Workers yet to get dues brands bag big profits

* Total 37,637 fired-workers not paid full

* Collective dues total $39.8m

* 31 factories in nine countries hit hard

* Major brands bag big profit 

* Amazon profit up 84pc in 2020

* Inditex made $13.4b gross profit 

* Nike, Next, Walmart made healthy earnings

Over a crackling phone line, Ashraf Ali, 35, a father in Bangladesh, described feeling suicidal and desperate to feed his family. Sokunthea Yi, in Cambodia, said she spends sleepless nights worrying about how she will pay off loans she took out to build her house. And at only 23, Dina Arviah in Indonesia said she was hopeless about her future as there were no longer any jobs in her district. 

All once held jobs as garment workers in factories producing clothes and shoes for companies like Nike, Walmart and Benetton. But in the last 12 months those jobs have disappeared as major brands in the United States and Europe cancelled or refused to pay for orders in the wake of the pandemic and suppliers resorted to mass layoffs or closures.

Most garment workers earn chronically low wages and few have any savings. Which means the only thing standing between them and dire poverty are legally mandated severance benefits that most garment workers are owed upon termination, wherever they are in the world, New York Times report.

According to a new report from the Worker Rights Consortium, however, garment workers like Ali, Yi and Dina Arviah are being denied some or all of these wages. The study identified 31 export garment factories in nine countries where, the authors concluded, a total of 37,637 fired workers were not paid the full severance pay they legally earned, a collective $39.8 million.

According to Scott Nova, the group’s executive director, the report covers only about 10 percent of global garment factory closures with mass layoffs in the last year. The group is investigating another 210 factories in 18 countries, leading the authors to estimate that the final data set will detail 213 factories with severance pay violations affecting more than 160,000 workers owed $171.5 million.

“Severance wage theft has been a long-standing problem in the garment industry, but the scope has dramatically increased in the last year,” Nova said. He added that the figures were likely to rise as economic aftershocks related to the pandemic continued to unfold across the retail industry. He believes the lost earnings could total between $500 million and $850 million.

The report’s authors say the only realistic solution to the crisis would be the creation of a so-called severance guarantee fund. The initiative, devised in conjunction with 220 unions and other labour rights organisations, would be financed by mandatory payments from signatory brands that could then be leveraged in cases of large-scale nonpayment of severance by a factory or supplier.

Several household names implicated in the report made money during the pandemic. Amazon, for example, reported an increase in net profit of 84 percent in 2020, while Inditex made 11.4 billion euros ($13.4 billion) in gross profit. Nike, Next and Walmart all also had healthy earnings.

Some industry experts believe the purchasing practices of the industry’s power players are a major contributor to the severance pay crisis. The overwhelming majority of fashion retailers do not own their own production facilities, instead contracting with factories in countries where labour is cheap. The brands dictate prices, often squeezing suppliers to offer more for less, and can shift sourcing locations at will. Factory owners in developing countries say they are forced to operate on minimal margins, with few able to afford better worker wages or investments in safety and severance. 

“The onus falls on the supplier,” said Genevieve LeBaron, a professor at the University of Sheffield in England who focuses on international labour standards. “But there is a reason the spotlight keeps falling on larger actors further up the supply chain. Their behaviour can impact the ability of factories to deliver on their responsibilities.”

“Historically, severance hasn’t received the same amount of attention as other types of compensation,” LeBaron added. “But it should. Often workers who lose their jobs are at their most vulnerable. When they aren’t paid what they are owed, many are forced into taking desperate or dangerous measures to survive.”

All major fashion brands publish a labour rights code of conduct. Most say they guarantee that suppliers will pay workers their legally mandated benefits. But in some cases, factory owners can go into hiding or refuse to pay fired employees. In others, owners claim that exploitative contracts brought them to bankruptcy or made it impossible for them to reserve funds for severance.

Caught in the middle are garment workers.

In Bangladesh, Ali worked for 17 years as a knitting operator at the A-One factory in Dhaka before it closed in April 2020, laying off 1,400 workers. The factory, which Benetton and Next listed as a supplier, was late paying workers in its final months and has yet to offer any severance pay, which by Bangladeshi law equates to roughly one month of wages per year of service.

Yi was one of 774 workers who were laid off in June from Hana I, a factory in Cambodia that supplied Walmart and Zara. The workers are owed more than $1 million in severance, the report estimates. Although she received an initial $500, Yi, 33, was still owed $1,290 in severance and was still unemployed as of this month.

Inditex, the parent company of Zara, said it had not worked with the factory for five years. Walmart said it believed the factory had paid all the severance it legally owed to workers in June. The factory owners did not respond to requests for comment via email.

“We are saddened by the unfortunate financial hardship that has occurred for many businesses due to the pandemic and are particularly concerned about the impact it has on their employees,” a Walmart spokeswoman said. She noted that the company made efforts to “review and hold suppliers accountable for compliance” with its standards and local laws.

Hulu Garment factory in Phnom Penh, a former supplier for Walmart, Amazon, Macy’s and Adidas, owes 1,000 former workers $3.63 million, according to the report.

Adidas said it had used the company only for small orders. The owners of Hulu did not respond to a request for comment.

Of all the companies approached by The Times, only Gap, which placed orders with factories cited in the report in Indonesia, Cambodia, India and Jordan, specifically said it had investigated allegations made in the report.

“In all cases we either confirmed that severance had been provided or remediated any that were outstanding,” a Gap spokeswoman said, adding that the company would investigate any further evidence of severance not being paid out.

As consumers put pressure on companies to make amends and clean up their supply chains, brands “are shrinking their supplier bases,” LeBaron said.

“That could well produce long-term benefits, but it will mean further disruption, closures and layoffs,” she said. “And that means the severance dilemma is going to become even more common.”