Factory Assessment Update February 15, 2006

WRC-Header
  • Lian Thai (Thailand)
  • Far East, First Apparel, & Fair Textile (Thailand)
  • Sinolink (Kenya)
  • Unique Garments (Swaziland)
  • United Aryan (Kenya)
  • Hana (Cambodia)
  • Hermosa (El Salvador)
  • Grupo M/Codevi (Haiti)
  • PT Sarasa (Indonesia)
  • PT Victoria (Indonesia)
  • PT Panarub (Indonesia)
  • Easy Group (Philippines)

Lian Thai Apparel Limited (Thailand)

As reported to you previously, the WRC launched a compliance assessment in response to a worker complaint at Lian Thai Apparel Limited, a factory located in Pathom, an industrial suburb of Bangkok. This factory, and two subsidiary factories located in Northern Thailand, have produced collegiate products for Lee Sports, a brand of VF Corporation, and Champion. Lian Thai has also been a supplier of non-collegiate goods to Nike, Puma, Columbia Sportswear, and Next. The complaint that triggered the WRC’s assessment alleged violations of minimum wage and overtime laws, safety violations, a lack of potable water, abusive treatment by managers, and retaliatory firings. The WRC encountered some initial difficulties in gaining cooperation from Lian Thai management to conduct the assessment. Ultimately, however, Lian Thai management cooperated fully with the Assessment Team and, as reported previously, has since carried out virtually all of the WRC’s recommendations to correct the violations identified during the course of the assessment. Most notably, factory management focused significant investment of time and resources toward improving health and safety in the workplace (including significant improvements in the area of ergonomics, something very unusual in the industry), establishing an inclusive and non-discriminatory workplace (through, for example, the employment of a number of persons in wheelchairs), and by ceasing anti-union actions and developing a positive relationship with the union that represents the factory’s employees. In early 2004, management and the union finalized a new collective bargaining agreement that both parties view as satisfactory.

Unfortunately, since the completion of these important improvements and the issuance of the WRC’s public report on this case, the factory has lost a large percentage of its orders. During a recent visit to the facility, the WRC learned that Lian Thai had lost all of its direct orders from Puma, Nike, and Columbia. The WRC had been warned by Puma several months in advance of this visit that the company would soon be leaving Lian Thai due to price competition, but we had not learned of any such intentions among the other buyers. The loss of orders from these brands, at whose behest Lian Thai undertook significant improvements in labor standards at substantial expense, represents a setback, both in that it has rendered the viability of the facility uncertain and in that it sends the unfortunate message to Lian Thai and other suppliers in the region that they should not expect meaningful code compliance to be rewarded with continued or expanded orders. The WRC has sought to persuade the brands to maintain a business relationship with Lian Thai, though these efforts have not proven successful thus far.

It is also important to note that production of collegiate apparel at this facility was limited and brief. Although Lian Thai appeared on the factory disclosure submissions of both Champion and Lee Sports at the time the WRC initiated its assessment, both licensees claimed that they were no longer producing at the facility – a frustratingly common problem in the WRC’s code enforcement work. Neither brand played a significant role in the successful remediation effort and neither brand has returned to the factory. The WRC was only able to help achieve improvements at Lian Thai because, in this particular case, brands not using the facility for collegiate production were willing to take action (i.e. Puma and Nike); however, these brands did not continue doing business with Lian Thai after these improvements were made.

Lian Thai is an example of two central obstacles to achieving and maintaining high labor standards in apparel factories: the general volatility of supply chains, with licensees and other brands often using a particular factory for only a couple of seasons or a couple of years, and the specific failure of licensees and other brands to reward with continued business those factories that show major improvement on labor rights. The improvements achieved by Lian Thai, which placed the factory much closer to full code compliance than is the norm in Thailand, carried significant financial costs. It is difficult to argue to factories like Lian Thai that it makes sense to incur such costs when the result is less rather than more business from customers.


Far East Apparel, First Apparel, and Fair Textile (Thailand)

Fair Textile, Far East, and First Apparel are three separate factories, located in Thailand, each of which is involved in the production of denim and denim products. Fair Textile is a textile mill facility, where cotton is spun, dyed, and woven into denim, while Far East and First Apparel are garment manufacturing facilities run by the same parent company and manager. Fair Textile employs 50 workers; Far East employs 700; and First Apparel employs 700. While the three factories are not technically subsidiaries of one conglomerate, in light of the close business relationship among the facilities, common primary stockholders, overlapping management in some areas, shared materials and processing, and overlapping compliance concerns, the WRC chose to include the three facilities together in one joint assessment.

These facilities produced university logo goods for three brands owned by VF Corporation: Lee Sports, VF Knitwear, and BF Imagewear. Unfortunately, VF did not cooperate with the investigative process nor provide support for the remediation effort. As in several other cases involving VF, the company claimed that the disclosure information it provided, which listed Far East as a producer of collegiate apparel for all three of these brands, was erroneous and that the company had never produced collegiate apparel at any of these factories and, in any case, that it was no longer using these factories for any production. Fortunately, other buyers were willing to take action in this case.

To the credit of factory management and two of the facilities’ key buyers – the Gap Inc. and Levi Strauss & Co. (LS & Co.) – substantial improvements in working conditions at both Far East and First Apparel were realized in a relatively short time frame. Both the Gap and LS & Co. have worked closely with the WRC’s field staff from the beginning to develop and implement corrective action plans with factory management. The WRC’s public report on these facilities describes the violations identified and corrective actions taken in detail.

