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The reason behind this was that zipfile.py currently handles empty directories in zipfiles incorrectly.
On lines 1774 - 1778 in Lib/zipfile.py:
tgtdir = os.path.dirname(tgt)
if not os.path.exists(tgtdir):
 os.makedirs(tgtdir)
with open(tgt, 'wb') as fp:
 fp.write(zf.read(path))
In the case described above, tgt is 'dest/foo/' because the directory is empty. For non-empty directories, tgt would be a file in the directory i.e. 'dest/foo/a'. In the empty directory case, the directory will be created, but then opened as file (which will throw the error shown above).
When compressing the file with 'python -mzipfile -c', zipfile.py would not add empty directories to the zipfile. Hence, the zip file generated is empty.
This patch fixes both issues. In the decompression case, I utilize the Zipfile.extractall() function instead of extracting each file manually. The extractall() function handles empty directories correctly. For the compression case, I added a check to add an empty directory to the zip file.