WRC Factory Investigation


Factory: Istmo

Key Buyers: Columbia Sportswear, Gap, Nike, Target, Walmart

Last Updated: 2006

Case Summary

The WRC has been working to remediate code of conduct violations at the Istmo factory, located in Masaya, Nicaragua, since receiving a complaint from worker representatives in April 2006. The Istmo facility is a current producer of clothing for Gap, Target, and Wal-Mart. Istmo is owned by the Korea-based Shinsung Tonsang, whose factories supply several major university licensees, including Nike and Columbia Sportswear. The primary issue of concern at the factory has been violations of workers’ associational rights, including illegal firings of trade union members and threats against union supporters. Additional violations that have been uncovered in the course of the WRC’s work at the factory include forced overtime, discrimination against pregnant workers, and failure to pay workers on time and other payroll irregularities that have the effect of denying workers full payment for hours worked, among other issues. We are pleased to report that there has been very significant progress in addressing these issues, thanks in large part to efforts by Gap.

The WRC’s involvement at Istmo occurred in two phases. The first phase involved investigation and eventual successful remediation of the illegal, anti- union firings that triggered the worker complaint. The second phase included efforts to address subsequent violations of workers’ associational rights, including threats made against workers and the imposition of a company-sponsored union, and violations in other areas, including forced overtime, and denial of legally mandated benefits and leave. There has been substantial progress with respect to these additional violations.

With respect to the initial issues of concern, the WRC received a complaint from the trade union federation representing workers at Istmo alleging that the factory had illegally fired the leadership of a recently established factory-level union affiliated with the federation known as FTVPC (Federación Nacional de los Sindicatos “Héroes y Mártires” de la Industria Textil, Vestuario, Piel, y Calzado or the National Federation of Unions of the Textile, Garment, Leather and Footwear Industries) in violation of Nicaraguan law and applicable corporate codes of conduct. The complaint alleged that shortly after workers formally filed to register a union, the factory fired eight out of the nine members of the union’s Executive Board and a ninth worker who serves as a leader in the national union federation. During the week of June 3, the WRC conducted on-the-ground research consisting of meetings with Istmo management, including the facility’s human resources director, administrative manager, local president and regional president; worker interviews; and review of relevant factory documents, including each of the employees’ personnel files.

This inquiry concluded that the terminations in question were unlawful. In carrying out the terminations, the factory violated the so-called “Fuero Sindical” rule of the Nicaraguan Labor Code, which prohibits employers from terminating registered leaders of trade unions without just cause. As each of the workers was terminated without an assertion or demonstration of just cause, the terminations were illegal. In addition, the inquiry found evidence supporting the conclusion that at least two of the workers had been targeted specifically because of their union activities. Thus, in addition to constituting a legal violation on procedural grounds, these two terminations also violated Nicaraguan law and applicable codes of conduct which prohibit employers from terminating workers in retaliation for their exercise of associational rights. The WRC recommended that the factory move immediately to reinstate with back pay those workers who were terminated unlawfully.

The WRC communicated our findings and recommendations to Gap, Target, and Wal-Mart in mid-July. Following this communication, Gap initiated its own investigation of the situation and began to engage with Istmo management regarding remediation. Gap’s investigation confirmed the WRC’s basic findings and on July 26 an agreement, brokered by Gap, was reached in which the factory offered reinstatement to the concerned workers. Seven of the nine workers chose to accept this offer of reinstatement and were rehired, with back pay, in the following weeks. Two of the workers chose to resign rather than accept reinstatement and were paid their proper terminal compensation. These actions represented, in the WRC’s view, satisfactory remediation of the illegal firings.

Unfortunately, subsequent to this positive turn of events, the WRC continued to receive reports of labor rights violations at Istmo, involving both violations of associational rights and a variety of additional code compliance issues. These included frequent forced overtime, denial of work breaks as required by law, and denial of various legally mandated benefits. The WRC found that the factory regularly docked workers’ vacation days when workers were unable to work due to electricity outages in the factory, failed to pay wages during sick leave as required by law, and denied benefits to workers who sought to take leave for reasons of sickness or emergency. Additionally, our inquiry found discrimination against and harassment of pregnant workers, frequent refusal to grant permission to leave the work post to use the restroom or visit the factory health clinic in the case of illness, and repeated late payment of wages and other payroll irregularities.

