WRC Factory Investigation

Yue Yuen (Holdings), Limited

Factory: Yue Yuen (Holdings), Limited

Key Buyers: adidas, Asics, Nike, Puma

Year: 2014

Case Summary

In April 2014, longstanding violations of workers’ rights under local laws and university codes of conduct at Yue Yuen (Holdings) Limited, a top supplier of collegiate licensed athletic footwear, led an estimated 30,000 employees at its factories in southern China to launch a strike that drew international media attention. Yue Yuen’s underpayment of legally mandated social security payments has affected an estimated 45,000 workers at the company’s factory complex in Guangdong Province, in the Gaobu district of the city of Dongguan.

Nike and adidas disclose Yue Yuen’s Gaobu factory complex as a producer of university licensed footwear. This factory complex also supplies non-collegiate footwear to other buyers including Puma SE and Asics Corporation. Yue Yuen is the manufacturing arm of the Pou Chen Group, which is the largest producer of branded athletic shoes in the world. The company supplies many major footwear brands, and is a participating supplier in the Fair Labor Association. Yue Yuen has stated that the recent strike, which began on April 5, cost the firm more than US$27 million by the time the majority of workers returned to work on April 25.

In a new report, the WRC discusses the underlying labor rights violations that caused this strike and events related to the strike itself, including the responses of the company and the local government. The report also details the WRC’s engagement concerning this matter with Nike and adidas, in particular, our inquiries concerning how these underpayments were able to continue for such an extended period of time. Finally, we present our recommendations to university licensees for corrective action.

The WRC has monitored the recent strike, and examined both the underlying labor rights violations that led to this work stoppage and the response of Yue Yuen and the Chinese government to the factory workers’ protests. The Chinese government has confirmed that Yue Yuen underpaid on legally required contributions into the government-run social security system. This underpayment, unless corrected, will mean that workers will have less funds to draw upon in case of disability or unemployment, or when they retire.

During the strike, Yue Yuen also violated workers’ rights to freedom of association in several ways, including by physically restraining workers from joining the strike and threatening to penalize workers who participated in it. The Chinese government also violated the workers’ associational rights, most notably by detaining NGO advocates who were supporting the striking workers. One of these advocates, Lin Dong, is still detained and faces criminal charges.

The WRC has communicated with the two university licensees whose collegiate footwear is produced at these factories, adidas and Nike. We requested that these two licensees explain their position as to whether Yue Yuen’s underpayment of social security benefits had violated Chinese law and university codes of conduct, and indicate what actions they were taking to address the detention of NGO advocates and any Yue Yuen workers who were detained. Nike has not provided a substantive response on either point. For its part, adidas has stressed that Yue Yuen’s practices concerning social security contributions were “in accordance with an agreement” between Yue Yuen and the local government.

The responses of these leading university licensees are highly troubling. Despite their longstanding relationships with Yue Yuen, neither Nike nor adidas had addressed the underpayment of legally required social security contributions despite the fact that this is a comparatively easy code violation to identify and correct. If, as adidas’ statement suggests, licensees accepted claims from Yue Yuen that the company’s practices, while clearly violating the requirements of Chinese law, were, nonetheless, acceptable, because it had received some form of exemption from the local government – of which workers were unaware – this indicates a serious flaw in these licensees’ compliance methodologies. One of the key reasons to establish codes of conduct is that governments in apparel-producing countries often fail to enforce their own labor laws, either by failing to act or, as adidas states was the case here, by giving employers permission to violate the law.

The WRC recommends that university licensees take the following measures in order to remedy the violations at Yue Yuen, and prevent future violations of this type: (1) ensuring that Yue Yuen makes the full legally required payments into the social security system going forward, and makes workers whole for past underpayments; (2) pressing the Chinese government to free Lin Dong and any other individuals detained as a result of their participation in or support of the workers’ strike, and drop any charges related to nonviolent strike-related activities; and (3) explaining and correcting the gaps in their auditing practices that allowed Yue Yuen to under-contribute to workers’ social security accounts over a period of years.

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