New WRC Report: PT Kahoindah Bekasi (Indonesia)

To:WRC Affiliate Universities and Colleges
From:Scott Nova and Jessica Champagne
Date:April 9, 2019
Re:New WRC Report: PT Kahoindah Bekasi (Indonesia)

Please find here a report on PT Kahoindah Bekasi, a garment factory in Indonesia that, prior to its closure in October, supplied university logo goods to Nike. The factory is owned by the Korean corporation Hojeon, Ltd.

The WRC’s investigation of the factory involved offsite interviews with more than 70 employees, as well as communications with management personnel and union leaders, and extensive review of documentary material.

Our inquiry uncovered overwhelming evidence that factory management used threats, workplace retaliation, and deception to compel employees to resign in exchange for a severance payment that is one half of what the law requires.

Background and Statement of Findings

PT Kahoindah Bekasi, rather than closing permanently, relocated to a nearby industrial zone where the parent, Hojeon, operates other facilities. Under Indonesian law, when a factory relocates, it must pay workers twice the normal severance, unless the factory allows them to continue their employment in the new location and workers refuse.

In the case of PT Kahoindah Bekasi, management pretended to make such an offer of continued employment, and then carried out a campaign of pressure to make sure workers would not accept – demanding instead that workers resign. This campaign of coercion succeeded: 97% of the workforce resigned, giving up their jobs and half of their severance entitlement. Out of 2,000 workers, only 67 were initially able to continue their employment (thanks to aggressive advocacy by their union). However, even these workers’ jobs are now being eliminated: after beginning work at the new location, management isolated the 67 workers from other employees and continually pressured them to resign. Most did. There are now only 18 workers left – and management is in the process of firing them. As a result, although the factory claims it offered workers the opportunity to keep their jobs, not a single worker has been able to do so.

The only former Bekasi workers now at Hojeon’s operation in Cakung are temps – with no job security, no severance benefits, and no expectation of continued employment.

Consistent, credible and mutually corroborated worker testimony demonstrates that management used coercion and deception to secure the resignations of the entire workforce. Managers demanded that workers resign and accept the severance offer and told them that, if they refused, they would be fired and get nothing. Such threats have the ring of truth in Indonesia, where workers are often robbed of their legally mandated severance when they lose their jobs. Management retaliated against those workers who did not quickly accede to its demand for their resignation, depriving them of work and income until they submitted.  A managerial employee – a factory supervisor – was courageous enough to talk openly with the WRC about management’s efforts to compel the workers to resign. He testified that his superiors told him it was his responsibility to get workers to resign and instructed him to lie to workers to get them to do so. Finally, even as it was pressuring and deceiving them into resigning, the factory made workers sign resignation forms stating they were acting freely.

By making a false offer of continued employment, and then pressuring workers to reject it, the company reduced its severance obligation by at least $3 million dollars – each worker lost, on average, $1,500 to $2,000.

When it failed to pay workers half of the legally mandated severance they were due, Hojeon violated Indonesian law and university codes of conduct, which require factories making collegiate apparel to pay all legally mandated benefits. The remedy for the violation is straightforward: Hojeon must pay the workers the remainder of the money they are legally owed.

The Supplier’s Response

Hojeon, the parent company, has offered various claims in its defense and these are discussed in detail in the WRC’s report. In short, none of the claims are credible. To cite one example, Hojeon sent the WRC what it claimed were “letters from workers,” voluntarily written, stating they had not been coerced. These letters supposedly came from a group of former PT Kahoindah Bekasi workers who currently have temporary contract jobs at one of Hojeon’s other facilities. There are no actual letters. There is only a document, generated by Hojeon itself, which has a list of workers’ names, a management-written statement denying that coercion occurred, and a place for each worker to sign. The WRC talked to some of the workers on the list, who told our investigators that management called them into the HR office, handed them the document, and told them to sign it. The workers we spoke to confirmed that they had indeed been coerced to resign from PT Kahoindah Bekasi, but signed the document stating otherwise because they feared retaliation if they refused. In other words, Hojeon coerced workers to sign a document stating that they weren’t coerced. This illustrates the company’s modus operandi. None of the company’s other arguments had any greater credibility.

