Purpose: This conceptual paper develops Ethical Rationality Erosion Theory (ERET) to explain how fear undermines employees' principled ethical reasoning and action. Contemporary workplaces expose employees to fear-inducing conditions such as job insecurity, surveillance, performance pressure, retaliatory leadership and uncertainty.

Design/methodology/approach: The paper integrates Affective Events Theory and Conservation of Resources theory, synthesizing behavioral ethics, employee voice, psychological safety and ethical leadership research.

Findings: The paper proposes that fear produces ethical rationality erosion through two mutually reinforcing pathways. The affective-cognitive pathway narrows attention, augments perceived threat and contracts deliberative reasoning. The resource-motivational pathway heightens perceived resource vulnerability, activates conservation motives and encourages defensive ethical adaptation. Together, these mechanisms explain why ethically aware employees may remain silent, comply excessively, avoid ethical risk or display reduced moral courage. Ethical leadership and psychological safety are theorized as boundary conditions that preserve ethical rationality.

Originality/value: The paper contributes to behavioral ethics and management decision-making by introducing ethical rationality as a dynamic organizational capability and reframing some ethical failures as capability erosion rather than solely moral deficiency. ERET provides a testable theory of ethical decision-making under fear and identifies managerial levers for sustaining ethical conduct in uncertain workplaces....