In the area of associational rights, in the month following the successful remediation efforts described above, workers testified that factory management continued to make anti-union threats to the workforce on an almost daily basis and that union supporters were subjected to harassment from supervisors. On one occasion on August 7, workers throughout the factory received a verbal message from their supervisors to the effect that any worker who associated with the union would be terminated; the timing of the statements and similarity of the message received by workers in various areas of the factory indicated that this communication represented a directive from higher management. Additionally, the WRC learned that within less than a week after the fired union leaders had been reinstated, Istmo had – unbeknownst to the union or other workers in the factory – negotiated a collective bargaining agreement with another union whose only membership in the factory appeared, with one exception, to consist of only managers and supervisors. The agreement contained no meaningful benefits beyond those already provided by Nicaraguan law. The imposition of the collective bargaining agreement without a meaningful bargaining process, or indeed without workers’ awareness or consent, represented a serious violation of workers’ rights of association as protected by applicable codes of conduct.

The WRC again communicated with the Istmo management and with the facility’s buyers in August. Our recommendations focused on measures to address the full range of violations in the facility with an emphasis on ensuring respect for rights of association, a priority identified by the workers who had brought the complaint. Specifically, the WRC recommended that the factory make statements to the workforce both orally and in writing that their right to join a union would be respected, address discrimination against the union by allowing it to formally introduce itself to the workforce at the factory, make the existing collective bargaining agreement available to workers and monitors, and open collective negotiations with the representative union in the factory.

Following dialogue among representatives of the WRC, international labor representatives involved in the case, and Istmo’s buyers, factory management took a number of important steps. These included making a public statement to the workforce explaining the factory’s intention to respect workers’ associational rights, allowing the union opportunity to address workers inside the facility, and arranging monthly meetings between worker representatives and management to discuss labor conditions. In late October, the factory began collective negotiations with the union. This process has already yielded improvements in working conditions, including the provision of paid sick leave, a benefit that Istmo workers had been previously unable to access. Further negotiations on the collective accord will take place in the coming weeks.

A key difficulty encountered in this case has been the failure on the part of the Nicaraguan Ministry of Labor to enforce domestic labor law. A critical legal process for establishing the right of the union to represent workers for grievance handling and collective bargaining is the formal certification of the union by the Ministry of Labor. While Nicaraguan law requires the Ministry to process union registration materials within ten days of their submission or request further information, in this case the Ministry took more than five months to certify the FTVPC union, though no further information was requested and to our knowledge no problems with the certification materials were ever alleged. During the same period, while the FTVPC’s registration materials were still pending, the Ministry acted within a few days of application to certify the bogus company-sponsored union and the collective bargaining agreement it signed with Istmo. The Ministry was similarly slow-footed in investigating and issuing a ruling concerning the FTVPC ’s complaint over the firings of union members. These delays provided Istmo management with an excuse to avoid reversing what were clearly unlawful firings and to refuse to recognize and bargain with the union. Factory management used the Nicaraguan government’s failure to enforce the law in a timely fashion as political cover for its ongoing violations of worker rights – a problem the WRC has encountered in several other cases in Nicaragua during the past year. In this case, to its credit, Gap was willing to press the factory to address the situation while the registration materials were still pending. Gap later arranged a meeting with the Minister of Labor to express concerns regarding the Ministry’s handling of this case and others in Nicaragua.

In addition to the WRC, several other international labor rights organizations played key roles in the Istmo case through identifying violations, developing recommendations, and pressing the factory and its buyers to take appropriate remedial steps. Of primary importance have been the American Center for International Labor Solidarity, the International Textile, Garment and Leather Workers Federation, and the NGO Witness for Peace.

We are pleased with the progress that has been made at Istmo and are optimistic that the functional industrial relations process that has now been established at the factory will be effective in addressing labor rights problems that arise and in achieving sustainable code compliance.

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