Workers' rights

Severance pay remains a struggle for Southeast Asian workers

Garment factory labourers for big clothing brands often struggle for legal compensation after losing their jobs, even when court rulings favour workers in wage cases

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August 10, 2022
Severance pay remains a struggle for Southeast Asian workers
Indonesian garment workers, from left, Nurhayat, Wariah, Acim Supriadi, Rita Handayani and Sumarti, sewed for clothing brands such as Uniqlo and s.Oliver. They are among 1,600 full-time workers laid off by factory PT Jaba Garmindo who are still owed more than $5 million in severance pay and benefits. Photo: Jack Brook for Southeast Asia Globe

Garment workers at Thailand’s Brilliant Alliance factory were granted leave, only to learn their employer had shut down when they returned to their worksite in early March 2021. 

“Everyone was abandoned and never went back to work, there was nothing from the company about compensation,” said Jitnawatcharee Panad, a union leader who worked at Brilliant Alliance for 25 years.

None of the 1,250 workers received the severance pay to which they were legally entitled. Severance can include compensation for seniority and lack of prior notice of termination. 

Across Southeast Asia, garment workers have spent years campaigning for companies such as Nike and Uniqlo, a Japanese casual wear brand, to provide severance compensation when their suppliers failed to do so. 

The advocacy has occurred amidst increasingly restrictive labour laws in Southeast Asia, allowing employers to evade full severance and enabling brands to deny responsibility for the financial consequences faced by garment workers, labour rights groups said.

After a year-long advocacy campaign amplified by international labour rights NGOs Solidarity Center and Worker Rights Consortium (WRC), Panad and her Brilliant Alliance colleagues ultimately received $8.3 million in compensation from the factory’s biggest client, lingerie brand Victoria’s Secret. 

The payout, classified as a loan to the factory owner, Hong Kong-based Clover Group International, is the largest severance settlement in the history of the garment industry, labour activists said.

But the settlement is not a systemic solution to the global issue of severance pay theft, according to Solidarity Center Director for Thailand and Myanmar, David Welsh, who argued brands such as Victoria’s Secret shape garment industry conditions and should be responsible for helping solve the industry’s problems. 

Brands often decline to intervene, including Brilliant Alliance clients Lane Bryant and Torrid, which did not contribute to the severance payout. The companies did not respond to requests for comment.

Between April 2020 and April 2021, a WRC investigation found 19 cases across Myanmar, Thailand, Cambodia and Indonesia in which garment factories did not provide legally entitled severance pay, depriving 37,637 workers of more than $34 million. 

“Virtually every major apparel brand and retailer has been implicated” in wage theft in the last 15 years. Most regional garment workers who lost their jobs were owed around $1,400 to $3,000, while long-term employees may be owed more than a year’s worth of wages, according to the WRC report.

There are likely hundreds more cases globally, many triggered by a global supply chain collapse caused by the Covid-19 pandemic, WRC Director of Supply Chain Strategies Liana Foxvog said.

The Business and Human Rights Resource Centre (BHRRC) garment worker allegations tracker found more than half of the 104 cases of human rights abuse allegations in Myanmar’s factories involved wage theft, including lack of severance pay.

“The reality is, unless groups like ourselves get involved, nothing happens,” Welsh said.

Cambodian garment workers shout slogans during a protest in front of a factory in Phnom Penh on 7 October, 2015. Photo: Tang Chhin Sothy/AFP

A Thai court delivered a ruling in March finding Clover Group International owed millions in severance to Brilliant Alliance workers. Clover Group International, which did not respond to requests for comment, initially promised workers payments in instalments over 10 years. 

“The law is there, but the law is not being enforced,” union leader Panad said. “The law itself doesn’t apply to the international company.”

Yet the court decision proved critical in negotiations with the Thai government and Victoria’s Secret, activists said.

Thai court rulings often favour workers in wage cases, but Cambodia and Indonesia have introduced measures eroding workers’ claims to severance, according to WRC Southeast Asia Field Director Bent Gehrt. Indonesia’s 2020 omnibus law eliminated a small business requirement to pay severance and reduced other termination benefits. 

On the outskirts of Jakarta, laid-off garment workers living down the road from their former employer, PT Jaba Garmindo, have been unable to leverage the legal process or international advocacy to receive full severance. Workers said they learned about the factory’s 2015 bankruptcy and closure from online media.

More than 1,600 workers eventually secured 25 billion IDR ($1.68 million) from the company’s liquidated assets, but are still owed around 75 billion IDR ($5 million). Workers said brands purchasing from the factory should pay.

“It is our right, we worked for their product, they can share their profit with the workers,” said Nurhayat, a former employee and union leader.

Nurhayat is a leader of the Pengurus Serikat union representing PT Jaba Garmindo factory’s garment workers, who are negotiating with brands such as s.Oliver to secure additional compensation. Photo: Jack Brook for Southeast Asia Globe

The Fair Labor Association (FLA) and the Fairwear Foundation, which work to improve garment industry labour conditions, launched investigations after WRC alleged 2014 order cancellations by brands including Uniqlo were due to ongoing union disputes and contributed to bankruptcy.

FLA and Fairwear concluded the brands were not responsible for the factory’s bankruptcy and were not required to compensate workers for lost severance pay. 

“I don’t think that the current state of supply chain standards creates any clear legal responsibility,” FLA Senior Advisor Eric Biel said, adding that the organisation has not found a brand it accredits legally liable for severance compensation. 

we worked for their product, they can share their profit with the workers”

Nurhayat, union leader

Fast Retailing, which owns Uniqlo, said in a statement that FLA’s determination meant the corporation had no obligations to the workers. 