Unfortunately, progress at Fair Textile has been slower. Despite repeated efforts by the Gap, LS & Co., and the WRC to persuade Fair Textile to address violations, we have not seen a meaningful effort by Fair Textile management to take the necessary corrective actions. The violations in question include health and safety hazards posing a serious threat to employees’ safety, including exposure to heat and cotton dust far in excess of basic health standards. Fair Textile management has, on repeated occasions, made verbal commitments to address some of the most serious hazards, but has failed to follow through on these commitments.

The progress that has been made at Far East and First Apparel has been threatened by management’s decision to close the Far East branch. In explaining its reasons for this decision, management cited the small size of the facility (50 employees), which limits the ability of the factory to operate in the most cost efficient manner, and the fact that the factory is located in a special zone of the city, in which expansion of the existing facility is not possible. The WRC is optimistic, however, that with the collaboration of management, Gap, and Levis, the remediation process that has taken place thus far at Far East and First Apparel can be deepened and sustained at First Apparel. Given that First Apparel does not currently have a trade union or representative worker body, and in light of past problems at the facility concerning associational rights, the WRC is recommending that First Apparel allow a non-governmental organization to conduct trainings on freedom of association for management and employees in the near future, to ensure that workers understand their associational rights and the commitment of management to respect these rights. This is necessary, in part, to ensure that the closure of Far East, which did have a union, does not have a chilling effect on the exercise of associational rights at First Apparel, as a result of workers assuming a link between the presence of the union at Far East and management’s decision to shutter the facility. The WRC is working with management to identify an appropriate training body and curriculum.

The WRC is also pleased to report that due to Far East management’s forthrightness with regards to the plans to close the factory, and the active involvement of the Gap and Levi Strauss & Co. at that crucial last stage, proper severance payments were delivered to all employees and all of the Far East employees that wished to continue working in the garment industry were assisted in finding new jobs in the vicinity.


Sinolink Garment Manufacturing (Kenya)

The WRC undertook an inquiry into alleged worker rights violations at Sinolink, and a resulting remediation effort, beginning in late 2004 and carrying through most of 2005. According to university disclosure data, the facility has produced university logo apparel for Lee Sports (of VF Corporation). The factory has also manufactured goods for Steve and Barry’s University Sportswear, Reebok, a number of Wal-Mart labels, The Children’s Place, FUBU, One Step Up, Energie, Arendine, and Starter. The factory is located in a free trade zone in the port city of Mombasa, Kenya, a zone regarded within labor circles as the site of rampant rights abuses.

The WRC’s inquiry, undertaken in response to a worker complaint alleging violations in the areas of freedom of association and occupational health and safety, documented a number of serious code of conduct violations. Notably, the facility had violated employees’ associational rights in several ways, including refusing to recognize a labor union lawfully elected to represent employees, unlawfully dismissing workers engaged in efforts to associate with the union, and colluding with the police force to violently squelch lawful protest activities by workers. The facility had also engaged in a range of other illegal practices in the areas of occupational health and safety (including locking workers inside the facility during overnight shifts of forced overtime), overtime compensation, the use of casual employment, and access to sick leave and maternity leave.

Sinolink, after initial resistance, ultimately responded to the WRC’s findings and recommendations for remedial action by undertaking a dramatic transformation of the labor rights environment. The facility made very substantial progress on a number of labor rights issues, most significantly becoming the first apparel factory in the Mombasa Free Trade Zone to demonstrate respect for employees’ associational rights by formally recognizing a union elected by its employees. The facility has also implemented major changes in other areas of concern. It is important to note that the management that implemented these changes actually took over operation of the facility subsequent to the WRC initiating its compliance assessment.

The important progress at Sinolink is attributable to good faith efforts on the part of the new management at the facility, and, of course, the strenuous efforts of workers and their union, over a long period to time, and in the face of harsh repression, to vindicate their rights. The progress is also due in large measure to the involvement of Steve and Barry’s University Sportswear, a major university licensee whose products were being manufacturing at the facility on a subcontract basis without the company’s knowledge. In response to the WRC’s findings, Steve and Barry’s intervened aggressively and played a critical role in persuading the factory to recognize the employees’ union.

Unfortunately, the positive progress made to date has been marred by the inability of Sinolink to secure steady orders from buyers. Weeks after signing the agreement to recognize the union in March 2005, the facility lost the majority of its business and was forced to shut down operations for a period of several months, laying off virtually all employees. The loss of orders was a result of several factors, including a general shift in production away from Kenya in the wake of MFA phase-out. In view of the positive progress made at the facility, the WRC communicated with six major buyers for whom the facility had recently produced goods to notify these companies of the recent exemplary performance of the factory on labor rights issues and to encourage them to place orders at Sinolink. Unfortunately, only one of these companies – Steve and Barry’s – responded positively by placing orders at the facility. Since resuming operations in late 2005, the facility has worked primarily on orders received on a subcontract basis from other suppliers in the region, which are supporting a workforce of only 350 workers, roughly one third of the factory’s full capacity. The factory’s future is uncertain.

Sinolink, among all WRC factory cases, is one of the clearest examples of the conflict between the goal of achieving and maintaining compliance with university codes of conduct and the sourcing practices of university licensees and other brands. Sinolink’s labor rights performance was very poor prior the WRC investigation, but not substantially worse than the norm in the Mombasa free trade zone, where no factory had ever recognized a union. In response to WRC intervention, and pressure from one licensee, Sinolink changed its approach to labor rights in a fundamental way and became a standout in its locale. It was the WRC’s hope that the factory would be rewarded for this effort with both new and return business from the range of buyers, including university licensees, that had used the factory in the past. However, orders did not materialize. Not only did the factory not receive any new business, but existing customers failed to renew orders. A factory that was patronized by buyers when it was routinely violating the rights of employees found itself unable to secure orders after distinguishing itself as a leader in labor rights compliance. The resulting damage is two fold: 1) the loss of jobs, under good working conditions, at Sinolink, 2) and the unmistakable message sent to other factories in the region that labor rights compliance doesn’t pay.

