In December 2011 we reported on the ongoing dispute at an ex- adidas supplier, PT Kizone, where workers were owed $3.4 million dollars in severance pay. These workers have been fighting to get compensation ever since April 2011, when the factory finally closed following the abscondment of its Korean owner in January 2011.

Other clients at the factory, NIKE, the Dallas Cowboys and Green Textile (who operating as a buying agent for adidas among others) have contributed a total of $1.5 million towards the debt owed to workers. To date adidas continues to deny responsibility for these workers and has refused to contribute to ensure the 2,800 workers receive the money they are owed in back wages and severance.

In December 2011 and again in January 2012, adidas issued statements in response to the article posted on the Playfair website. In these statements, adidas restated the facts of the case (which are largely undisputed) and lays out its reasons for washing its hands of responsibility for these workers, who had been producing for adidas for several years prior to the closure. Below are our responses to these reasons.

1. The argument that adidas was not producing at the factory at the time of closure

Firstly, adidas claims it can assume no responsibility for the workers, as it advised the factory in June 2010 that it was removing orders from the factory and therefore had no business relationship with PT Kizone at the time of the closure. In their statement to Playfair published on the 2nd February 2012 adidas states that “PT Kizone factory was illegally closed and abandoned by its owner, not by the adidas Group, and this occurred more than six months after we placed our last order with them…” However in their earlier statement, made on December 13th 2011 adidas concedes that PT Kizone workers were involved in adidas production until late November 2011. Furthermore adidas continued to include PT Kizone as a supplier in both its submission to the Worker Rights Consortium (WRC) (a database of production sites for US University branded apparel) in January 2011 and on its own publicly available supplier list in the same month.

The violation of workers’ rights in regard to non-payment of wages started as far back as September 3, 2010, when it stopped paying mandatory terminal compensation to workers separated from employment. Between September 3 and November 1 2010, 32 workers voluntarily left the factory’s employ, but were not paid the compensation required by law and agreed under the collective bargaining agreement in place at the factory. The factory also failed to pay death benefits to the families of several workers who died during this period.

Adidas have responsibility to rectify violations of its code in all facilities where production is being carried out, regardless of how long production will remain in the factory. It is clear that the violations began whilst adidas production was under way and not in April 2011, when the factory finally closed, and that adidas has failed to take action to resolve those violations that took place while its production was under way It is also clear that the severance owed to the workers was in large part accrued while working on adidas production, so failure to provide this represents the theft of wages earned producing adidas goods.

2. The argument that adidas cannot assume responsibility for a breach of law committed by their supplier

Secondly adidas states that it can assume nor accept liability for the impact of closures or lay-offs at factories which is does not own itself. In their December response to Playfair they state that “Enforcing the rule of law is core to sustainable business and we cannot be held responsible for someone else breaking the law.”

However, under the principles of university codes, by which adidas is bound through contractual agreement with the US universities is produces under licence for, it is clear that licencees have the same level of responsibility for ensuring compliance at contracted factories as at directly owned facilities. adidas’ own Workplace Standards state that, “Wages must equal or exceed the minimum wage required by law or the prevailing industry wage, whichever is higher, and legally mandated benefits must be provided,” and that suppliers must comply with “all legal requirements.”

Furthermore, in line with UN Principles on Human Rights and Business corporate entities such as adidas are required to carry out proper due diligence to ensure the prevention of violations such as this. This means that adidas do have responsibility to ensure the rule of law is being followed by all of its suppliers in regard to workers’ rights. Adidas itself appears willing to accept this responsibility for certain types of violations of law. Yet when it comes to cases involving cash payments to workers it continues to refuse it. It is inappropriate for a company to pick and choose those breaches of code standards and laws it is willing to enforce and those it wishes to wash its hands of.

In a communication with the WRC in November 2011 adidas maintain that “While the commercial relationship was open, we monitored the PT Kizone workplace to ensure that it adhered to the standards and practices required….” However, since adidas took no action to correct the violations committed in autumn 2010, while its goods were on PT Kizone’s production lines, and took no action at any time to address the factory’s increasingly evident financial crisis, we must conclude that adidas did not fulfil its obligation to monitor compliance and did not, as they claim, “oversee, on an on-going basis, that sufficient resources are available to meet all employee liabilities in the event of downsizing or closure.” The failure of adidas to pick up and address violations that were already occurring during production increases their responsibility to provide proper redress for the affected workers.

3. The argument that adidas is taking ‘other’ steps to support PT Kizone workers

In all its communications with campaigners in regard to the PT Kizone case adidas has been keen to emphasise that it is sympathetic to the plight of the workers involved. They have outlined a number of actions taken by the company to address this. Such actions include:
- Requesting other adidas suppliers in the area to hire ex-PT Kizone workers when vacancies become available.
- Commissioning and funding a job agency to support workers in their search for employment
- Engaging with governments over the issue of illegal factory closures and compensation.

Adidas claims that these actions have been taken in spite of the fact that adidas has no responsibility for their plight; rather these actions have been taken because they care about workers and “it’s the right thing to do.” The also claim that 950 workers have now been reemployed, nearly 300 in other adidas suppliers.

We of course welcome the fact that 950 workers have found more work, although this accounts for less than half of those employed at PT Kizone. It is also important to note that this figure has yet to be verified and there is no information available to suggest that workers have been re-employed as a direct result of adidas’ efforts. Workers from PT Kizone state that adidas have in fact been operating a scheme that discriminates against those workers still fighting for severance, by refusing to meet with the union representing the majority of workers previously employed at the factory. They also point out that many of the PT Kizone workers are older and it is mainly younger workers that are being offered employment. Finally its important to note that while Kizone workers were all employed on permanent contacts, the new work being offered is predominantly on a short term contract basis.

Even if we give the benefit of the doubt and accept adidas’ claim in this regard the employment of workers in new factories doesn’t address the main concern: that each worker is owed a significant amount of severance pay that she has already worked hard for and will never receive.

Adidas must act now!

The facts of this case are clear: 2,800 workers, many of whom were earning as little as $0.60 per hour during their employment, have been deprived of thousands of dollars in unpaid wages and severance. This is money they earned in part through the production of goods that have helped to contribute to adidas profits, which last year amounted to over $6 billion. These workers should not be expected to bear the cost of the failure of adidas and other buyers, company owners or the Indonesian government to ensure their employer complied with the law. If adidas really cares about the plight of these workers, it needs to take every step available to ensure this money is provided.

If you would like to contact adidas about this issue, an email form is available via the Labour Behind the Label website:

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May 29th, 2012 Anna