Don't Sign the New Employment Contract!

The author warns that companies that sign on to the "new employment contract" face serious competitive and safety risks.

The concept of the "new employment contract" setting forth contingent employment and hire/fire-at-will clauses in lieu of reciprocal trust, loyalty and mutual dedication agreements is being hailed by some as a new millennium business success strategy. Unfortunately, this thinking falls seriously short in long-term vision, seasoned rationale and balanced judgment.

How easy it would be if American business could succeed "globally" by managing to a simplistic "cut and slash, my way or the highway" mentality. Tom Culley, author of Beating the Odds in Small Business, says it best: "Any idiot can cut costs!" As difficult as it may be for some to accept, Dilbert isn't just a cartoon! People are real, people are a critical variable, and people do make the competitive difference.

Organizations committed to excellence need to take a longer view, one premised on the growing demographic reality that within the next 10 years, most likely sooner, knowledge-based technology and cyber-information systems will be the great levelers of international commerce. People will be the key differentiator of business success.

Ultimately, business survival will be linked directly to an organization's ability to optimize its human (mental, emotional and physical) resources. Business results will clearly be shaped by an organization's ability to achieve Level 3 performance. The idea is to function beyond Level 1 "can do" (ability) through Level 2 "will do" (capability) to ultimately attain Level 3 "want to" (desire).

This third performance level, with employees dedicated, motivated and reinforced to peak performance, will be the real market force to be reckoned with in the future, In the United States and abroad. Timothy Butler and James Waldroop, in their recent Harvard Business Review article "Job Sculpting: The Art of Retaining Your Best People," frame this reality best: "In the knowledge economy, a company's most important asset is the energy and loyalty of its people -- the intellectual capital that, unlike machines and factories, can quit and go to work for your competition."

The new employment contract inherently de-motivates employee spirit and, over the long term, will suboptimize organizational performance, becoming a self-destructing business strategy. History is clear on the issue of people and oppression. Most great empires (and corporations) have fallen without a single shot being fired -- they fail from within. They fail from the resistance and rebellion of their people to oppressive policy or practice.

For those contemplating adoption of these provisions into their new millennium strategies, here are some contractual realities to consider prior to signing on and making these legally binding in their organizations.

Reality 1: Contracts entered into under duress are null and void. In many workplaces, the new employment contract has been imposed unilaterally rather than adopted by consensus. Such documents lack the free-willed "signature of support" of workers. Where employee buy-in and ownership is lacking, so too will be the discretionary effort critical to success. As a consequence, a "work-to-rule" performance standard will evolve, and mediocrity will prevail. Excellence is rarely achieved by enforcing rules. Standards imposed will be standards opposed. People don't resist change, they resist being changed. The ultimate measure of resistance is mediocre performance.

Reality 2: Power is not the sole domain of management. As conceived, the contract fails to recognize the real difference between "authority," a function of position, and "power," a function of influence. Contrary to common belief, employees command significant power in most organizations, specifically the powers of knowledge, experience, influence and the ultimate power -- the power to screw things up! The new employment contract does not effectively harness this power of the masses to the benefit of the organization; reference the law of subordinate superpower cited above.

Reality 3: Win-win always wins, regardless of the odds. The provisions of the new employment contract run counter to emerging demographic trends that predict a severe shortage of experienced workers in the United States starting in the year 2000. With a diminishing pool of knowledge and expertise on the horizon, more, rather than less, competitive advantage will accrue to those organizations capable of attracting, developing and retraining experienced and loyal employees. The real winners in tomorrow's hypercompetitive marketplace will be the "we" companies, not the "them vs. us" organizations. Success comes from beating the external competitor, not waging internal battles.

Reality 4: Some employees are more equal than others. The new employment contract is founded upon a misguided belief that all workers are equal and generic (i.e., interchangeable cogs that can be plugged into or disengaged from a process easily and quickly). The contract fails to recognize that some employees are just a bit more equal than others. These are known as top performers, and they will flee to better (more humanistic) contractual deals with organizations (competitors) who still believe in and value personnel contribution.

Reality 5: Trust counts -- a lot. The new employment contract erodes openness and devalues long-term contribution; hence, it conflicts with the time-proven principle of "the best people make the best organization." When trust is removed from work relationships within an organization, discretionary effort is removed as well. As a consequence, the organization's competitive advantage is removed. The facts uncovered by Collins and Porras in their research and published findings about visionary companies' high emphasis on people values are just too powerful to relegate to a contractual issue.

Reality 6: Excellence is a competitive choice. Perhaps the most significant downside of the new employment contract is this: Not all organizations believe it! The contractual provisions an organization chooses to embrace as its employment policy and practices are issues of choice. Those who choose the (oh, so easy) philosophy of employees as disposable assets ultimately have to face the competitive forces of those who choose to build long-term trust relationships. Some would say that it is no contest. I say, I'll give you odds. I'm backing my bet with the seasoned advice of some of the best experts in the field:

  • W. Edwards Deming's "eighth" point of management: "Drive out fear so that everyone may work effectively for the company."
  • Tom Peters' 27th precept for proactive managers: "Provide an employment guarantee."
  • Michael Porter's core strategy for competitive companies: "Treat employees as permanent instead of employing demoralizing hire-and-fire approaches."

The literature on management, human relations and excellence is clear: A strategy that suboptimizes human contribution to the business process is a strategy doomed to long-term failure. The unilateral de-valuing of "people" and their critical assets (experience, expertise, loyalty, knowledge and trust), as embodied in the context of the new employment contract, leads to this conclusion.

What does all this emphasis on human relations and positive management practices have to do with safety? Just about everything!

Hank Sarkis, MBA, president of the Reliability Group, an organizational behavior consulting firm, has been collecting data that reflects a strong relationship between these factors. His database of organizational factors and accident experience has been evolving over the past 15 years. The emerging correlations are insightful: "Over the past six years, we have identified approximately 80 workplace variables that have a significant statistical relationship to accidents. The most significant to date: workplace stress and cheerfulness in the workplace.

Dr. Deming was indeed insightful when he proclaimed: "Export everything, except American business practice!"


Aguayo Rafael, Dr. Deming -- The American Who Taught The Japanese About Quality, Simon & Schuster, New York, 1990.

Bernander, Terry, "Empowering Workers Fuels A Corporation's Turnaround," Occupational Health and Safety, June 1996.

Butler, Timothy, and Waldroop, James, "Job Sculpting: The Art of Retaining Your Best People," Harvard Business Review, September-October 1999.

Tom Culley, "Smart Owners Know Basics Still Matter," Knight Rider News Service, Syracuse Herald.

Hansen, Larry L., and Coderre, Paul, "Twelve (12) Unlegal Ways to Slash Workers' Compensation Costs," Professional Safety, June 1997.

LaFontaine, Paul, "The Five Most Common Lies in Business," Fast Company Magazine, August-September 1997.

Tom Peters, Thriving on Chaos, Alfred A. Knopf, New York, 1987.

Michael E. Porter, Competition in Global Industries, Harvard Business School Press, Cambridge, Mass., 1986.

"Right Management Consultants, Leaders Identify 5 Workforces for the 21st Century," Leadership Strategies Newsletter, June 1997.

Sarkis, Hank, "Near Miss: 20/20 Foresight," Employee Assistance Newsletter, July 1991.

Simon, Rosa Antonia, "The Trust Factor in Safety Performance," Professional Safety, October 1996.

Larry L. Hansen, CSP, ARM, is the national practice leader for strategic consulting at Liberty Mutual Insurance Co. He resides in Syracuse, N.Y., and can be reached at (800) 962-5157, ext. 296.

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