Jack Wolfskin, Complaint 189

CONCERNING LABOUR STANDARDS
Payment of a living wage
STATUS
Closed
DATE
2015-11-16

The complainant union stated that because of the bankruptcy of the factory, the workers have not received their due wages and any of the severance payments and fringe benefits still owed to them according to Indonesia law.

Findings and conclusions

FWF received a complaint 16th November 2015. The complainant union stated that because of the bankruptcy of the factory, the workers have not received their due wages and any of the severance payments and fringe benefits still owed to them according to Indonesia law. The factory was an active supplier to FWF member Jack Wolfskin.

FWF concluded that the claim of the union is justified. The workers’ claim is supported by the Ministry of Labour and the curator. It looks extremely unlikely that workers receive payment of funds owed to them through pursuing their claim through the bankruptcy process.

FWF looked into the sourcing and business practices of FWF member Jack Wolfskin. FWF concludes that Jack Wolfskin meets the requirements of FWF. It has taken its responsibility to conduct business with the supplier concerned in a responsible way, according to FWF standards and expectations. It has monitored labour conditions at the factory and subsequently motivated the supplier to improve the labour conditions at the factory. FWF cannot find reason to believe that its sourcing practices may have caused or contributed to the bankruptcy. Furthermore, Jack Wolfskin tried to mitigate the harm of the bankruptcy to the workers.

Even though FWF does not require this and there is also no legal obligation for Jack Wolfskin to pay outstanding wages and other outstanding payments to workers, Jack Wolfskin is willing, on a voluntary basis, to support the former workers of the factory in Cikupa, Tangerang, with a financial payment, which reflects Jack Wolfskins share at the factory. This payment was distributed to the employees through the collaboration of several parties, which FWF can confirm based on its own involvement. The workers were pleased by the compensation, but also felt it was small in comparison to the amount owed to them by the factory.

Overview of the complaint investigation

2015-12-31 Investigation

Since the factory has gone bankrupt, management can no longer be contacted to provide information and remediation. The FWF complaint procedure assumes there is an active supplier which enables remediation. In a case of bankruptcy, there is no longer an active supplier and counterpart for the FWF brand. Because of this, options for investigation of the case are also limited.

FWF received information from factory trade union FSPMI (incl. chronology and financial data from the curator) and other stakeholders, such as Worker Rights Consortium (WRC). The WRC account of the case (December 21, 2015) is accepted by the complainant and Jack Wolfskin to provide a solid overview of the case, which means information from this report can feed into the investigation. Furthermore FWF reviewed a.o. information in the FWF members’ supplier database, information on the order data in financial years of Jack Wolfskin, social audit reports of factory (Cikupa, Tangerang) in in the period 2011-2015 and other internal reports and company information of Jack Wolfskin. FWF moreover consulted international experts on international sourcing strategies in the garment industry and on the UN Guiding Principles on Business and Human Rights.

2016-06-06 Conclusion of the investigation

On the claim of the complainant:
It can be concluded that the claim of the workers and the union, of neither having received wages from March till their dismissal due to bankruptcy on June 21, 2015, nor severance payments and fringe benefits after dismissal is justified.
Nevertheless, the company who had employer responsibilities and owned the 2 factories became insolvent, and all the financial affairs were handed over to the curator. The curator, appointed by the court to administer the factory’s assets, issued workers’ dismissal notices on May 7 2015, stating workers dismissal would be effective June 21, 2015. The Ministry of Labour has confirmed that the workers are entitled to all unpaid wages for March-June 2015, severance payments, and the annual holiday bonus for 2015. According to the complainant and the WRC report, the curator has confirmed that workers of the 2 factories are owed in total Rp140,969,105,614.40. This sum is mentioned to only cover workers who have filed claims with the curator via a union or attorney.

The Worker Rights Consortium report states it is extremely unlikely that workers will receive payment of funds owed to them, in a timely or substantial manner, through pursuing their claim through the bankruptcy process, because of several reasons. Workers’ claims hold a disadvantaged legal position vis-à-vis the secured creditors (which are recognized by the court to have preferential claims over other creditors, i.e. the workers). Therefore, the WRC and complainant do not expect that the auction of company assets will be able to cover a considerable part of all claims of creditors; even if workers would be allocated funds through the sale of assets by the curator, it can be assumed that workers may have to wait years because of legal delays before seeing any of these funds (which would likely only compensate (part of the) due wages, not the severance pay and fringe benefits).

