Responsa of the Week: To Whom Do Business Trip Miles Belong?
A weekly series by Dr. Meir Tamari about responsa regarding business ethics issues.
In order to demonstrate the work of the halakhic system and its moral considerations regarding a variety of issues in business and economics, I will present a number of responsa drawn from the literature. These represent questions addressed either by laymen or by rabbis or communities to rabbinical authorities and their answers. They cover a period of close to 2000 years and reflect Jewish life in all the countries of the Diaspora. Even though the answers may vary and conflict with each other so that one cannot draw behavioral conclusions from them, they demonstrate Jewish thinking and values in this field.
QUESTION: “Reuven is an employee of Shimon’s and a major part of his job is to travel abroad on behalf of Shimon. As a result of these travels, there are accumulated mileage points that the airlines give their frequent fliers. These give reduced fares or even free flights to the beneficiary and my question is to whom does the mileage and thus the benefits accrue, to the owner or to the employee whose flights earned them. Would your answer be different if Reuven advanced the funds for the tickets, to be reimbursed later by Shimon?”
ANSWER. “You consider that this is similar to the case in which the seller gives a present to the buyer (Ketubot 96b). There we make a difference between cases where the seller is selling at a definite fixed price or conditions and that where everything fluctuates. In the latter case, the gift goes to whoever provided the funds, who is the cause of the whole transaction. In the former case it belongs to the employer, according to the Rif; according to the Shulchan Arukh (Choshen Mishpat, 183, subsection 6), if the agent advanced the funds, they should divide the benefit, since the he owns the money that made the sale possible but the principal generated the transaction. [One is not allowed to profit from someone else’s money or from their name without compensating them].
“However, our case has no resemblance to that discussion. The benefit given by the airlines is a condition of the sale and so is something known and fixed. [It is not meant as a gift but is tantamount to a reduction in price and so is a condition of the sale]. Therefore, it belongs to the one who generates that sale, in this case, Shimon.”
-Teshuvot Shevet Levi, 308. Harav Shmuel Wozner Brak, Israel.
The nature of benefits to employees, managers, agents and consumers raises a host of ethical issues and this seems the place to raise them even when we do not always have legal answers, as we had in regard to the mileage benefits.
Benefits to consumers are essentially a form of [non-price] competition and therefore, halachically are permitted in all those cases where competition is kosher. There was a discussion in the Mishnah as to whether there was an element of robbery in benefits, as their whole purpose was to steal or entice away consumers (Chapter 4, mishnah 12). The ruling in the Gemara was that it was not unfair or fraudulent as all parties could easily duplicate or substitute benefits. However, they are not permitted where they cannot be duplicated by the competitors, as for instance where the one can sell cheaper or can offer other benefits as he is illegally avoiding the tax or levy or other conditions imposed by an outside factor; this would also apply in all those professions, trades or commerce requiring licenses such as taxi medallions or academic accreditation, to all those not having the required licenses.
Furthermore, the benefits given to buying agents or those public sector employees or elected officials in position to determine the allocation of permits or licenses or to ensure the participation in public works, are often nothing more than bribes.
There is a further ethical issue of fraud and theft when the employee or agent abuses the benefit for their own purposes or profit. From the Torah, workers can eat from the produce that they were working with (Deut.23: 25-26), and in subsistence economies this permission was a great social benefit. However, they could not abuse that right, take it home or give it to members of their family; that would be fraud. Many of the perks enjoyed by workers today pose the same problem. Where it is left to the workers to be able to buy their own tickets, all too often they will buy the most expensive tickets which earn the greatest mileage benefits, at the employer’s expense, and then using that benefit for themselves. Owner-managers in closely-held or family held firms usually draw their return on capital in non-dividend forms in the form of expenses, which are registered in the firm’s accounts as tax deductible business expenses, but are actually private benefits of travel, entertainment, etc., in addition to inflated salaries. They thereby defraud not only the tax authorities but also other shareholders who, not being active in the daily running of the firm, are unable to benefit from these non-dividend forms of profit distribution.
In managerial remuneration, even in large listed corporations, the same problem arises, since they often set their own salaries or grant themselves perks such as costly headquarters or costly artwork and expensive office furnishings, ostensibly for the firm’s benefit but often for their own prestige and benefit; all of these are a reduction in the shareholders’ profits that the shareholders are usually powerless to decide. Stock options not geared to increased profits or output also have an ethical problem of theft, since they are meant to give the employees an incentive to work, something for which they already were paid a salary to do.
Regarding the benefits or perks given to employees by their firms, we would have to decide whether they are to the employees’ benefit or not; in the latter case they would be forbidden.
The Talmud permits payment of debts in near money, when the debtor has run out of cash, since the creditor can easily and at no cost realize the alternative forms of payment. This included payments in kind like immovable property, spices that were rare and costly, camels and cloths, etc. (Baba Kama, 7a and 14b) This was not allowed in the case of wages; these had to be in paid in cash. This ruling was based on the assumption that the workers would suffer a loss in money or in time if they had to sell the goods that were paid in lieu of wages. Therefore, we may conclude that whenever the benefits or perks involve the recipients in a present or future loss, real or only anticipated, then they would be forbidden.
19th century industry in the U.K. and the U.S.A. was often based in company towns where the workers not only lived in housing belonging to the employers but bought in their stores, sent the children to be educated in their schools, read their newspapers and as often as not voted as they were told. Modern Israeli workers, who received up to 40% of their income in the form of benefits, some of them tax-free, are now finding themselves at a disadvantage since these were not included in their wages for purposes of their pensions. Where the stock options, pension benefits, corporate cars, vacation facilities and liberal health schemes that are common all over the world are not transferable, the employees often find themselves in a golden cage that makes mobility almost impossible. It is doubtful whether Judaism that teaches that Jews are servants only to G-d, could approve of such servitude.
This column presents general principles for approaching business ethics topics. For specific guidelines, please refer to a halachic authority.
Dr. Meir Tamari is the former chief economist of the Office of the Governor at the Bank of Israel, and the founder of the Business Ethics Center of Jerusalem.