The one point worth noting in mitigation of Hojeon’s offense is that the company did pay some of the severance and other terminal compensation owed to workers ($10.7 million, the company says, though a good part of this was paid in 2017 to workers who left the factory well before the closure was announced). This is better than we have seen from some factory owners in Indonesia, who have paid little or nothing. But paying part of what is legally owed does not free Hojeon of the responsibility to pay all that is legally owed, nor does the fact that there are even worse violations by some other factory owners. The standard, under university codes, is compliance with the law, not merely being better than the worst offender.

The WRC’s Engagement with Nike and Nike’s Response to the WRC’s Request for Remedial Action

In February, the WRC contacted Nike privately to share our evidence. In doing so, we followed the terms of the WRC-Nike protocol agreed in 2017. We have been in discussion with Nike since that point. Nike has also engaged with Hojeon and has urged Hojeon to share information with us. Additional evidence emerged as a result of this process and the bulk of it reinforces out conclusions.

Having found a violation of university labor codes by Nike’s supplier, we have asked Nike to use its leverage to press the supplier to pay the workers.

Nike has urged Hojeon to consider the WRC’s findings, but, so far, has not agreed to press Hojeon to pay. That is the crucial step, because the only way Hojeon will pay is if its business partners insist that it do so. Merely urging Hojeon to consider the information will not convince the company to shell out $3 million that it schemed assiduously to avoid paying.

Nike has pointed out, and the WRC readily acknowledges, that Nike’s leverage is limited, since it does not currently buy from Hojeon. We cannot ask Nike to use leverage it does not possess, only the leverage it has (even the remote prospect of future orders from a brand as large and prestigious as Nike is a motivator). This is the request we have made.

Indeed, if Nike agrees to press Hoejon to pay the workers, this will help the WRC mobilize other Hojeon buyers to also weigh in – current buyers who retain substantial leverage. Although Nike is the only licensee that was making collegiate goods at PT Kahonindah Bekasi, there a number of licensees, as well as other brands, who bought non-collegiate goods from the factory or who do business with other Hojeon facilities. These include Under Armour, Fanatics, and adidas, Athleta (owned by Gap), and Oakley, among others. These brands do not have university code of conduct obligations related to PT Kahoindah Bekasi, but we believe they will recognize a broader obligation to address clear labor rights violations by their supplier.

The language of Nike’s licensing agreements requires the company to “use its best efforts… to cause Manufacturers (i.e., suppliers) to remediate any violations identified by the WRC and/or FLA.” This is what we are asking Nike to do.

Nike sent a communication to the WRC in which it outlined its official position on the case (you can read the statement here). One point Nike raises is that it would have preferred that the WRC contact it sooner. As noted above, we contacted Nike in February, roughly one and a half months prior to the publication of today’s report, and shared a summary of our evidence and preliminary conclusions. Nike was aware, well before that point, that the WRC was scrutinizing the closure process at PT Kahoindah Bekasi. We referenced this in our communication to universities in November, concerning Nike’s reduction of its business with some Indonesian suppliers. We felt the appropriate time to approach Nike was when we had gathered sufficient evidence to be able to share a coherent and detailed summary of the evidence and its implications, providing a basis for substantive discussion. This is both consistent with the WRC- Nike protocol and with the WRC’s typical approach in a severance case. We will talk further with Nike about why the company feels it should be approached at an earlier juncture in such cases, with the goal of averting friction in the future over this point.

The most important issue at hand, however, is addressing the harm done to the 2,000 former workers of PT Kahoindah Bekasi. We will continue to seek Nike’s intervention to press the parent company, Hojeon, to pay the workers the remainder of the severance they are legally owed. We hope Nike will do so, consistent with its obligations to its university licensors. We will keep you advised of new developments.

As always, please let us know if you have any questions about this report or would like to discuss.

Scott Nova
Executive Director
Worker Rights Consortium

[email protected]