The WRC will remain engaged with Sinolink and will work to ensure that the progress made thus far is sustained and that remaining issues are fully addressed. However, the most crucial factor for the improvements to be sustained and deepened is not new actions on the part of factory management, nor further intervention by the WRC or any other monitor, but the placement of orders by licensees and other brands.

A full report on the Sinolink facility will be released shortly.


Unique Garments (Swaziland)

The WRC is currently working to remediate outstanding worker rights violations at this apparel manufacturing facility, located in Matsapha, Swaziland, which according to university disclosure data, has produced logo apparel for Reebok under the label Heisman by Reebok. The factory has also produced non-collegiate goods for Reebok, Sara Lee, Russell Athletics Corporation, and Wal-Mart.

The process of correcting rights violations at this facility has been a long and difficult effort, and serious issues remain unresolved. The WRC undertook a compliance assessment of the factory in August 2004, pursuant to a worker complaint. In response to the WRC’s findings, the factory corrected the violations of greatest concern, including recognizing a trade union that had been elected by a majority of the workforce as verified by a government-appointed arbitrator, but which the factory had refused to recognize. The WRC released a public report on Unique Garments documenting these changes.

Unfortunately, the positive progress made by the factory was subsequently undone. In December 2004, the factory terminated virtually all of the plant’s workers. The firings followed a dispute within the facility between workers and management concerning delinquency in the payment of annual and maternity leave compensation. A WRC inquiry into the incident found that the mass termination was without question unlawful, as the workers were fired en masse without being provided an opportunity to hear or answer charges against them and without being paid lawfully mandated terminal benefits, as required by Swaziland law. The evidence also indicated that the mass termination was motivated in part by a desire to rid the factory of the union.

Upon concluding its inquiry into the firings, the WRC pressed the facility to reinstate the dismissed workers in order to remedy the unlawful firing. This recommendation did not receive a positive response from factory management. Meanwhile, management hired other workers to fill the positions previously held by the terminated workers. After fruitless efforts to persuade the facility to act, in May 2005 the WRC sought the involvement of the facility’s current and former buyers, including Reebok, Sara Lee, Russell Athletic, and Wal-Mart, to compel the company to take corrective action. Pressure from the buyers stirred the company to return to substantive negotiations regarding a settlement. In August 2005, Unique Garments signed a memorandum of undertaking committing to offer employment to the 468 workers terminated in December 2004, at the same status and at similar terms of employment previously enjoyed by the workers, as positions opened at the factory – prior to offering employment to any other individuals.

Unfortunately, the reinstatement of the dismissed workers never occurred. Under the terms of the agreement, reinstatement of the workers was contingent upon the facility receiving sufficient orders from buyers to increase the size of its workforce. Despite repeated efforts by the WRC to encourage former buyers of the facility to place orders so that remediation could take place, Unique Garments was not able to attract sufficient business to reemploy any of the unlawfully terminated workers. Several of the facility’s key former buyers – including Sara Lee and Russell – indicated that they were no longer procuring apparel from facilities in Swaziland, decisions they stated were made largely in response to the global phase-out of apparel quotas at the end of 2004.

In mid October 2005, Unique Garments shut down and its management left Swaziland. The closure came as a surprise to many current and former employees, who had not previously been informed of management’s intentions. In investigating the circumstances surrounding the closure, the WRC learned that the roughly 90 workers employed at the facility at the time of closure were terminated without receiving lawfully mandated terminal benefits, including notice pay and accumulated leave compensation. In view of this finding, the WRC communicated with Unique Garments management in Taiwan, asking that it immediately provide all legally mandated compensation to these employees.

Obviously, the closure of the facility eliminated any possibility that reinstatement could serve as an adequate remedy for the harm done to the group of employees terminated unlawfully in December 2004. At the time of their mass dismissal, the employees had not been provided with legally mandated severance, leave, and notice compensation. In view of the fact that reinstatement was no longer an option, and that the harm done to the employees terminated in December 2004 had never been remediated, the WRC asked that Unique Garments resolve the issue by providing to these individuals the terminal benefits to which workers are entitled when not dismissed for cause. Thus far, Unique Garments has agreed to provide the terminal compensation only to the roughly 90 employees terminated at the time of the factory’s closure in October 2005. In mid November, representatives of the company began distributing the owed compensation to this group of workers. However, the company has not yet agreed to provide terminal compensation to the employees terminated in December 2004. We are, nevertheless, hopeful that a resolution to this case can be achieved in the near future.

The case of Unique Garments is, unfortunately, illustrative of the overall situation in Swaziland, which, according to some reports, has lost more than half of its apparel production facilities since the beginning of 2005, as buyers have shifted production out of the region. In this case, given the direct linkage between the factory’s access to orders and the fulfillment of the agreement to reinstate unlawfully fired workers, this exodus of production effectively precluded a positive outcome. More generally, the situation at Unique Garments is an indication both of how difficult it can be to sustain improvements that have been made at a factory and how progress toward code compliance can be rendered moot by buyers’ sourcing decisions.


United Aryan (Kenya)

The WRC is conducting an inquiry into alleged violations of worker rights at United Aryan, and apparel facility located in the Ruawaka export processing zone on the outskirts of Nairobi, Kenya. The facility is a supplier for Steve and Barry’s University Sportswear, as well as Dickies and other brands.

