Allegations of Intimidation and Underpayment of New Minimum Wage (Indonesia)

On January 1, 2013, minimum wage increases went into effect in most districts of Indonesia. However, workers from multiple factories producing collegiate licensed apparel have reported to the WRC that their employers are unwilling to pay the new minimum wage and have sought exemptions from the increase. Moreover, according to initial worker testimony, some employers have intimidated individual workers and union leaders in order to compel workers or unions to provide support to their applications for an exemption from the minimum wage law. (This worker support is required for exemptions to be approved.)

Under Indonesian law, employers that “cannot afford” to pay the increased wage can apply for an exemption or delayed implementation schedule for the new minimum wage (Law 13/2003, Chapter 90(2)). Any such application must be accompanied by a written document indicating that the workers themselves or the union that represents them support the company’s application and have agreed to a wage level below the 2013 minimum. The law is intended to provide temporary relief to employers that are operating at a loss and in danger of closure; however, in practice, even factories that appear to be operating profitably, with consistent orders, or as part of large conglomerates, apply for the waivers. So far this year, 47 employers received waivers – three times as many as last year, according to the Indonesian newsmagazine Tempo. 

Initial worker testimony indicates that workers at some factories have been told that their work contracts will not be renewed if they refuse to support their employer’s application for a waiver. In addition, workers at one plant report that when the union refused to support lower wages, the company bypassed the union and pressured individual workers to sign these documents. The Jakarta Globe and other news outlets have reported that, at Pratama, a non-collegiate facility producing for Nike, members of the Indonesian Army joined factory managers in pressuring workers to consent. Nike has told the WRC that it is investigating these allegations.

Tension over the minimum wage has been a cause of significant labor unrest in Indonesia.  Thousands of workers protested in Indonesia’s capital city, Jakarta, on January 16 against employers’ attempts to delay or avoid paying the new wage. On February 6, thousands of workers returned to the streets in Jakarta and four other major cities. These protests followed a national mobilization of millions of workers in October 2012 calling for an increase in the minimum wage and other improvements in workers’ terms of employment.

Wages in Indonesia are set at the district or city level; the new wages in western Java, where the bulk of collegiate production takes place, range from Rp. 1,201,000 ($125) to Rp. 2,200,000 ($229) per month. While the new wages represent a significant increase, they remain substantially below a living wage.

Recommendations

Thirty-five licensees currently report that they produce apparel in Indonesia, spread over a total of 97 factories. The WRC is contacting these licensees to recommend that they take the following steps:

First, licensees should ensure that factories are not abusing the waiver process. Licensees should make it clear to factory owners that they must apply for an exemption or delayed implementation schedule only if they are in fact losing money and in danger of closure, in accordance with the intention of the law. Licensees should ask for proof of financial hardship. Licensees should also ensure that factories are not restraining or coercing workers, engaging in fraud, or dealing in bad faith with workplace unions with the goal of avoiding their obligations to pay the new wage. Given the incentives employers have to mislead or coerce workers, licensees should directly monitor the process through which worker consent is sought and given; merely accepting assurances from the employer that they have acted properly is not enough. Licensees should observe meetings between factories and unions, review data supplied to unions and/or workers substantiating the employer’s hardship claim (workers cannot consent on an informed basis without access to such data), and require suppliers to provide detailed information on how workers were asked for their consent, what information was shared, and what steps were taken to avoid coercion or misunderstandings. 

Second, licensees should communicate to Indonesian suppliers that they are aware of the new minimum wage, that they expect factories to pay this wage unless granted a legitimate waiver, and that they are prepared to accept modest increases in factory price. This last point is crucial: without a compensatory increase in prices, factories have strong incentive to avoid paying the increase, whether by seeking a waiver or simply shirking the law. In fact, according to worker reports, multiple factory owners have informed workers that they cannot afford to pay the new wage because prices with buyers, including some collegiate licensees, are already “locked in” and are insufficient to allow them to raise compensation to the legal level. Licensees have an obligation – under the codes of conduct of some WRC-affiliated universities and as members of the Fair Labor Association, which recently added living wage to its code of conduct – to implement living wages or fair wages in their supply chains. If licensees are not at least willing to accept small price increases in those countries where the governments are raising the minimum wage then they are not fulfilling this obligation. Nike, for one, has informed the WRC that it is increasing prices in Indonesia to reflect the wage hike, an appropriate step that other licensees should take.

Scott Nova 
Worker Rights Consortium 
5 Thomas Circle NW, 5th Floor 
Washington DC 20005 
ph  202 387 4884 
fax 202 387 3292 
[email protected] 
www.workersrights.org