The vast majority of behavioral ethical research focuses on the antecedents of unethical behavior. Consequently, questions involving the consequences of organizational unethical behavior remain largely unanswered. Therefore, extant business ethics research largely neglects the impacts of organizational unethical behavior on individuals. Moreover, questions involving what organizations can do to correct or recover from having engaged in unethical behavior as well as individual responses to those efforts are also mostly ignored. Therefore, the purpose of this study is to investigate the impact of unethical activity on employees and explore organizations that have failed ethically and their attempts at recovery. This study explores two issues. First, how do employees react to organizational unethical behavior (OUB) and to what extent are those reactions dependent on contextual and individual factors? Second, to what extent can organizations recover from the negative impacts of ethical failure? More specifically, is it possible for organizations that fail in their ethical responsibilities to recover such that they are paradoxically "better-off" than their counterparts that never failed in the first place? To explore these issues I review, integrate and draw upon the ethical decision-making and service failure recovery literatures for theoretical support. Empirical testing included two studies. The first was a field study using survey data acquired from the Ethics Resource Center (ERC) in which over 29,000 participants were asked about their perceptions of ethics at work. Second, a supplemental field study was conducted in which 100 employees rated the characteristics of unethical acts (e.g. severity). Results revealed a negative direct effect of severity and controllability of the OUB on perceptions of organizational ethicality and a negative direct effect of controllability of the OUB on organizational satisfaction. Ethical context moderated the relationship between OUB controllability and perceived organizational ethicality. Partial support was found for the moderating effects of ethical context on the relationship between OUB severity and perceived organizational ethicality. Results also supported an ethical failure recovery paradox.