The WRC initiated an assessment of labor practices at this facility in July 2005, in response to complaints from workers and information from local labor observers indicating possible serious violations of worker rights. The principle areas of concern were sexual harassment and abuse of female employees, freedom of association, and overtime compensation.

Based upon preliminary research indicating that serious violations had occurred at the facility, particularly with respect to sexual harassment, the WRC requested the assistance of Steve and Barry’s University Sportswear to collaborate on resolving the problems. In response, Steve and Barry’s worked with factory management to address some of the issues of concern. The WRC is in the process of conducting follow up verification research to determine whether the changes implemented thus far are sufficient to address the problems. The WRC will issue further recommendations on this case as circumstances require, to ensure full remediation of code of conduct violations.


Hana (Cambodia)

In early 2005, the WRC initiated a compliance assessment at Hana Cambodia, an apparel factory located in Kandal, Cambodia. The facility is owned by a Korean multinational company known as Hana Global. At the time of the WRC’s assessment, Hana Cambodia was producing collegiate licensed apparel for university licensee Top of the World, and non-collegiate goods for Reebok.

Through the course of our investigative work at the facility, the WRC identified serious violations in the areas of overtime and overtime compensation, freedom of association, harassment and abuse, and occupational health and safety. Among the most serious violations, factory management had unlawfully terminated three union officers in what the available evidence indicated was a brazen act of retaliation for the workers’ efforts to advocate for improved working conditions. The firing of the union officials, in combination with other acts of anti-union intimidation, had effectively rid the facility of the union.

Unfortunately, while the WRC was still in the process of completing its compliance assessment and initial remediation efforts, the facility’s primary direct buyer, PNG – an agent through which all orders from Top of the World and Reebok were placed – decided, with the consent of Top of the World and Reebok, to move all of its orders from Hana Cambodia to a new facility in China. The WRC pressed PNG, Reebok, and Top of the World to reconsider this decision, as the presence of these buyers at the facility represented the only substantial leverage available to press for positive change, but we were unsuccessful in persuading any of the companies to maintain business ties with Hana Cambodia. The decision to withdraw production, according to Top of the World and Reebok, was based on economic considerations, not code compliance concerns; however, the fact that production was withdrawn in the midst of an investigation and remediation effort is, in the WRC’s view, inconsistent with Top of the World’s university code of conduct obligations (and inconsistent with the obligations inherent in Reebok’s own code of conduct), even if the decision was made in the routine course of business. Given this development, we are not optimistic that remediation of the worker rights violations identified by the WRC’s investigation is achievable at the facility in the near term – absent a decision by the licensees to return orders to the factory and engage actively in efforts to compel corrective action. Moreover, Hana recently suspended production, in part due to the loss of orders from Top of the World and Reebok. It is not clear whether the factory will reopen.

The decision of these brands to leave Hana is of particular concern given the commitment the Cambodian government has made, in the context of a trade agreement with the United States, to improve enforcement of domestic labor law. It was hoped that brands would maintain orders in Cambodia in order to support this process.


Hermosa (El Salvador)

In response to a complaint from worker representatives, the WRC is investigating alleged code of conduct violations by an apparel factory located on the outskirts of San Salvador, El Salvador known as Hermosa, which closed in May of last year.  Before shutting down abruptly in early May 2005, the factory manufactured university licensed goods for Russell Athletic and Majestic Athletic.  The factory has also manufactured apparel for Adidas, Reebok and Nike for a period of years, although there are differing claims as to how recently the facility has produced for these brands.  While the WRC is still in the process of investigating the allegations raised in the complaint, sufficient evidence has been gathered to conclude that serious violations of worker rights have occurred and that corrective actions are urgently needed.  The principal areas of concern involve employee compensation and benefits and freedom of association.

With respect to employee compensation, it is clear that the facility has failed to provide employees with a substantial amount of legally mandated compensation.  The violations in this area fall into three categories.  First, for a period of years spanning nearly a decade, Hermosa failed to make legally mandated contributions to government health and pension funds on behalf of employees.   Pursuant to a legal petition filed by worker representatives, federal authorities arrested the owner of the facility, Mr. Joaquín Salvador Montalvo Machado, in November of last year, charging him with unlawfully failing to make more than $350,000 in payments to these funds.  Mr. Montalvo was subsequently released on bond and faces trial.   Second, the facility has also failed to provide former employees with substantial compensation for overtime, disability leave, maternity leave, sick leave, annual vacation, and other mandatory benefits.   Third, the facility has failed to provide legally mandated severance to workers who were dismissed prior to, and at the time of, the facility’s closure.   While Hermosa claims to have placed many of these employees on unpaid suspension – a legal status that enables an employer to delay payment of severance when a factory is temporarily closed, pending the resumption of operations – the time period allowed for this status has elapsed and the owner has made it clear that he has no intention of actually reopening the facility.  The workers have thus been effectively terminated and they have a legal right to be paid severance without delay.

With respect to associational rights, there is strong evidence that Hermosa workers who have participated in demonstrations and other activities in protest of the facility’s practices, have faced blacklisting by other apparel factories in the area.  This group of workers has also been subjected to acts of intimidation and threats of violence in response to their vocal criticism of Hermosa.  At least one piece of evidence indicates a direct connection between these threats and an organization representing apparel manufacturers in the area.

