On Monday morning, hundreds of people lined up outside the Ministry of Labor in El Salvador to collect checks that were more than a year overdue: Compensation for the jobs they lost Jan. 7, 2014, when a textile factory in a free-trade zone outside the city closed. The factory owner failed to pay the 1,200 workers all the severance that’s mandated by law. Finally, a couple of the factory’s biggest clients — HanesBrands and Fruit of the Loom — ponied up $1.1 million to pay the difference.
“It's been a very difficult struggle. We haven’t had enough to eat,” says Maria Candelaria Reyes Rivera, a former worker, through a translator. “People have not been able to satisfy their basic needs.” Workers even lost their access to health care when the factory’s in-house clinic closed. Some emigrated to find new work, Rivera says, so they could send money home to their families. The severance payments will go to pay debts or make purchases that had been long postponed.
What happened at Rivera’s factory illustrates one of the biggest problems in the global supply chain: How to protect workers in a brutally competitive industry where factories constantly close and open, as brands chase new trends and lower costs, and no one is held accountable for laws broken along the way.
Like most developing countries, El Salvador has no real form of workers compensation, but it does require factory owners to pay people lump sums in the event of a closure — usually about a month of salary for every year worked. That can be the largest amount of money a worker ever sees at one time, and it’s essential to tide them over until they find a new job.
But all too often, the factory owners don’t pay up — it’s a large sum, at a time when the factory is often in financial distress. Liquidating their assets takes a painfully long time, and usually doesn’t yield enough. And left to their own devices, apparel brands have little incentive to force factories to set aside money for future severance payments, since that might increase costs.
“This failure to comply is baked into the pricing structure of the industry,” says Scott Nova, executive director of the Workers Rights Consortium, which helped facilitate the payments in this case. “What’s happened in case after case is that workers end up never getting the money they're owed.”
That started to change in 2010, when Nike paid $1.54 million in severance to 1,800 workers at two factories that closed in Honduras after a high-profile campaign by student activists. Since then, labor rights groups have successfully pushed Disney, Adidas, H&M, and Walmart to do the same. This time, Fruit of the Loom and Hanes required no pressure, which suggests to Nova that brands are starting to accept responsibility for the factories that make their products.
But that raises a thorny question: Why should governments enforce the law at all, if international brands will step in when they don’t?
“I think there is a danger...if the word out on the street is 'just close your doors and walk away and someone else will pick up the tab,'” says Christopher Fox, head of corporate social responsibility for HanesBrands. “That’s why we have historically taken the position that we want to do everything within our power to get the company to pay its bills."
In most cases, it doesn’t actually have to do that. Unlike more fashion-oriented clothing companies, Hanes owns most of its factories -- basic garments like underwear and T-shirts aren’t as subject to seasonal trends and fads, so they don’t need to switch up orders every few weeks. When Hanes closed two of its own factories in Mexico to take advantage of lower labor costs in Central America, it just paid severance directly.
But in this case, getting money to workers became more complicated. Fox says that when they started to suspect the factory might be running into trouble, they withheld some payments, and redirected them into the severance fund. Hanes also worked to sell the factory’s equipment, which generated some extra cash. But it wasn’t enough, and so Hanes and Fruit of the Loom finally agreed to make up the difference. (The other brand with significant business at the factory, Lacoste, did not participate.)
Depending on apparel brands to pay severance if factories don’t, however, isn’t a sustainable strategy. Rather, Nova hopes that holding brands accountable will at least force them to demand compliance from the factories they contract with.
“The real issue is, they’ve had a system of enforcement that has completely failed, because there are no consequences for the factory owners,” Nova says. “We’re not suggesting that brands should assume this responsibility permanently. It’s a necessary step for giving them the incentive to replace the completely ineffective enforcement approach.”
The most viable new approach, however, isn’t entirely clear. The Fair Labor Association, which has been working on the severance issue for years, recommends that apparel brands do business only with factories that hold their severance payments in escrow. Fox says they tried that with the factory in El Salvador. But without agreement from all the factory’s clients, implementation was impossible.
“Conceptually, it sounds really attractive and really easy,” Fox says. "But when we’ve started down that path, and dig into the details of making sure that they are in fact doing that, what seems like an easy policy is actually extraordinarily difficult."
The best solution, Fox thinks, would be for the government to institute the kind of unemployment insurance system that exists in the United States. Barring that, getting the government to enforce its own laws would help. Under the labor chapter of the decade-old Central American Free Trade Agreement, El Salvador has significantly beefed up the number of inspections it conducts; the number of fines issued increased by 600 percent between 2005 and 2010.
Yet factory owners still stiff their workers on severance, and union activity is often suppressed. Estela Marina Ramirez, head of the Fuerza union federation in El Salvador, thinks that the factory in question this time closed originally because the workers there had unionized, and offered management a collective bargaining agreement a few months before. Workers who’ve unionized have a hard time getting jobs at other factories — not to mention those who are older than 25, since factories prefer younger workers.
“Just because the workers receive this payment doesn’t mean they’re instantly going to have a better life, because the worker doesn’t have employment,” Ramirez said, through a translator. “So there is still a debt."