WRC Factory Investigation


Factory: Evergreen

Key Buyers: Columbia Sportswear

Last Updated: 2006

Case Summary

Pursuant to a complaint from worker representatives, the WRC investigated and engaged in efforts to remediate code of conduct violations at an apparel facility in El Salvador known as Evergreen. Prior to its closure in December 2005, the facility produced university logo goods for the university licensee Columbia Sportswear, as well as non-logo goods for a number of other U.S. brands. The initial complaint alleged that Evergreen had unlawfully terminated a group of roughly 300 workers in March 2005 in retaliation for efforts by workers to exercise their associational rights and had failed to pay these workers legally mandated back wages, benefits and severance. The WRC received a complaint, via the labor union that represented workers at the factory, after Evergreen failed to adhere fully to an agreement reached through domestic dispute resolution mechanisms to reinstate the workers and provide them with appropriate compensation.

By the time the WRC became involved in the case, the factory was in financial trouble. After a series of lay-offs, it ultimately shut down in December 2005, terminating the employment of roughly 525 workers. The factory’s closure at this juncture was precipitated in large part by the removal of orders by Columbia Sportswear, which had been the factory’s primary customer for a period of years. This decision to remove orders was justified by Columbia as a legitimate response to labor rights issues; however, slashing orders without a commitment to reinstate them in the event of full remediation of labor rights violations was not the correct approach at Evergreen, nor the one recommended by the WRC. Moreover, it appeared that economic concerns, including a desire to obtain a lower price for the particular product in question, were the primary factor motivating Columbia’s decision. The WRC urged Columbia, unsuccessfully, to restore orders at the factory to their previous level.

By January 2006, it was clear that the closure of the facility was irreversible. At this point, that the terminated workers were paid the legally mandated terminal compensation due to them became the focus of the WRC’s work on this case. At the time of the closure, the factory failed to pay severance, back pay, and various accrued legally mandated benefits to the workers and also owed a substantial amount of money to two employee pension funds to which it was legally obligated to contribute. In total, the factory owed $1,293,000, including roughly $506,156 in severance, wages, and benefits to the workers, and roughly $786,844 to the pension funds. Evergreen’s U.S.-based parent company, Campus Sports, asserted that it had no funds to pay these debts and that it owed substantial additional debt to the company’s creditors.

Worker representatives and support organizations pressured the Salvadoran government to implement a recently established law which gives workers precedence over other claimants in the event that a factory closes with unpaid debts. These efforts ultimately resulted in the workers receiving roughly $250,000 through the liquidation of machinery and other materials owned by Evergreen. These funds were disbursed to the workers by an ad hoc commission comprised of representatives of the workers, factory management, and the Salvadoran Ministry of Labor. However, these funds represented only half of the compensation owed to the workers.

In the absence of any other source for the remaining funds, and in view of Columbia’s long-standing relationship with the factory and its precipitating role in the closure, the WRC urged Columbia Sportswear to contribute to a fund to make the workers whole (although university codes of conduct do not explicitly require licensees to contribute funds under such circumstances). After a protracted set of discussion between Columbia representatives and the WRC, and further discussions facilitated by the WRC among all of the concerned parties (Columbia, Campus Sports, the workers, the Ministry of Labor, and the WRC), Columbia ultimately contributed a total of $120,000. These funds included 1) $75,000 that Columbia Sportswear owed Evergreen for product already delivered, and which Columbia chose to pay to the workers rather than to the factory, and 2) $45,000 paid by Columbia to buy back fabric originally owned by Columbia and seized by the government upon the factory’s closure. The final funds were wired by Columbia at the beginning of April 2006 and disbursed to workers by the ad hoc commission (disbursement was verified by the WRC).

In total, the funds generated through liquidation of the factory’s assets and the funds contributed by Columbia totaled approximately $370,000 – or roughly three-quarters of the total compensation owed to the workers for severance, wages and benefits (leaving aside the unpaid compensation to the pension funds). This outcome obviously fell short of the amount to which the workers were legally entitled. This was, however, a relatively positive result for a severance case in El Salvador, where workers frequently receive none of the compensation owed to them after a factory closure. And the funds were paid in a relatively timely fashion, given that efforts to compel payment in El Salvador often drag on for a year or more. By comparison, in the Hermosa case, eighteen months have passed since the closure of the factory and no compensation has been paid to any of the workers. Nevertheless, both the closure of the factory, which might have been avoided had Columbia offered Evergreen continued business in exchange for positive performance on labor rights, and the severance shortfall reflect negatively on Columbia’s approach to code enforcement.

Read More:

WRC Factory Assessment Update – December 19, 2006