One unresolved issue concerns the reasons for the closure of the facility.  It is unclear whether the closure was the product of a genuine shortfall in orders or whether factory management instead closed the facility in an attempt to punish workers for speaking out and/or to escape responsibility for the monies owed to the government.  Hermosa shut down shortly after a group of workers associated with a trade union petitioned the government concerning the unpaid health and pension fund contributions.  Immediately after the closure, management transported a substantial amount of fabric and machinery from Hermosa to another factory owned by Montalvo and enlarged that factory’s workforce.  This juxtaposition of events is cause for concern as to management’s motives, but a final determination on this question will require further investigation.

The WRC has contacted Adidas, Nike, and Russell Athletic to seek their support in correcting the violations identified.  Remediation of these violations would entail, at a minimum: payment of all legally mandated severance benefits and back pay owed to workers and payment of all contributions owed to the government health and pension funds; efforts by the brands to use their influence with other manufacturers in the area to ensure that the employees that have been blacklisted are able to pursue employment opportunities without discrimination; and efforts by the brands to use their influence with leaders in the Salvadoran apparel industry and with government officials to discourage further acts of intimidation against former Hermosa workers.

At this time, the worker rights violations identified remain unresolved.  Nike, Adidas, and Russell have taken some steps to address the severance and back pay issues.  Representatives of the brands have met with government officials, worker representatives, and factory representatives to discuss how the factory’s remaining assets, including machinery, can be liquidated in order to generate the necessary funds.  However, this prospect is complicated by legal claims on the factory’s assets from other creditors.

These creditors are claiming a right to all proceeds of the sales of Hermosa’s assets, even if these sales produce revenue in excess of the amount actually owed to the creditors by the factory.  At this time, it is doubtful that the creditors will relinquish their expansive claims; it is also unclear whether the funds generated by the sale of these assets would be sufficient to cover the debts owed to workers even if the other creditors do relinquish some or all of their claims. 

The two brands from which the WRC has received information, Adidas and Russell (Nike has not yet provided the WRC with substantial information about its actions and intentions), have not indicated to what extent they will be willing to assume responsibility for the debts owed to workers in the event that the funds made available to workers through the sale of the factory’s assets fall short of what is owed.  Brands are, in the WRC’s experience, loathe to accept responsibility for such debts, even in cases such as this one where the brands contributed to the problem by failing to detect inappropriate financial practices by their supplier.  

Adidas and Russell have acknowledged that blacklisting may be a problem and have indicated that they are willing to encourage their other suppliers in the area to consider former Hermosa workers for positions on a non-discriminatory basis.  However, no action on this issue has been taken to date and the brands have indicated that they presently have limited production in El Salvador and that this may restrict their ability to assist workers in finding employment.  None of the brands appear to have meaningfully investigated the allegations of intimidation and threats against workers, nor taken any action to address this problem.

More aggressive action on all of these issues by the brands will be necessary if workers are to receive the monies they are legally owed and if further retaliation against these workers, in the form of intimidation and hiring discrimination, is to be prevented. 


Grupo M/ Codevi (Haiti)

The WRC is pleased to report a significant breakthrough at the Grupo M/Codevi free trade zone in Haiti. The Grupo M/Codevi zone is located in the town of Ounaminthe, Haiti, along the Haitian-Dominican border. The facility was constructed by Grupo M and financed with a $20 million loan from the International Finance Corporation, the private sector lending arm of the World Bank. Grupo M is the Dominican Republic’s largest private employer. Its facilities – which are mostly in the Dominican Republic – produce logo apparel for university licensees, including Ashworth and Jones and Mitchell Sportswear. The Codevi facility manufactures denim products and t-shirts for companies such as Levi Strauss (LS & Co.), Sara Lee, and Vanity Fair Corporation. As we have reported previously, because the primary buyer at the facility in question is LS &Co., the WRC has worked most closely with this brand in efforts to remediate code of conduct violations.

After two years of efforts to remediate major worker rights violations, the Grupo M/Codevi zone has undergone a remarkable transformation. As detailed below, these improvements include cessation of violations of workers’ associational rights, recognition of an independent trade union, and negotiation of a collective bargaining accord – a level of compliance with codes of conduct and international standards on freedom of association that is rarely seen in Haiti. The accord, among other benefits, provides wage increases unprecedented in Haiti’s export apparel industry.

As I have reported to you previously, the WRC first became involved in the case of Grupo M/Codevi in early 2004, upon receiving an emergency complaint from a Haitian non-governmental organization, Batay Ouvriye, on behalf of workers at the factory. A preliminary inquiry conducted by WRC staff in March 2004 found sufficient evidence to warrant a conclusion that egregious violations of worker rights had taken place. A group of 33 workers, who had spoken out about conditions in the factory and made known their intention to establish a trade union, had been fired – at gun point – and, in one case, a worker was violently assaulted by factory security personnel during the dismissal process. The evidence indicated that the firings were an act of retaliation for the workers’ organizing efforts. On the basis of these findings, the WRC recommended that Grupo M immediately reinstate the workers to their former positions, with back pay, and that actions be taken to ensure that no further violence occurs at the facility and that workers are free to exercise their associational rights. After substantial discussion, LS & Co. agreed to support these recommendations. Under pressure from LS & Co., Grupo M reinstated each of the workers, with back pay, roughly one month after the firings.

The early progress at this facility was undone by events several months later in June 2004.

In early June, the Dominican military was used to forcefully disperse a group of Grupo M workers, who had assembled in front of the facility to protest allegedly abusive treatment of several female workers by factory supervisors. The following week, in the aftermath of a one-day strike by workers in the facility, on June 11, 2004 Grupo M summarily dismissed more than 300 employees. The mass firing marked a low point in efforts to bring a positive resolution to this case. The mass firing removed from the factory most of the 33 worker leaders who had been fired in March and then reinstated in April and cast into doubt the prospect of meaningful code compliance and positive labor relations at the facility.

