“Organized theft on a massive scale”: the reality of severance theft in Indonesia

Abruptly and without warning, the Indonesian garment company Jaba Garmindo shut down operations at its two factories in April of 2015, leaving over 4,000 workers without their legally mandated severance. The sudden departure reflects a consistent trend within garment factories around the globe; in response to intense market pressure to cut production costs, many factories are refusing to meet severance obligations when ceasing operations. Since the flight of their factory owner, Jaba Garmindo workers – cheated out of $10.8 million dollars – have been fighting for their rightful compensation in Indonesian courts.

In an article for the New Republic titled “Blood Money: Indonesian Wage Theft and the Massacre Premium,” Ken Silverstein traces the history of the country’s wage theft epidemic throughout the second half of the twentieth century, explicitly tying present-day worker intimidation to the genocidal political regimes of the past fifty years. As the article demonstrates, Jaba Garmindo is not an isolated case study, but one factory among many – an unsettling example of how wage theft through abrupt departure has become a prevalent and normalized global trend.

According to the Worker Rights Consortium, this pattern is inherent to the exploitative dynamics of the garment industry. “It’s effectively become standard operating procedure for many factory owners,” said Scott Nova, Executive Director of the WRC, to the New Republic. “The cost reduction achieved by not funding severance liability is baked into the garment pricing structure: The brands aren’t paying enough to adequately cover severance benefits. When these suppliers shutter a factory – after brands send their business elsewhere – grand larceny is part of the process.”

Because big name brands – such as UNIQLO, Jack Wolfskin, and H&M, in the case of Jaba Garmindo – make a profit through inadequate compensation of factory suppliers, there is a structural incentive for factories to maximize competitiveness at the expense of contributions to severance funds for workers during normal operation. And because their sudden departures are often due to bankruptcy within the highly aggressive garment industry, there is no money available to pay workers once they leave. Even Indonesian courts prove a reluctant arbiter of justice, with secured creditors receiving a prioritized legal position over cheated employees in the lengthy bankruptcy process.

The legal and moral responsibility to pay workers, however, does not end at the factory level; it also lies with the brands at the top of the supply chain. As Nova argues, big brands have pledged to work only with responsible factory owners. These brands claim to have robust auditing systems to ensure factory compliance. They cannot, therefore, disclaim responsibility. “We are not talking about charity,” he told the New Republic. “This is money that is legally required to be paid, and the brands have pledged to uphold the law. This is organized theft on a massive scale.”

Unsurprisingly, attempts by corporations to ensure factory compliance have been half-hearted. In response to public pressure, many brands have adopted codes of conduct, such as the Fair Labor Association (FLA) or the Fair Wear Foundation (FWF), which require factory compliance to national wage laws. Yet because these codes rarely provide the binding mechanisms of accountability, they cannot enforce factory compliance with labor standards. For the brands sourcing from Jaba Garmindo, the money owed to workers is a trivial fraction of their annual profits, some of which exceed many billions of dollars. Yet, remediating wage theft in retrospect – while extremely necessary – does not fundamentally address the crisis. To prevent further severance theft through abrupt departures, brands must modify their purchasing practices to allow factories the market flexibility they need to adequately compensate their workers.