MGMT 8415M Week 3 Ethics Application Example

Same Floor, Two Rates: Applying Integrative Social Contracts Theory to a Vegetable Processor's Renewal of Its Night Sanitation Agency Contract, Carried Through to a Verdict, Its Price and Who Pays It

Student Name

Walden University

MGMT 8415M: Socially Conscious Leader

Instructor Name

Month Day, Year

Same Floor, Two Rates: Applying Integrative Social Contracts Theory to a Vegetable Processor's Renewal of Its Night Sanitation Agency Contract, Carried Through to a Verdict, Its Price and Who Pays It

A Decision That Is Actually Hard

Sawyer Creek Foods cleans its two processing plants each night with sanitation crews of about 86 workers. Twenty-two are company employees; the other 64 are supplied by a staffing agency under a contract that comes up for renewal in March 2026. Company sanitation workers earn $18.40 an hour with health coverage and paid leave. Agency workers on the same crews, using the same chemicals and equipment under the same night supervisor, earn $14.10 an hour from the agency with no health coverage. The agency also provides its own safety training, which is shorter than the company's. In 2025 agency sanitation workers recorded five injuries serious enough to be reported to regulators, a rate of nearly 8 per 100 workers; company sanitation workers recorded one, about 4.5 per 100.

Renewing on current terms keeps costs flat. Requiring the agency to pay its workers on Sawyer Creek's floors the company rate, contribute toward health coverage and use the company's safety training would raise the contract cost by about $700,000 a year, including the agency's markup. The decision is whether to renew as is or to require parity.

The Framework as a Set of Questions

Donaldson and Dunfee (1994) proposed integrative social contracts theory to explain how business ethics can respect differences among communities without sliding into relativism. The theory has two levels. At the macro level are hypernorms, principles so fundamental that they serve as a check on all other norms, such as respect for basic physical safety. Within the limits they set lies moral free space, where communities, including firms, industries and localities, develop their own norms through microsocial contracts. Those local norms bind when they are authentic, meaning supported by members who can voice dissent and exit, and legitimate, meaning consistent with hypernorms. When norms conflict, priority rules apply.

In operating form, the theory asks four questions of this decision. Does the current arrangement violate a hypernorm? Within moral free space, what are the relevant communities and their authentic norms? Are those norms legitimate? Where norms conflict, which takes priority?

Applying the Questions

Hypernorm. The arrangement exposes agency workers to the same chemical and machine hazards as company workers with less training, and the injury record suggests the difference matters. A principle that employers must not expose workers to avoidable serious risk of physical harm is among the clearest candidates for a hypernorm. The current arrangement fails it on training, though not on wages.

Communities and norms. Two communities are relevant. The local labor market for sanitation work in rural Wisconsin, where agency rates near $14 an hour are common, is one. Sawyer Creek's own workforce is the other. The company's employee handbook states that "people doing the same work on our floors are paid by the same scale," a norm the company introduced in 2019 after a dispute about temporary line workers and has cited in its recruiting materials since.

Authenticity and legitimacy. The handbook norm is authentic within the company: employees endorsed it, it appears in recruiting and no group has dissented. It is legitimate, since equal pay for equal work on one floor conflicts with no hypernorm. The local market norm is also authentic in its community, but the agency contract is not a separate community's practice. It is a way for Sawyer Creek to have work done on its own floors without its own norm applying.

Priority. The priority rules Donaldson and Dunfee (1999) later set out favor the norm of the community most directly affected and the norm more consistent with the broader environment of norms. The work takes place inside the company's plants, under its supervisors, which makes the company's own floor the most relevant community.

The Verdict

The framework requires two changes. The safety hypernorm requires that agency workers receive the company's full safety training and the same supervision, which the company can require of the agency regardless of wages. The company's own legitimate norm requires that people doing sanitation work on its floors be paid by its scale. The framework does not require health coverage on its own terms, since neither a hypernorm nor the handbook norm extends that far, but paying the company rate would let the agency offer coverage at little added cost. Renewal on current terms fails on both counts.

The Invoice

Requiring parity of wage and training costs about $700,000 a year. Most of that, about $550,000, is the $4.30 hourly difference across 64 agency positions working full-time hours; the rest is the agency's markup and training time. Sawyer Creek's sustainability report gives its 2025 operating income as about $41 million, so the cost is under 2 percent of operating income. The company carries it first. Over time some may pass to customers, and the agency may seek to recover its margin.

Did the Framework Move Anything

An unconstrained profit calculation would renew on current terms. Rawls (1971), applied to the same case, would likely reach a similar verdict on wages through concern for the least advantaged workers, but by a route that is harder to apply to one contract. Integrative social contracts theory moved the decision by finding the company's own norm and asking whether the agency arrangement evaded it. Its verdict is one the company might not welcome, which is the test of whether a framework does any work.

References

Donaldson, T., & Dunfee, T. W. (1994). Toward a unified conception of business ethics: Integrative social contracts theory. Academy of Management Review, 19(2), 252-284. https://doi.org/10.2307/258705

Donaldson, T., & Dunfee, T. W. (1999). Ties that bind: A social contracts approach to business ethics. Harvard Business School Press.

Rawls, J. (1971). A theory of justice. Harvard University Press.