Saturday, March 31, 2012

Maternity Leaves

A designer working for a U.S. firm in one of its overseas offices became pregnant and expected to have the same maternity benefits that she would have had in the United States. She discovered, though, that the Family and Medical Leave Act, which grants up to 12 weeks of unpaid maternity leave and requires that the employer have an equivalent job for the returning employee, does not apply to workers outside U.S. territory. 

In a global economy, in which people increasingly work in foreign countries, the ethics of employee rights becomes complicated. As this designer discovered when she became pregnant, the Family and Medical Leave Act (FMLA) does not cover “extraterritorial” situations, and so she had none of the job protections that the American firm she worked for would have had to provide her in the U.S. Many American companies, of course, extend these laws to all of their employees, but no American law requires them to apply FMLA protections beyond U.S. borders.

Some who advocate for the minimal regulation of the marketplace may see no ethical problem here. Libertarians might argue that this employee made the decision to work for this firm and she has the freedom to walk away and find employment in another one. Or pragmatists might say that she can always make arrangements for childcare so that she can return to work as soon as she is medically able to do so, taking personal responsibility for the consequences of her becoming pregnant.

Such positions, though, do not look very far ahead to the real consequences of such hard-nosed and rather hard-hearted arguments. Consider the effect such behavior has on a firm’s reputation. I heard this story at a dinner party from someone who had heard it from someone else in the city in which this firm has its home office. While such story telling has real value in warning people about which employers to avoid, it can have a devastating effect on the firm in question, making it hard to attract the best employees and, even worse, creating a negative impression of the firm among prospective clients and within the communities in which it practices. A decision that might have given the firm a short-term business advantage – not extending FMLA to its overseas employees – can have terrible long-term implications for its business worldwide.

Inside the firm, employees will not want to work in the firm’s overseas offices if that means a loss of benefits. Firms, instead, should incentivize workers to take posts in foreign countries, given the inconvenience and disruption this can cause in a employee’s private life. Also, having dramatically unequal treatment of staff within the same organization can create all sorts of tensions that lead, in turn, to a discouraged and disgruntled workforce – not a formula for success in an increasingly competitive global economy. If anything, firms with overseas offices should offer as many benefits and perks as possible to find the very best employees as possible, regardless of what the law allows them to avoid.

You could argue that governmental requirements that a firm obey a law like FMLA or marketplace incentives that it does so in order to compete and to protect their reputation both lead to the same outcome, raising the question of whether it matters how we achieve such a goal. But there is a difference: depending on the marketplace alone does not guarantee that a firm will see what is in its best interest. Nor does it prevent a lot of individuals, like this designer, from suffering the unfortunate consequences of a firm’s shortsighted and self-destructive decisions.

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