WRC Factory Investigation

Violet Apparel Co. Ltd.

Factory: Violet Apparel Co. Ltd.

Key Buyers: Matalan, Nike

Last Updated: 2023

Case Summary

The July 1, 2020, closure of Violet Apparel Co. Ltd. in Phnom Penh, Cambodia—a supplier of non-collegiate apparel to Nike and UK brand, Matalan—left 1,284 workers unemployed with less than one week’s notice. Violet Apparel was owned by textile and apparel conglomerate, Ramatex, which operates more than 20 production facilities around the world, including three in Phnom Penh.

The WRC conducted an investigation and determined that Ramatex violated Cambodian law and its supplier codes by failing to pay workers full terminal benefits, which, includes a payment for “compensation in lieu of prior notice”, and for “damages” suffered by workers as a result of termination. Full terminal benefits, including damages, are legally mandatory in all cases, unless the employer can demonstrate that workers were terminated for a legally valid cause. Under Cambodian law, the closure of a factory is not, in itself, a legally valid cause to dismiss workers without full benefits, unless the closure was the unavoidable result of economic setbacks. The WRC determined that Ramatex did not demonstrate, and did not suffer, economic circumstances that necessitated Violet Apparel’s closure.

The basis for Ramatex’s refusal to pay workers an estimated US$1.4 million in terminal benefits rests on a biased and legally invalid decision made by Cambodia’s Arbitration Council, the country’s labor dispute settlement body. The Arbitration Council denied damages to workers and failed to issue any ruling on another claim of workers concerning notice pay. The Arbitration Council had no legitimate basis in fact or law for its decision against damages or its decision not to rule on notice pay. The ruling exemplifies the sharp decline in the Arbitration Council’s independence and impartiality in recent years, one element of the ongoing destruction of Cambodian civil society by the country’s authoritarian government.

On the issue of Ramatex’s failure to provide workers with compensation in lieu of prior notice of termination, the Arbitration Council’s decision not to make any ruling at all broke with two decades of jurisprudential precedent.  It claimed a lack of jurisdiction, which is preposterous, since the Arbitration Council has broad jurisdiction under Cambodian labor law to adjudicate collective labor disputes.

Ramatex presented no evidence that reducing its Cambodian workforce was a matter of economic necessity, much less that it was necessary to close Violet Apparel specifically, as opposed to one of Ramatex’s other three factories in the country. The Arbitration Council nonetheless accepted without scrutiny Ramatex’s contention that it had a legally valid reason for dismissal, based on the company’s general claim of reduced orders from Europe. The Arbitration Council also ignored readily available evidence indicating that Ramatex, even as it closed Violet Apparel, was maintaining or increasing production across its overall Cambodian operation. Publicly available records show that, during 2020, Ramatex hired more new workers at its other factories in the country than it fired at Violet Apparel. Ramatex also required workers at its other Cambodian factories to perform extensive overtime in the months after Violet’s closure. And Ramatex actually rejected orders for apparel from at least one European buyer, Matalan. This evidence belies the company’s claim that a decline in orders forced it to close Violet Apparel.

Ramatex, with the connivance of the Cambodian labor authorities, was thereby able to deny its workers their legal right to full terminal benefits.

When the WRC contacted Nike concerning the closure of Violet Apparel, Nike defended Ramatex’s actions, pointing to the Arbitration Council decision, even though Nike itself is on record questioning the body’s integrity. Nike also claimed that Violet Apparel was not a Nike supplier, reporting that it ended production at Violet in 2006. However, workers have consistently testified that they were regularly making Nike products for years leading up to the closure, and the WRC has reviewed documentary and photographic evidence conclusively proving that Nike goods were in the factory long after Nike claims to have left. It is unclear whether Nike knew its goods were being produced at Violet—the work appears to have been subcontracted from one of Ramatex’s other Cambodian facilities, Olive Apparel, and it is possible the subcontracting was unauthorized. However, regardless of Nike’s knowledge, the brand is responsible, under its own code of conduct (and under United Nations Guiding Principles and Organisation for Economic Co-operation and Development (OECD) Guidance), for protecting the rights of all workers who make Nike product. This obligation applies at subcontracted factories, authorized or not. Nike has sufficient leverage to convince Ramatex to pay the former Violet Apparel workers what they are owed: Nike currently sources from 14 different Ramatex factories around the world, including all three Ramatex factories in Phnom Penh, and is undoubtedly one of the manufacturer’s most important customers. Nike has a responsibility to ensure that these workers receive full terminal benefits, consistent with Cambodian law. Matalan shares this responsibility but no longer has a business relationship with the Ramatex Group and therefore possesses minimal leverage.

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