property owned by shareholders whose economic interests are paramount.

Given the importance of community, business leaders considering a layoff are urged to carefully weigh the ripple effects of their decision. Their decision will not only impact the shareholders and the individual workers, it will impact families,
neighborhoods, school systems, and even cities and regions.

In what way does CST challenge contemporary business practice?

Perhaps the greatest challenge from CST to contemporary business decision-making lies in the insistence that the human needs of workers should take priority over the interests of capital.

As Pope Benedict states in his most recent encyclical, Caritas in Veritate, “… the primary capital to be safeguarded and valued is man, the human person in his or her integrity: Man is the source, the focus and the aim of all economic and social life.

What is owed workers when deciding layoffs?

In their pastoral letter on the economy, the U.S. bishops posed specific minimum guidelines when carrying out a staff reduction or plant closing.

It is interesting to note that in contrast to the secretive practices of many organizations, the bishops deem it a matter of justice to inform and negotiate with employees during the decision-making process. Executives are also encouraged to consider alternatives to avoid layoffs, which in this current recession have included such measures as across-the-board wage cuts, reductions in travel expenses, hiring freezes and furloughs.

At a minimum, workers have a right to be informed in advance such decisions [plant closings or layoffs] are under consideration, a right to negotiate with management about possible alternatives, and a right to fair compensation and assistance with retraining and relocation expenses should these be necessary.Economic Justice for All, section 303

When considering the morality of a layoff decision, executives are also urged to consider whether everyone in the company will bear their fair share of the sacrifices involved. Of concern, for example, may be situations where companies lay off hundreds or thousands of employees, yet provide financial rewards to executives for instituting the cost-cutting measures.

 “While such decisions [plant closings and layoffs] may sometimes be necessary, a collaborative and mutually accountable model of industrial organization would mean that workers not be expected to carry all the burdens
of an economy in transition. Management and investors must also accept their share of sacrifices,
especially when management is thinking of closing a plant or transferring capital to a seemingly more lucrative or competitive activity.
Economic Justice for All, section 303

How is this mindset important for business thought and practice?

Consideration of these principles is important because the mindset or lens through which a business leader views a problem greatly influences what decisions he or she makes and carries out. CST also helps Christian business leaders experience
their work as a calling and avoid the split between their faith and everyday professional lives that the Second Vatican Council included among “the more serious errors of our age.”

 “Our faith is not just a weekend obligation, a mystery to be celebrated around the altar on Sunday. It is a pervasive reality to be practiced every day in homes, offices, factories, schools and businesses across our land. We cannot separate what we believe from how we act in the marketplace and the broader community, for this is where we make our primary contribution to the pursuit of economic justice.Economic Justice for All, section 25

—Joseph A. Holt is Director of Executive Ethics for Executive Education in the Mendoza College of Business.

—Mary Hamann is editor of Notre Dame Business.



© 2010 University of Notre Dame • Last Updated: January 29, 2010