Conclusion on the responsibilities of Jack Wolfskin:
Through FWF membership, Jack Wolfskin is committed to help support (the development of) good labour conditions at suppliers and conduct social business practices which support this at supplier level. FWF concludes that Jack Wolfskin has taken its responsibility to conduct business with the supplier concerned in a responsible way, according to FWF standards and expectations. FWF has monitored labour conditions at the factory and subsequently motivated the supplier to improve labour conditions. FWF cannot find reason to believe that its sourcing practices may have caused or contributed to the bankruptcy. Furthermore, Jack Wolfskin tried to mitigate the harm of the bankruptcy to the workers (as it did with the harm of an earlier complaint). Jack Wolfskin meets FWF's requirements:
Even though FWF did not require, and there is no legal obligation for Jack Wolfskin to pay outstanding wages and other outstanding payments to workers, FWF does recommend Jack Wolfskin, on a voluntary basis and as gesture of solidarity with the workers, to contribute to (setting up) a solidarity fund for/consider solidarity payments to the former workers working at its supplier, the factory in Cikupa, Tangerang. Through this, Jack Wolfskin can show support to the workers, particularly considering the high impact of the bankruptcy on the daily lives and living conditions of the former workers of the factory. Furthermore, Jack Wolfskin can consider to base a voluntary donation to be paid to the workers of the factory in Cikupa, Tangerang, on its leverage at the factory (Jack Wolfskin’s buying share of the total factory production volume produced yearly by the factory) and an average sum per worker of due wages, severance pay and fringe benefits. For this solidarity payment, the number of workers at the social audit done in January 2015 can be used as basis (a total number of 1284 employees at the time of the audit, of which 830 at the garment division where Jack Wolfskins production was made).

FWF proposes to base the calculation of the voluntary payment on:
 Jack Wolfskin's leverage, based on its yearly order volume, in either the amount of pieces in relation to the total yearly factory production capacity in pieces or on the bases of Jack Wolfskin's FOB/financial order in relation to total factory turnover.
 Based on available data of the yearly production capacity of the factory in amount of pieces and the amount of pieces bought by Jack Wolfskin, FWF calculates this leverage to be 2.04%.
 Based on a representative year, for which financial data is available on total factory capacity and Jack Wolfskin’s buyer share.
Based on available data of the yearly production capacity of the factory in amount of pieces and the amount of pieces bought by Jack Wolfskin, FWF calculates this leverage to be 2.04%.

FWF recommends making sure that this solidarity payment will be done in such a way that the payments will actually get to the workers. For this purpose, this payment process should be witnessed and guided by independent parties. The complainant party, the factory union FSPMI, should have the possibility to comment on the procedure beforehand and should be able to observe the payment process.

2016-12-12 Remediation

Jack Wolfskin, on a voluntary basis, supported the former workers of the factory in Cikupa, Tangerang, with a financial payment, which reflects Jack Wolfskin’s share at the factory. The payment process was done on a collaborative basis involving Jack Wolfskin, the two trade unions (both at the factory level as well as the national level), FWF, the buying agent, the Worker Rights Consortium and the curator. The curator transferred money via bank transfer to 1963 workers. Exactly 100 workers for various reasons were unable/unwilling to provide bank account information. To compensate those workers, the curator transferred the remaining money to the two trade unions to distribute to these workers. This donation does not imply that Jack Wolfskin can be held responsible for the financial situation of its (former) supplier(s), nor can it be used as a basis for future claims in this or other cases.

2017-02-01 Verification

As FWF was closely involved in the collaborative process described above, it is able to verify that workers received the funds.

2017-02-22 Evaluation of the complaint

In this case, the complainants are all the workers previously employed at the factory located in Cikupa, Tangerang. The complainants were, on the one hand, pleased to be able to receive compensation. On the other hand, they felt that the compensation provided was small in comparison to the amount still owed them as described earlier in the report.

2017-03-01 Closed

This complaint has been resolved.