Five Years on from the Pandemic: How Adidas Fooled Union Negotiators

On 2 March 2020, as the Covid-19 pandemic hit Cambodia, the entire workforce of the Hulu Garment factory was sent home in a lockdown. While Cambodian law specified that during the pandemic factories had to pay workers 40% of their wages, the factory initially let workers fend for themselves. Late in April, workers were summoned to the factory to finally sign their payslips, under which the factory hid a sentence saying the workers were resigning. Hundreds of workers unknowingly quit their jobs without the severance pay they would have received had they been dismissed. Four years later, workers are still fighting for the
money they are owed.
 

The Hulu Garment workers are not the only ones who were left unpaid. From South East Asia to Central America, garment workers lost their jobs without receiving severance. The Worker Rights Consortium estimates that garment workers have lost out on US$4 billion of severance during the past 15 years. Moreover, brands deliberately source their products from countries without sound social protection systems – building huge profits on those choices. It is the responsibility of brands along their supply chain to ensure that workers are fairly compensated, using their leverage with and support for suppliers to ensure worker rights are respected. Only under pressure from unions and international campaigns, though, brands can sometimes be convinced to step in and ensure that workers are compensated. After a campaign in 2021-2022, for example, Victoria’s Secret front US$8.3 million to its supplier to ensure its workers were paid their legally owed severance.
 

Adidas was a major buyer at Hulu Garment, together with Amazon, Walmart, and Macy’s. But both Adidas and the other brands refuse to solve the wage and severance theft happening in its supply chain. And in Cambodia alone, Public Eye calculated that Adidas owed workers US$11.7 billion for the first 13 months of the pandemic. Other major brands similarly owe millions to workers in their factories in Cambodia: Nike owes US$7.5 million for the same time period, Gap US$6.7 million, and H&M US$6.5 million. Beyond that, they have their own “Hulu Garment”-like severance issues. Nike owes its former workers at the Violet Apparel factory in Cambodia US$1.4 million in severance, Victoria’s Secret – again – is faced with a factory in its supply chain in Thailand where workers are owed US$5.9 million in severance. A structural solution is needed.
 

A group of garment worker unions and allied unions and labour rights organisations around the world therefore worked on a proposal for a Severance Guarantee fund that brands would pay into that would ensure that workers would receive what they are owed. According to the recent Cornell University’s Higher Ground report, “the most adaptive, point-of-impact response to a complex crisis” is to ensure “stable, living wages and basic social protections” (p.51). The union-supported Severance Guarantee Fund would not only offer a solution to the workers that lost their job during the covid pandemic, but also proposes an answer to four global trends: (1) the growing climate crisis which will have to be met through a just transition centring garment workers; (2) the lack of functioning social protection schemes; (3) the legal obligation for companies to comply with due diligence requirements; (4) the shrinking space for union organizing and collective bargaining, especially in times of crises.
 

In June 2021, the unions representing an international coalition of more than 260 endorsers reached out to a broad range of brands to get them on board. Because Adidas is vocal on women’s rights and equality and owes workers considerable amounts of money, in February 2022 the unions decided to specifically approach Adidas to negotiate a solution for the wage and severance theft in its supply chain – hoping the company to be willing to work towards a solution. In their first response on 4 March 2022, Adidas flat out denied the violation of freedom of association, unpaid wages and severance theft, despite the evidence to the contrary.
 

After much back and forth, in November 2022, Adidas suggested to let a “private insurance system” deal with the lack of severance payments, instead of a union-led binding agreement. Notably, that would mean Adidas itself would be off the hook as the financial burden would then solely lie with the factory owners or workers.
 

When investigating this approach, a simple phone call with an insurance advisor at one of the world’s biggest insurers revealed the unworkability of this suggestion. No insurance company would give out such an insurance as the risks and therefore premiums would be prohibitively high. There is no country in the world that works solely with a private insurance system to secure severance payments against the risk of factory closures. Instead, countries regularly work with a guarantee fund, as suggested by the unions and as explicitly prescribed by the International Labour Organisation (ILO C173). A guarantee fund is available if the assets of a bankrupt company are insufficient to fulfill workers’ claims. In countries that combine a guarantee fund with an insurance system, these are usually public social insurance schemes, and/or public-private partnerships where the institute or agency set up to house the guarantee fund may contract with private insurance companies, but the ultimate responsibility (and risk) rests with the government. In Germany and Romania the funding for this facility is gathered solely through premiums paid by the
employer. In other countries such as the Netherlands, the employees and also government contribute to this
facility.
 

Adidas’ spokespeople referred to an ongoing conversation with the ILO regarding its proposal for commercial insurance about this matter. And once again, when investigating, we could not find anyone at the ILO who is aware of this conversation and ILO staff said that a private insurance scheme for severance payments would not be in alignment with the ILO approach. While the workers in its supply chains continue to struggle to support their families, Adidas representatives at the February 2024 OECD Forum continued to propose solutions that do not involve taking direct responsibility for the severance workers in its supply chain are owed.
 

Five years since the pandemic started, the optimistic motto “build back better” has not materialized. On the contrary, Adidas is offering false solutions while refusing to engage with the realistic proposals on the table – and none of the other approached brands have shown serious interest. This is a betrayal not only of the workers of the factories that produced for Adidas during the pandemic, but of thousands of workers who could lose their jobs in the wake of the climate crisis. When the pandemic hit, there was no proposal on the table to deal with the factory closures and mass dismissals. But now that the climate crises are here, the proposal is ready and can save workers from destitution. Union leaders have repeatedly called on Adidas and other brands to come to the table to negotiate the details of the agreement. Silence and red herrings have been the answer. It is time for brands to act.