WRC Update: Nike/Hugger de Honduras and Vision Tex

To:Primary Contacts, WRC Affiliate Colleges and Universities
From:Scott Nova
Date:November 12, 2009
Re:WRC Update: Nike/Hugger de Honduras and Vision Tex

I write to provide an update concerning the cases of Hugger de Honduras and Vision Tex, the two Nike sub-contract factories we reported on last month.

As you know, these two facilities shut down without notice in January of this year and failed to pay workers a combined total of more than $2 million in legally mandated severance and back wages.

This communication provides information on several aspects of these cases:

  1. The relationship between Hugger and Vision Tex and the university community
  2. The status of efforts to secure payment for the workers and the WRC’s recommendations to Nike
  3. Nikes response

We have been waiting to update affiliates on these cases, pending a public clarification from Nike concerning its recent statements regarding the university connection to Hugger and Vision Tex. Nike issued a statement to universities on Tuesday that was helpful in some respects; however, some further clarification is in order.

Hugger de Honduras

Nike reported Hugger de Honduras as a collegiate factory for more than 40 universities, beginning in 2007. Since Nike itself identified Hugger as a collegiate facility, and since the company’s position on this point did not change through nine months of dialogue about Hugger with the WRC and other stakeholders, we considered this question to be long settled. However, shortly after the WRC publicly reported the violations at Hugger in October, Nike revised its position and now says that Hugger was not a collegiate factory after all. Nike cites its licensee, Haddad Apparel, as the source of the disclosure data it now says is erroneous.

The WRC is not in a position to determine the veracity of Nike’s recent claim that its reporting of Hugger as a collegiate factory was in error. While we have substantial independent information concerning the overall volume of Nike production at the factory (where Nike represented from 60% to 100% of the production each year for at least six years), we do not have detailed information on the particular items produced.

Whether or not Nike’s revised position on Hugger’s status is the correct one, the reality is that Nike, through its own disclosure, has led a broad range of stakeholders to see Hugger as a collegiate factory. When a licensee publicly states that a factory in its supply chain is making university product, people understandably assume that the factory is indeed making university product. Having associated the university community with Hugger, and having allowed this information to stand for two years, Nike’s recent retraction of this reporting, undertaken after labor rights violations at the factory became public, does not solve the problem – since many stakeholders will be disinclined to accept the company’s revised position at face value. The case thus continues to affect universities and it is legitimate for universities to expect their labor standards to be upheld.

It should be noted that Nike, notwithstanding its revised position on Hugger’s status as a collegiate factory, has recognized the university stake in this case and says it will continue to engage with universities and the WRC.

Vision Tex

As we have reported, Nike goods were made at Vision Tex for New Holland, a Nike contractor that is a substantial producer of Nike collegiate product. During the final two years of Vision Tex’s operations, Nike had by far the largest presence of any brand in the factory.

The WRC concluded that Vision Tex was a maker of collegiate goods based on several pieces of information: 1) reports we received from Vision Tex workers that they made collegiate apparel for Nike; 2) invoices for Nike product, issued by Vision Tex, which list the names of universities and university teams; 3) product hang tags, clipped from garments left at the factory after the closure, which are imprinted with the insignia of the Collegiate Licensing Company and the words “Collegiate Licensed Product” and which have product names that include the names of universities and university teams; 4) the fact that Nike did not demur when the WRC, based on this information, told the company that Vision Tex had made collegiate goods. In view of this, we were surprised at Nike’s statement, in its communication of October 14, that Vision Tex did not make collegiate product, with the exception of one small run.

Given the facially persuasive evidence of a collegiate connection, and given that Nike did not contest the collegiate connection for nine months after the WRC informed Nike of the violations at Vision Tex, we had not previously seen a need to dig deeper into this question. However, after Nike’s October 14 communication, we engaged in further analysis.

Here is what we found: Nike sells a line of apparel products that are named after universities or university teams and that are sold with hang-tags bearing the insignia of CLC and stating that the goods are “Collegiate Licensed Product.” These products are promoted, in Nike promotional materials, using university names and logos (including photos of university athletes wearing university uniforms). A thorough review of the invoices left at Vision Tex, which represent only a portion of the factory’s actual production, show that more than 250,000 pieces of this apparel were produced for Nike at Vision Tex in 2007 and 2008. The names of five universities and university teams were included in the invoices; however, the apparel line in question includes products associated with a longer list of universities (in some cases, rather than the university or team name, the products are named after the city or town in which a university is located – but are still promoted using that university’s name and/or logo). Because we have only a partial set of invoices, we do not know which of these additional products may have been made at Vision Tex.

We do not feel it is appropriate to list here those universities whose names or team names appear in the Vision Tex invoices or are used in this product line. We are informing these institutions directly of the information we have identified.

Nike told the WRC in a recent meeting that these garments, although named after universities and university teams, are sold only as blanks and are not imprinted with a university name or logo. Nike says it does not consider these products to be collegiate – despite the product names, despite the “Collegiate Licensed Product” hang tags, and despite Nike’s use of university names and logos to promote the products. In its communication Tuesday, Nike said it has been placing collegiate hang-tags on these products erroneously.

