Property rights for business owners

Two days ago, I was at Hardwood Ski & Bike [www.HardwoodSkiandBike.ca] enjoying some cross country skiing with a retired teacher and personal friend of mine. I will refer to him as XC_guy to protect his identity.  While skiing, we had a discussion about Property Rights for business owners.

As a former teacher, XC_guy told me that he could not conceive of a workplace where a union rep would not be available to deal with issues between employees  and management. I pointed out that workplaces, where employees interact directly with their bosses to resolve differences, are the norm for the majority of citizens. He replied that he was speaking from his own experience because he had always been a teacher.

As a discussion framework regarding workplace Property Rights, I posed a hypothetical workplace scenario to him where he was an entrepreneur and business owner. XC_guy agreed with almost everything up until the very last argument when he could not accept that the property rights of a business owner should take priority over collective bargaining rights. When he explained that my scenario was too simplistic, I asked him to show me where my logic failed. XC_guy said that he would give further thought to this discussion and provide a logical critique of it when we ski again.  

The following fundamentally represents the hypothetical scenario that I posed to XC_guy. I have gone to the dictionary to obtain definitions for the following terms:

Property Rights  - a legal right or interest in or 

             against specific property.  

Property - a thing, or things, belonging to someone; possessions collectively.

[Law] - the right to the possession, use, or disposal of something;      ownership: rights of property.

Right - a moral or legal entitlement to have or obtain something, or to act in a certain way

NOTE: XC_guy agrees with the following Property Rights concepts.

A --Your body is your personal property

B -- Your mind is your personal property

C -- Your productive capacity  [ability to work or create something of value] is your personal property until/unless you trade it for something else.

D – Any and all the remuneration [ie money and/or any other form of mutually agreeable exchange] that you receive in exchange for using your productive capacity [ie work] becomes your personal property

E – Any purchases that you acquire in a willing exchange for past remunerations become your personal property.

Scenario:  Building your company

Imagine that you have been an entrepreneur who began a new business from scratch. To establish this business, you identified the market that you wanted to serve as well as the products and services best suitable to serve that market.  You created a business plan and made the necessary investments to begin the business; this required that you use your personal savings and your line of credit to acquire office space, furniture, equipment, etc.  In the beginning, you were the only employee and you committed to work day and night, if necessary, to ensure that your investments and efforts would pay off for yourself and your family.

Now imagine that 20 years have past. Through trial and error, you fine-tuned your business plan and business model to make your business successful. You now have 100 employees, a long list of good customers that you have served over many years based on a business strategy that provides good value and excellent service to your customers.

Like all businesses, you face competition - both domestic and foreign. In spite of many obstacles and several setbacks, you and your hand-picked management team have successfully navigated these competitive waters.

All of your 100 employees were hired by you personally. Each employee was hired to fill a job that was required due to business demands. The compensation level established for each job was largely determined by the nature of the job and its potential contribution to company profitability. To fill each job, you interviewed several candidates in order to find the candidate who “best fit” the job within the constraints of the budget allocated. Every new employee signed a legal Employment Agreement indicating that they had read the terms of the agreement and found them to be acceptable.

Over time, as employees proved themselves to be of greater value to the business through their gained productivity and increasing ability to handle responsibility, you offered promotions and/or provided compensation increases to reward these employees on a merit basis.

Over the years, you have hired many employees that have stayed with your company for a long time. However, as is common in all businesses, you have also experienced “employee turnover”  which has fluctuated around the industry average of 10%. You have interpreted this to mean that 90% of your employees were sufficiently satisfied with the conditions and terms of employment as to remain with the company.

As the founder, president and CEO of your company, you are its highest-paid employee. The ownership of the company is 100% yours as you have not taken on any partners and have no plans to take your business "public".

Scenario:  Introducing collective bargaining

One day, an employee comes to your office to inform you that a majority of your non-management employees have agreed to form a union within your company.

Trying to understand why this has occurred, you've learned that this employee has guaranteed a 10% wage increase for every worker if he was successful at organizing your workforce. Under the laws of Ontario, you know that you have no option but to accept the union within your organization.

Three months later, the same individual comes to you demanding a 10% wage increase for all union members plus a 2% increase in each year for the next 3 years. If you agree to his terms, then it will mean that you will have to accept lower profits or pass on these additional costs to your customers in higher prices. The 2nd option could mean that you will lose customers because your business operates in a price-competitive market. After 20 years of building a successful company and some attempts to negotiate the demand, you are reluctant to risk losing customers with higher prices so you agree to the terms in order to avoid a strike.

Three years later, the same individual returns with the same request. By this time, however, more competitors have come to the market and profit margins have been squeezed to the point that the management team has been forced to consider a variety of cost-cutting measures to keep the business profitable. You explain this to the individual and indicate that the business is unable to absorb such increases in labor costs. After several unsuccessful attempts to negotiate, the union rep announces the date for a strike unless you agree to the terms.

You are approaching the age of retirement. You have been preparing a family member to eventually take over the reins of the business. Of course, you want to pass on a viable business that can remain profitable, and like many other businesses in Ontario that have faced similar competitive pressures in the past, you have been seriously considering the option to outsource much of your business operations to lower cost jurisdictions. With this latest labour demand, this is now an option that you can no longer afford to put off. You explain this to the union representative, but you are told that this is not his problem and the strike date remains.

You also explain to the union representative that a prolonged strike could be very damaging to business relationships between the company and its customer base posing a risk that some customers may choose a new supplier. If this occurs, and if revenue levels decrease substantially, subsequent layoffs could result. The representative replied that he was confident that I would do everything in my power to prevent this from happening because he knows of my succession plans. Consequently, he saw this as an empty threat.

The strike date comes and goes. The business closes for 3 months. The existing customer base drops by 50%. Layoffs ensue….

Scenario: Property Rights Analysis.

In my analysis of the above scenario, and applying Property Rights concepts A,B,C,D and E, here is how I see this .

- Each employee competed for, was interviewed and subsequently chosen for a job with your company. They all individually agreed to exchange their productive capacity for the terms signed by them as outlined in the Employment Agreement. This was a free exchange. No coersion was required by either party.  XC_guy agreed that Property Rights A, B and C were the assets that each employee brought to each unique employee-employer relationship.

-  XC_guy  agreed that, as the founder, president and CEO of this company, the Property Rights assets that you brought to the company were A,B,C,D and E. In addition, he agreed that the Employment Agreement was a shared asset between you and each employee that protected your mutual rights of under the Ontario employment laws.

- Whenever an employee chose to leave your company, he/she elected to exercise the Employment Agreement clause which allows termination of the Agreement in writing and with sufficient notice [typically 15 to 30 days which is considered sufficient time for an employer to reassign work responsibilities to other employees and begin the process of identifying a new employee if required.] Generally, this standard legally enforceable clause facilitates a “business as usual” scenario which produces only minor disruptions to the business.

- When an entire unionized workforce goes on strike, there is no way for the business to continue in a  "business as usual" scenario. Potentially serious risks to the business are introduced including revenue and customer losses. These represent a threat to your Property Rights “E“ assets.

Questions: 

1.    Is it morally and ethically correct [please disregard the legal considerations for the moment] to allow a strike to threaten, damage or destroy your E assets under our Property Rights classes?

2.    Who should absorb these losses?

3.    If jobs are lost due to resulting business losses, who should be accountable for these loses?  [Options: the employees?  Employer? customers?t axpayer via EI payments? union leaders?  other?]