In response to these developments, the WRC recommended that Grupo M reinstate the terminated employees, recognize the union elected by workers, and participate in a process of mediation with the union toward the goal of negotiating a collective bargaining accord with the union (a proposal made initially by the IFC). LS & Co. and the IFC supported these recommendations and a lengthy process ensued to identify mediators acceptable to Grupo M, the employees’ union, and each of the other stakeholders. A team of two experienced lawyers – one Dominican and one Haitian – was ultimately selected and engaged in December 2004. Though the identification of mediators took nearly six months to complete, once underway the mediation process produced results quickly. In mid February 2005, Grupo M and the workers’ union, known as SOKOWA, announced that they had agreed to terms of a joint framework agreement. The agreement called for reinstatement of union leaders and other employees terminated in June 2004 (pending the availability of positions in the facility), the establishment of committees to address workplace grievances, a commitment to negotiate a collective bargaining accord in the near term, and prohibition of the involvement of armed forces and armed security personnel in labor disputes at the facility.

Following the adoption of this agreement, Grupo M followed through on its commitment to reinstate workers, although the reinstatement process was slowed to a great extent by the inability of Grupo M to access the additional orders by LS & Co. or other buyers needed to increase the workforce of the facility. By June 2005, the bulk of the workers terminated the previous year had returned to work.

Factory management also followed through on its commitment to negotiate a collective bargaining agreement with the union. As in the case of mediation, it took a lengthy period to begin the negotiation process, but once negotiations began in earnest in October 2005, the factory and the union moved quickly to finalize an accord. A final agreement was signed on December 13, 2005. The terms included in this agreement, which covers all workers in the Codevi free trade zone, represent very significant improvements in the conditions of work throughout the zone. On the issue of wages, the agreement calls for an increase in employees’ base salary from 432 gourds (roughly $10.15) per week to 900 gourdes (roughly $21.15) per week, with an additional increase of 45% to be implemented over the next three years. While these numbers likely exaggerate somewhat the actual difference between take home pay before and after the contract, as it is likely that production bonuses which are set at the employers’ discretion may be lowered from previous levels, the agreement nevertheless represents a significant breakthrough in an area in which progress is seldom achieved in the apparel industry. The collective bargaining accord also includes improvements in the areas of health and safety (including installation of health and safety equipment, the hiring of a Creole speaking doctor specializing in workplace health issues, provision of eye and respiratory tests, and other measures), measures to prevent violence and sexual harassment in the workplace, and the establishment of robust grievance and conflict resolution procedures.

These gains were possible because LS & Co. ultimately made an implicit commitment to Grupo M to maintain and increase orders at Codevi if worker rights violations were resolved. Indeed, a positive outcome likely would have happened sooner if this commitment had been clearer and more constant earlier in the remediation process.

Going forward, the changes will only be sustainable if LS & Co. continues to reward Grupo M with ongoing and expanding business and if other buyers, including university licensees, support Codevi and other Grupo M facilities. While apparel production in Haiti may be undergoing an expansion, the Dominican Republic is losing production in the wake of MFA phase-out, and the overall future of Grupo M is clouded. Grupo M, after a history of non-compliance with applicable codes of conduct, particularly in the area of associational rights, has taken a huge step forward as a company. Given the size of Grupo M, and the high profile of this case, there is no doubt that suppliers throughout the region will observe the outcome closely. If Grupo M thrives, it will serve as a powerful positive example of the benefits to all parties of meaningful code compliance. If, however, Grupo M is not able to at least maintain the level of orders it has received in recent years, and/or if price pressure makes the company’s financial situation untenable, then reduced employment and eroding labor conditions are the likely result – and the message to other suppliers will be that code compliance is not a winning proposition.


PT Sarasa (Indonesia)

The WRC began a compliance assessment of this garment production facility, located in the area of Balaraja, in Northwest Jakarta, Indonesia, in late 2004. We have conducted subsequent monitoring throughout 2005. Prior to the WRC’s assessment, PT Sarasa produced college men’s dress shirts for collegiate licensee Oxford International.

The WRC chose to initiate the assessment when it learned that the factory had engaged in a lock-out of employees during the course of annual wage negotiations with the union that represents the plants workers, known as FSBKU. Subsequent to the lock-out and the initiation of the WRC’s assessment, PT Sarasa management announced that the facility would be shut down permanently. The WRC’s investigation found strong evidence supporting the conclusion that the lock-out and subsequent mass termination were motivated by anti-union animus, as a measure to retaliate against workers for the exercise of protected associational rights. The terminations were therefore unlawful and in violation of university codes of conduct. The WRC recommended that the facility be reopened and that the terminated workers be reinstated.

During the course of the WRC’s involvement in this case, PT Sarasa was placed under new ownership (and its name was changed to PT Panca Brothers Swakarsa). After substantial dialogue, the WRC was able to broker an agreement between both the incoming and former management teams and the trade union at the factory. The agreement called for, among other things, an end to the lock-out and the reinstatement of the terminated workers. The facility’s new management has followed through on this commitment. The factory has since been re-opened and the majority of its former employees have been reinstated. As of late 2005, 700 of the 800 workers eligible for reinstatement had returned to the facility; the remaining 100 had either accepted employment at other locations or opted to accept severance. The facility’s management has in some instances helped former employees find work at other factories.

