By analysing and discussing the case, students will be able to:
Analyse the people-related and institutional factors that contribute to industrial relations (IR) breakdown in founder-driven micro, small and medium enterprises (MSMEs) and assess the role of internal and external actors in shaping labour relations.
Evaluate the relevance of statutory welfare provisions, such as Employees’ State Insurance and Provident Fund, in the MSME context from legal, financial and strategic perspectives.
Examine how psychological contracts break down during organisational crises and recommend practical approaches to rebuilding trust and procedural legitimacy.
Assess the financial, legal, reputational and organisational risks associated with informal HR and welfare practices in founder-driven enterprises.
Design context-sensitive HR and IR strategies that balance formalisation, employee welfare and cost efficiency in MSMEs.
Compare alternative employee-management approaches for MSMEs and justify an appropriate course of action in light of legal obligations, resource constraints and long-term organisational sustainability.
Zaphire Construction Equipment, founded by Abhay Chauhan, was a rapidly growing micro, small and medium enterprise (MSME) specialising in the sales and service of construction machinery in Northern India. The company had built its early success on Chauhan’s personal attention and benevolence, fostering a family-like environment that relied on informal management, direct communication and ad hoc employee support. As the business expanded and service engineers took on increasingly demanding assignments, employee expectations around welfare and security began to surpass what informal systems could provide. The absence of formal HR policies and statutory social security benefits remained unaddressed until a series of workplace accidents left employees financially vulnerable and dependent on Chauhan’s personal generosity. In July 2024, tensions reached a breaking point when a dismissed, influential employee (Amit), with the backing of a local union leader, rallied the workforce to demand comprehensive medical assistance and formalised welfare coverage. The ensuing walkout disrupted business operations and forced Chauhan to face a difficult choice: whether to accommodate the employees’ demands or stand firm, risking both client relationships and long-term trust. The case surfaces a series of dilemmas that Chauhan must confront: Should he yield to employee and union demands for reinstatement, or uphold managerial discipline at the risk of deepening conflict? Is it more prudent to formalise HR systems and bear the additional compliance costs, or maintain informal arrangements that have worked so far? How can he preserve Zaphire’s close-knit culture while introducing policies that may feel impersonal to his team? Ultimately, Chauhan must weigh the need for immediate business continuity against the longer-term imperatives of trust, legal compliance and evolving employee expectations as Zaphire grows.
This case is designed for use in Human Resource Management, IR and Organisational Behaviour courses at the undergraduate and Master of Business Administration levels. It is particularly suitable for discussions on labour relations, statutory compliance, conflict management and the transition from informal to formal HR systems in MSMEs. The case can also be applied in courses addressing leadership in small enterprises, crisis management and people-related risk mitigation.
CSS6: Human Resource Management.