The question of whether this product line does or does not qualify as collegiate apparel from a licensing standpoint is outside of the WRC’s purview. However, it seems obvious that Nike associated these products with universities by virtue of the product names, the collegiate hang-tags and the promotional use of university names and logos. It seems reasonable to assume that a consumer who sees a product named “University of XYZ Game Jersey,” with a hang-tag that says “Collegiate Licensed Product,” will make the obvious association, even if the product itself doesn’t feature a university logo. In view of this, universities have a stake in the labor practices of the factory that made this product, something which Nike has indicated it recognizes.

In addition to the problem of unpaid compensation, these cases raise serious issues with respect to the factory disclosure process. Accurate disclosure is an affirmative obligation of university licensees and the foundation of effective code enforcement. Recurring problems with Nike’s disclosure are a basis for serious concern and we believe they should be addressed. However, the disclosure problems the cases highlight are a separate issue from the non-payment of severance to Hugger and Vision Tex workers and should in our view be tackled separately. We will follow up with our affiliates on the disclosure question.

The Status of Workers’ Legal Rights and of Efforts to Secure Payment

The workers at Hugger de Honduras and Vision Tex continue to be owed most of the legally mandated severance and other terminal benefits they earned prior to the factory’s closure.

There are several key points in this regard:

1) Workers have not taken any action that relinquishes or diminishes their legal right to full payment.Each factory’s owners agreed – in documents signed under the auspices of the Honduran Ministry of Labor – that workers could sell the machinery and other assets left in the respective facilities and put the proceeds toward the compensation legally owed to them. The documents state explicitly that workers’ acceptance of partial payment through the sale of assets does not prejudice their right to full payment, does not limit their ability to pursue full payment through all available means, and does not absolve the owners of their legal responsibility to the workers.

2) The liquidation of factory assets is nearly complete and, as expected, it has generated only a fraction of the money workers are legally owed. The sale of machines and leftover clothing and the settlement of accounts payable have yielded less than 20% of the legally mandated compensation due to the workers. The few assets that remain to be liquidated will generate, at best, a modest amount of additional funds, perhaps a few percent of the remaining debt. When this process is fully wrapped-up, workers will still be owed roughly 80% of their legally mandated severance. It is important to note that there was never an expectation that the liquidation process would generate enough funds to pay workers what they were legally owed. This is why we have recommended that Nike seek to persuade its contractors to provide the necessary funds – since this is, in all likelihood, the only chance workers have of being paid.

3) There are some unresolved issues related to the liquidation process, but these issues impact small sums of money and will not appreciably affect the status quo, no matter how they are resolved.

4) The only realistic prospect the workers have of obtaining the money they are owed is through funds from the factories’ buyers. This is why we have recommended that Nike prevail upon its contractors, Anvil and New Holland, and its licensee, Haddad, who were the direct buyers from the factories, to pay the workers. This is the same recommendation that was made in the Estofel case in Guatemela, which involved Hanesbrands and Gear for Sports, and which led to full payment of the severance that was owed. Hanesbrands persuaded its business partner, Ghim Li Group, which was the direct buyer from the factory, to pay the workers. This is approach we have urged Nike to take vis-à-vis its business partners.

5) The outcome of the case will have a major impact on the well-being of these workers and their families.The average amount still owed is more than $1,000 per worker. This is a very significant sum of money in the local context, particularly for workers who have no savings and minimal job prospects in the current environment.

Nike’s Response

The WRC appreciates Nike’s acknowledgment of the gravity of the Hugger and Vision Tex cases, expressed in Nike’s communication to stakeholders on Tuesday. As we outlined in our October report, a very substantial volume of Nike product was manufactured at both of these facilities. A large part of the severance benefits these workers accrued were earned while sewing Nike clothing. In light of the extent of Nike’s relationship with the facilities, and in light of the dire circumstances for workers resulting from the factories’ actions, we believe this case should be a high priority for Nike.

However, while Nike has acknowledged the seriousness of these cases, and has expressed concern about the events that led to the current situation, the company has not undertaken a meaningful effort to address the problem. We have recommended that Nike seek to persuade its business partners to pay the workers – the same approach that worked very effectively at Estofel. However, Nike has made no such request of Haddad and, while it has broached the subject with New Holland, and possibly with Anvil, no result has been achieved and it is clear that Nike has not been willing to exercise its influence in a robust fashion.

For the reasons outlined above, if Nike does not persuade its business partners to pay, or identify some other mechanism of payment, it is very likely that these workers will never receive the vast majority of the money they are owed. However, if Nike does act, progress may well be achieved. Haddad, Anvil and New Holland are all going concerns. Nike has an ongoing relationship with each of the three companies and is undoubtedly in a position to exert substantial influence – just as Hanesbrands did over Ghim Li. These companies, and Nike, all benefited from the work done by the employees of these factories, but failed to protect the rights of those employees. Nike thus has both the obligation and the means to correct the injustice done to the 1,800 affected workers and their families. We maintain our recommendation that Nike make a concerted effort to secure payment to the workers from the factories’ direct buyers.

We have been in communication with Nike concerning these factory closures since January of this year – when we first notified the company of the severance and back pay violations at the factories. We have also had two meetings with Nike representatives since the issuance of our public report on the cases in October. We will maintain our engagement with Nike, both to share information and to continue to press the company to take the action necessary to remediate the violations. We hope a more aggressive effort from the company to correct these violations will be forthcoming.

We will update you as developments warrant. Please don’t hesitate to contact me if you have questions or would like to discuss the case.

Scott Nova
Worker Rights Consortium
5 Thomas Circle NW
Washington DC 20005
ph 202 387 4884
fax 202 387 3292
[email protected]