Since the facility was placed under new ownership, the relationship between management and worker representatives has improved markedly. With minimal intervention by the WRC, management and the union leadership have also worked together to address a number of other code compliance issues, in areas such as occupational health and safety, wages, hours and overtime. Management has expressed willingness to resume contract negotiations with the union this year. After a long period of great instability, the factory’s economic state appears to be stabilizing somewhat, although management remains concerned about the uncertainty of future orders

The WRC will continue to monitor the situation and issue further communications as necessary to ensure that full code compliance is achieved.


PT Victoria Garment Indonesia (Indonesia)

The WRC has been working to remediate violations of worker rights that resulted from the closure of PT Victoria Garment Indonesia, an apparel plant in northern Jakarta. The facility is owned by the Hong Kong-based Perdana and Victoria Garment Manufacturing Group, an international conglomerate of factories that produced primarily for Eddie Bauer for many years.

PT Victoria management closed the facility in Indonesia in December 2003 without paying a substantial amount of legally mandated compensation to employees, including severance and wages for hours of work performed, amounting to more than $1,000,000 in total. The facility’s managers fled the country abruptly just prior to the announcement of the closure. Before contacting the WRC, the facility’s employees had exhausted all channels available to seek recourse within the Indonesian legal system. Despite ruling in the workers’ favor, the domestic Courts were unable to compel the former employer, now in Hong Kong, to pay the compensation to which the workers are entitled. The workers have thus turned to international non-governmental entities for assistance.

Of particular concern in this case, PT Victoria’s primary customer, the U.S. based company Eddie Bauer, continued to do business with PT Victoria’s parent company in Hong Kong, and sister factory in Cambodia, for nearly one year following PT Victoria’s closure – without making serious efforts to compel the company to fulfill its legal obligations to its Indonesian employees. The failure by Eddie Bauer to compel remediation is particularly troubling given that the company has a publicly touted code of conduct and is a member of the Fair Labor Association (FLA).

The WRC has conducted a legal analysis of Indonesian severance law and legal proceedings with respect to this case, in part to assist the Fair Labor Association in its communications with Eddie Bauer. This analysis confirmed beyond doubt that PT Victoria violated Indonesian law, both by failing to pay the severance compensation and back pay owed to the workers and by refusing to take part in Court proceedings. The WRC also assisted the FLA and Eddie Bauer by facilitating a meeting among representatives of the Indonesian employees, Victoria Garment Manufacturing Group, the FLA, and Eddie Bauer. Unfortunately, no concrete steps towards paying the compensation owed to the 875 former employees resulted from these meetings. We are hopeful that continued efforts on this case will lead to a positive resolution, but at this stage it is difficult to be optimistic.

Instances of factories shutting down without paying severance or other legally mandated compensation to employees are, unfortunately, becoming increasingly common in Indonesia and throughout the apparel industry. The WRC is aware of at least twelve such cases within the past year in Jakarta alone, and many more in other regions in which the WRC works. The growing trend follows the phase-out of the Multi-Fiber Arrangement at the end of 2004, which has allowed textile and garment companies greatly expanded freedom to rapidly shift business operations throughout the globe.

Because many countries have relatively low wages but strong severance laws, employees have come to rely heavily on the income they receive at the end of their factory career through severance, frequently representing in excess of one year of salary. Losing these funds is economically devastating to workers and their families.

In light of this growing trend, it is critical that apparel brands and monitoring agents work aggressively to ensure that, when closures and mass terminations occur, the rights of workers under domestic law, including the right to severance, are fully respected. A crucial part of this work is ongoing monitoring by brands of their supplier factories to ensure the factories have sufficient funds set aside to cover severance obligations should sudden closure occur. It is the WRC’s view, based on experience to date, that this is an area of compliance monitoring where the efforts of licensees, and other apparel brands, are particularly weak. This is a situation that is unfortunate, given the severity of the consequences for workers, and one that should be relatively simple for licensees to remedy, since determining whether such funds exist is a straightforward technical matter, well within the abilities of traditional monitoring agents. Despite warnings about the high likelihood of widespread factory closures in certain countries in the wake of the phase-out of the Multi-Fibre Arrangement, brands do not appear to have placed sufficient emphasis on this critical area of compliance, with the consequence that many workers do not receive the severance to which they are legally entitled. It is important to note in this context that, at least in some cases, licensees benefit directly from the failure of factories to set funds aside for severance, since foregoing this expenditure lowers production costs, allowing the factory to accept lower prices from customers.


PT Panarub (Indonesia)

The WRC has reported in previous updates that there has been substantial progress at PT Panarub, a factory of 12,000 employees in Tangerang Indonesia which produces high-end soccer cleats exclusively for adidas-Salomon. Considering the factory’s compliance track record and compared to its main competitors, PT Panarub has come leaps and bounds from where it was at the outset of the WRC’s assessment in the spring of 2004 with regards to occupational health and safety provisions within the factory, health insurance, working hours, educational and recreational benefits to employees, and overall factory facilities. Many of these changes are documented in our public report on this case. However, with respect to progress concerning remediation of violations of the right to freedom of association within PT Panarub – the main reason adidas and Oxfam International requested the involvement of the WRC in the first place – there have recently been major setbacks.

In each of the months of September and October, 2005, one of the factory’s two unions, Perbupas, struck for a few days. These strikes resulted in management requesting from the Ministry of Manpower the permission to terminate 33 of the top leaders in Perbupas (as is the standard legal procedure for firing employees in Indonesia). Having reviewed the events at the factory in detail, the WRC has concluded that these are, in most cases, not legitimate dismissals.