FLA and Fairwear recommended brands voluntarily establish funds for the workers, leading outdoor apparel line Jack Wolfskin to donate €32,227 ($33,000) and publish a video highlighting its payments. But workers said the total, below $20 per person, is symbolic.

“It’s not enough for anything, maybe to buy rice,” said Sumarti, a 50-year-old former seamstress. “For the school fee of my child, it’s not enough.” 

Sumarti has struggled to find another garment sector job due to her age, instead working at an auto-parts factory for under $4 per day, well-below Indonesian daily minimum wage

In the first 13 months of the pandemic, as major brands cut back or cancelled orders, 784,000 Cambodian footwear, apparel and leather industry workers lost an estimated $394 million in wages and severance due to lockdowns and factory closures, according to trade unions and the Clean Clothes Campaign, an international labour rights consortium.

Yet Nike and Fast Retailing netted hundreds of millions of dollars between 2019 and 2021 despite the pandemic, according to a 2022 report by consulting firm McKinsey. 

In Cambodia, garment workers laid off in July 2020 by Violet Apparel, a factory owned by Singapore-based Ramatex. Ramatex has supplied Nike, Under Armour and Uniqlo, but these brands have stated they are not responsible for contributing to the workers’ severance. 

Nheh Ratana said she began working at Violet Apparel in 2004. Labour rights organisation CENTRAL calculated she is owed $1,638 of severance following the closure of the company.

Nheh Ratana was among the 1,284 workers laid off by Cambodian garment factory Violet Apparel. Ratana worked at the factory for six years and claims she is owed more than $1,600 in severance and lost benefits. Photo: Choulay Mech for Southeast Asia Globe

“It has really impacted my life because I borrowed the money from the bank because my mom is sick and I needed money to support my daughter,” the 34-year-old said.

Fellow seamstress Yong Mom went into debt when she was among 1,284 layoffs by Violet Apparel. After more than a decade of employment, she is owed $2,818, but Nike and other brands who contracted with the factory declined to help provide full severance, according to CENTRAL. Nike’s code of conduct requires suppliers pay legally mandated severance.

Yong Mom sewed clothes for brands including Nike at Cambodia’s Violet Apparel factory for more than 11 years before being laid off in 2020, along with 1,284 colleagues. Photo: Choulay Mech for Southeast Asia Globe

“I am still waiting for… good compensation. Even though I borrowed money from the bank, I am still waiting,” Mom said.

Severance for Violet Apparel workers with more than a decade of employment was calculated from 2019, when a change in Cambodian law required switching workers from six-month contracts to permanent contracts with greater benefits. 

The 2019 adjustment allowed Violet Apparel to reduce the severance for long-time employees by thousands of dollars, but the workers are collectively owed $1.39 million in unpaid compensation and damages, CENTRAL calculated. 

The company cited a 2020 letter from Ouk Chanthou, the inspection department director in Cambodia’s Ministry of Labour, directing companies to provide severance based on the start of permanent contracts. 

Patrick Lee, a CENTRAL consultant, said the ministry official does not have that authority because severance should be calculated from the start of employment, regardless of contract type: “This is at complete odds of what is stated in the labour law.” 

Cambodia’s UN-appointed Arbitration Council, which provides nonbinding labour dispute resolutions, said the labour ministry must resolve whether Ouk’s letter superseded existing law. Ministry spokesperson Heng Sour did not respond to requests for comment.

Under Armour, British fashion retailer Matalan and Fast Retailing said they expected Ramatex to abide by Cambodian laws and were told by Ramatex that the case was resolved in arbitration.

Violet Apparel executives could not be reached for comment. Ramatex did not respond to a request for comment prior to publication.

BHRRC claimed in a 2021 report that Violet Apparel also subcontracted Nike orders, which were sent to another factory as recently as 2019, while Ratana recalled producing Nike clothes until 2020.

“The boss told us to sew carefully because it is for Nike,” Ratana said. “We received their clothes until the factory closed.”

Nike told the BHRRC in October 2020 that it could not comment because the sportswear giant had not sourced from the Violet Apparel factory since 2006. Nike did not respond to a request for comment.

Even when workers secure payouts, a long fight can take a financial toll. Brilliant Alliance workers in Thailand said that after months without severance they used most of their Victoria’s Secret settlements to pay cost of living debts. 

Earlier payments may have produced more sustainable income, Gehrt claimed: “You can invest, maybe open a small shop that can sustain you, or whatever you want to do. But if you have to spend a big part of it just paying back what you will have to borrow in order to survive that year, the nest egg becomes much smaller.”

The Victoria’s Secret compensation showed major brands have the power to negotiate with governments and exert influence to ensure workers receive wages guaranteed by law, Solidarity Center’s Welsh said.

A study published in April by the Cornell University School of Industrial and Labour Relations in New York found sharing responsibility for severance payments can protect workers, reduce industry legal responsibility and minimise harm to corporate reputations.

As part of the ‘Pay Your Workers’ campaign, labour rights groups called for governments and brands to establish severance funds to which factories and retailers make regular payments ensuring there is sufficient money for laid-off workers following a corporate bankruptcy.

An industry-wide fund could emulate the success of Vietnam’s unemployment relief, which mandates employers and workers contribute 1% of wages to a social security fund, Gehrt said.

No major garment industry brands have said they include future severance obligations for suppliers in product pricing, nor have they required suppliers to maintain sufficient funds to meet severance payments, according to the WRC.

If severance cases continue to be treated individually and the garment industry and governments do not implement measures to prevent wage theft, no brand will make serious efforts to reform supply chains, Welsh said.

“Ultimately, it’s the brands that dictate terms,” he said. “They are the dominating force.” 

Additional reporting by Choulay Mech.

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