The Clean Clothes Campaign (CCC) delivered petitions to Adidas stores in Berlin and London, and to the company's U.S. head office in Oregon earlier this month, demanding that Adidas pay compensation of $1.8 million to former workers at PT Kizone, an Indonesian apparel manufacturer that became insolvent last April. The company's South Korean owner has absconded, leaving about 2,800 workers jobless and without the compensation worth about $3.4 million that was due to them under Indonesian rules.
Adidas is arguing that it had quit using PT Kizone, an apparel maker from Tangerang, as a supplier more than six months before the company's unethical bankruptcy. Adidas said that it had fulfilled all its obligations toward PT Kizone and was not willing to take responsibility for the misconduct of the company's owner.
The case raises interesting questions about the obligations of brand owners toward the employees of their sourcing partners, and it has already led to a court case filed on behalf of the University of Wisconsin in the Dane County Circuit Court in July. PT Kizone was making Adidas-branded outfits for the university's athletes and coaches, under a contract that includes detailed provisions on the code of conduct to be adopted by Adidas.
The lawsuit argues that the contract with the University of Wisconsin obligates Adidas to pay the legally mandated benefits owed to the workers of PT Kizone. Adidas retorts that, throughout its partnership with the University of Wisconsin, it has adhered to the spirit and the letter of the university's strict code of conduct.
Furthermore, it emerged this week that Cornell University had ended a six-year relationship with Adidas allowing the company to make and sell Cornell licensed apparel. The Ivy League school referred to Adidas' refusal to contribute to severance payments for former PT Kizone workers as a reason for the end of the deal. The university's president called on the collegiate apparel industry to make sure that their partners had sufficient and secured funds in hand to pay workers in case of factory closures. Cornell had similar disputes in the past with Nike and Russell Athletic, but the university's relationship with both brands was restored when they changed their position on issues at Honduran factories.
The CCC campaign targeting Adidas is partly based on an investigation by the Worker Rights Consortium into the situation at PT Kizone, which was also a supplier for Nike and the Dallas Cowboys. The consortium report states that the non-payment of severance pay was disclosed by Nike, and that the American company did agree to take some financial responsibility for the workers: Nike encouraged Green Textile, the buying agent for both Adidas and Nike, to contribute $1 million in compensation to the workers; and Nike itself paid $521,000 toward the fund. The Dallas Cowboys paid only $55,000, but Adidas was the only customer that did not pay anything at all – leaving $1.8 million out of the $3.4 million unpaid.
Instead, Adidas has opened talks with several government and other organizations in Indonesia and South Korea to discuss the issue of unethical factory closures; it has organized a placement program to find new work for former PT Kizone employees; and it has offered food vouchers worth about $250,000 to 2,500 of the workers. By the end of July, Adidas said that 1,200 of the workers had found new jobs, including 200 who were placed with other Adidas suppliers around Jakarta.
Other workers could be employed at the factory that was opened under new ownership on the former premises of PT Kizone. Adidas said that Green Textile had paid the $1 million in compensation before PT Kizone's bankruptcy in the hope of securing these assets, but that did not work out and the assets were sold in an auction last December. Adidas said that the court-appointed receiver had suggested settling 20 percent of the payments owed to workers with the money from the sale of the assets, but the move faced opposition from PT Kizone's former bankers, so that it remained uncertain if and when workers could receive any compensation from that side.
While the entire debate has interesting implications for the industry, the dispute around PT Kizone and Adidas partly focuses on specific issues of timing. Adidas said that it received its last shipment from PT Kizone in November 2010. The Worker Rights Consortium counters that PT Kizone still featured on listings of suppliers submitted by Adidas in January 2011.
In any case, the CCC said that the first irregularities at the company were committed in September 2010, when a group of workers left the company and did not receive their legally mandated severance pay. Adidas said that it did not take any action at the time, because the issue only came to light when unions lodged claims with a court-appointed receiver in April 2011 – when Adidas was no longer dealing with PT Kizone.
The Worker Rights Consortium report says that 2,686 employees are owed terminal compensation. The petitions handed over earlier this month were signed by more than 50,000 people. Campaigners said that the former workers were struggling; some of them had been unable to pay school fees for their children and others were facing eviction from their homes.