These firings – essentially, of the entire union leadership – have resulted in Perbupas’s union activities coming to a standstill within the factory, despite having hundreds of member that are still employed. Employees have expressed that they feel too scared and intimidated to publicly acknowledge or act on their affiliation with Perbupas. Many employees have expressed that they also wanted to participate in the strikes but were prevented from doing so because the factory doors had been shut and were being closely guarded by supervisors, and because they were afraid of retaliation by management in the form of not receiving certain bonuses, suspension, and/ or termination. The case is currently being processed through the Central Labor Court of Tangerang.

Information the WRC has received in the correspondence with PT Panarub management and the Ministry of Manpower around this case suggests that the Ministry (and now the Central Labor Court) are not reviewing this case in an impartial manner. For this reason, it is crucial that the concerned parties (the unions, management, WRC, adidas, and Oxfam) find a way to resolve this conflict outside of the court. Moreover, more will need to be done than simply settling this one case to address the long-standing freedom of association issues at PT Panarub (specifically the history of systematic discrimination against Perbupas). The WRC has recommended that adidas ask the factory to reinstate the fired workers and work with Perbupas to conduct an internal review of the circumstances leading up to the strike and the dismissals. To date, adidas has declined to implement this recommendation.

In addition, with respect to the longer term goal of protecting the associational rights of all Panarub workers, the WRC has recommended the execution of a factory-wide union membership verification exercise. The WRC’s original investigation found that, for a period of years, factory managers had systematically discriminated against Perbupas in favor of the other union, known as SPN (formerly SPSI), in violation of workers’ rights of association. The WRC’s investigation further determined that, as a result of these past practices, the current union affiliations of some workers do not accurately reflect these workers’ preferences. To address this issue, the WRC recommended that the factory conduct an exercise to enable all employees to clarify their preferences regarding union membership, in an environment free of perceived or actual coercion.

A small scale verification exercise took place on April 14, 2005 among a select group of workers who had previously indicated a desire to change their union membership. Of the 263 workers that participated in this exercise, 256 chose to change their affiliation from the SPN union to the Perbupas union. A large number of other workers, who were not eligible to participate in this exercise because they had not previously expressed a desire to change affiliation, subsequently conveyed to management and the WRC that they wished to clarify their affiliation.

Unfortunately, to date, the plant’s two unions, PT Panarub management, and adidas have not been able to reach agreement on the terms of a factory-wide verification exercise. The WRC has renewed this recommendation, in light of recent events, and considers this exercise essential to achieve full remediation at the factory.

Given the progress made to date in other areas, there is reason to be optimistic that the freedom of association issues can be resolved. What is crucial at this stage is the continual, active engagement on the part of adidas-Solomon, including a clear call by adidas for reinstatement of the fired workers. Adidas must also make it clear that although the exact mechanism for the verification should be negotiated among all interested parties, some valid verification exercise must occur, and in a timely fashion.


Easy Group (Philippines)

In a response to a worker complaint, the WRC has conducted an assessment of labor practices at three closely related apparel manufacturing facilities located in the Bataan Economic Zone (BEZ) in Mariveles, Philippines in late 2004. Each of the three facilities – Easy Fashion, Kasumi Apparel, and Allen Garments – is owned by the Taiwanese company called Easy Group. Each of the facilities has produced collegiate licensed goods for Red Oak Sportswear, which was being purchased by licensee Knights Apparel at the time of WRC’s compliance assessment. Factory disclosure data supplied by Red Oak indicated production of licensed goods at the Easy Fashion facility. However, the WRC’s initial inquiry determined that both of the other two facilities – Kasumi Apparel and Allen Garments – also produced licensed goods for Red Oak. For this reason, and because code of conduct concerns spanned the three production sites, the WRC decided to include all three of the facilities in the assessment. Easy Group’s facilities have also produced non-collegiate goods for Champion, Northern Studio, American Eagle Outfitters, Tommy Hilfiger, White Sierra, Wal-Mart, Disney, Harley Davidson, Dicks, Dan Daniel, MICO and Union Bay.

The principal areas of concern identified in the worker complaints were working hours and compensation, misuse of the contract labor system, and freedom of association and collective bargaining. The WRC’s on site investigation, carried out during January 2005, documented a number of serious code of conduct violations. Most centrally, the inquiry documented an unusually brazen effort by Easy Group management to use illegal means to thwart efforts by employees to exercise their associational rights. These actions included threatening workers who chose to affiliate with a union with termination, placing these employees on forced unpaid leave and ultimately firing employees en masse, shutting down the Easy Fashion facility, and shortly thereafter reopening it under a new name as a non-union facility. The WRC published a detailed public report on this case in late 2005, detailing the violations at the facility and the failure of management to correct these violations. The violations remain unresolved.

Easy Group has failed to respond constructively despite aggressive efforts by Knights Apparel to compel the factory to correct violations of worker rights. Indeed, it should be noted that Knights Apparel demonstrated a laudable commitment over a period of months to bring about a positive resolution to this case and exhausted all reasonable measures in doing so. The company directed new Knights Apparel orders to the factory and committed to placing future orders as an incentive for factory management to correct the problems identified. Knights Apparel also sent a representative to accompany the WRC’s staff person at a meeting in June 2005 with Easy Group management and strongly and consistently supported the WRC’s recommendations for corrective action.

Despite these efforts, Easy Group management has failed to address the key issues of concern. In light of Easy Group’s failure to remediate code of conduct violations, Knights Apparel has discontinued sourcing from the company. The WRC supports this decision and cannot recommend that any university licensee source from Easy Group until and unless the company comes into compliance with university codes of conduct.