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‘Step Up and Pay’: Factory Layoffs Pushing Workers Back to the Brink

Canceled orders. Unilateral discounts. Worker layoffs. The cost-of-living crisis rippling across the globe is bringing with it an alarming sense of deja vu.

As consumers in Vietnam’s two biggest markets feel the bite of high inflation and rising energy costs, weakening their discretionary power, orders are down 30 percent to 40 percent from the United States and 60 percent from Europe, according to the Vietnam General Confederation of Labour.

Since September, more than 470,000 workers, including those who make clothing, footwear and furniture, have found themselves working fewer hours in the last four months of the year, while another 40,000 have lost their jobs altogether, the trade union center said.

Pouyuen Vietnam Co., a Nike supplier, has asked 20,000 workers to take alternative Saturdays off from December to February due to plummeting business, local media reported. In November, Taiwan-owned Footgearmex Footwear Co. announced that it would be laying off two-thirds of its Ho Chi Minh City workforce, or 1,200 workers, due to a “drying up of orders and financial issues.” Ty Hung Co., another Taiwanese shoemaker, let go of 1,185 people earlier this month.

In October, five apparel companies in the Philippines—Globalwear Manufacturing Inc., Feeder Apparel Corporation, Mactan Apparels Inc, Metro Wear Inc. and Vertex One Apparel Phils, which are all owned by Taiwan’s Sports Center International—issued joint retrenchment notices for 4,485 workers. The problem, their announcement said, was that the world was “on the brink of global recession, with higher-than-expected inflation and the global financial conditions are becoming tighter.” Typhoons, the fallout from the Covid-19 pandemic, supply chain bottlenecks, spiraling gas prices and the war between Russia and Ukraine have “shaken not only our financial health but as well as having unstable operations,” it added.

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Over in Indonesia, PT Panarub, an Adidas supplier, has fired 300 workers with only half of their legally owed severance, according to the Worker Rights Consortium. Another 1,500 layoffs are in the works, the workers’ rights group said. (Adidas said that any downsizing will follow both local laws and its own workplace standards, while PT Panarub did not respond to a request for comment.) Workers in Sri Lanka, which has also seen apparel orders plummet by 20 percent to 30 percent, are also facing a “crisis” as a slew of factories shutter, emergency relief allowances dry up and proposed legislation threatens to erode labor protections, according to a webinar held this week by War on Want, a London-based anti-poverty charity.

But the economic uncertainty enveloping the globe isn’t to blame—not precisely anyway, said Thulsi Narayanasamy, director of international advocacy at the Worker Rights Consortium.

“You can’t view this as one in a string of consecutive crises, because whether it’s now, during the pandemic, or 10 years ago, the root cause of garment worker poverty and economic vulnerability is the same: unfettered power that brands wield over their supply chain to pay rock-bottom prices that leave workers earning less than half of a living wage,” she told Sourcing Journal.

“Brands don’t prioritize the lives of people who produce their clothes, how else to explain why brands don’t step up immediately when legally mandated wages and severance aren’t paid,” Narayanasamy said. “We are still working through unpaid severance cases from 2019 and 2020, it’s horrifying to see how vehemently brands will dig their heels in for years to avoid paying workers the pittance they are legally owed.”

But the vise is tightening once more, said Dominique Muller, policy director at Labour Behind the Label, a U.K. workers’ rights nonprofit. Muller said she’s seeing an uptick in brands delaying orders, canceling altogether or exacting unilateral discounts from suppliers who can “hardly afford to produce goods at the prices the brands are asking.” Many brands, struggling to shed inventory, are asking for orders to be held and shipped indefinitely, which means suppliers won’t receive their payments until deliveries conclude.

“What we have also seen is that brands are being careful of not ‘canceling’ an order but in practice delaying them indefinitely in order to avoid the public outcry over the billions of unpaid orders during the start of the Covd-19 pandemic,” she said. “This is disingenuous behavior and serves as a stark reminder that the bottom line for brands is profit at all costs.”

Brands are also failing to take into account the surging cost of production, including massive inflation increases of almost 100 percent in countries such as Sri Lanka, Muller said. In certain parts of Leicester in the United Kingdom, garment workers and their families make up 75 percent of food bank clients. In Asia, workers are “desperately trying” to buy enough food to stave off starvation. Meanwhile, brands continue to rake in profits, enough to plot expansions or “hoover up” smaller e-tailers. They might even be actively diverting orders from wholly owned or unionized factories to suppliers that underpay wages, she added.

“Increasingly, garment workers are once again paying the price of a business model which is driven by greed and excessive profits and based on the exploitation of low-paid workers,” Muller said. “Workers will have little choice but to step up protests in garment production countries—even at the risk of government repression which we see in response.”

Indeed, worker protests, fueled by desperation, have ramped up in frequency. Earlier this week, at least 10 workers from New Line Clothing Factory in Bangladesh were injured during a demonstration over delayed wages. (The factory did not respond to an email seeking comment.) A similar scene unfolded in November when several hundred Olio Apparels workers demanded four month’s worth of unpaid wages. (Olio Apparels also did not respond to a request for comment.) In neighboring Sri Lanka, 1,500 Brandix Koggala workers took to the streets to protest a reduced bonus payment. Orders at the factory have fallen by 40 percent, its general manager said.

“Abusive” purchasing practices bear much of the blame for the current predicament, said Fiona Gooch, senior policy advisor at Transform Trade, formerly Traidcraft Exchange, a fair trade organization in the United Kingdom. Bad actors that continue to squeeze margins make it “impossible” for manufacturers to improve working conditions and wages for their employees.

“Despite a plethora of pledges and voluntary agreements, unethical purchasing practices are common and widespread,” Gooch told Sourcing Journal. “Brands make changes to specifications, prices and payment terms at the last minute. They demand discounts, delay payment and even cancel orders after the clothes have been produced or shipped.”

Gooch and Transform Trade have been echoing calls by a group of British Members of Parliament to appoint a “garment trade adjudicator” that can monitor the United Kingdom’s fashion industry the way the groceries code adjudicator regulates food. (Across the pond, a group of journalists, academics, nonprofits and brands, including Allbirds, Mara Hoffman and Reformation, have entreated President Joe Biden to appoint a “fashion czar.”)

“A fashion watchdog would enforce a statutory code to ensure that brands stop dumping risks onto their suppliers, and there is growing support for this across the U.K. and the EU,” she said. “Only once suppliers have a predictable income, can they plan ahead and start improving conditions for their workers.”

Christie Miedema, campaign and outreach coordinator at the Clean Clothes Campaign, the garment industry’s largest consortium of trade unions and advocacy groups, said that even small fluctuations in economic conditions can have “real-life effects” on workers. It’s why more than 260 organizations have joined forces to urge the creation of a severance fund that brands pay into, ensuring that workers are “never left penniless again.”

“As a very volatile and mobile industry, garment brands can easily pick up their orders and go to another factory or country or just stop production at a factory entirely at the slightest feeling that that would be more profitable,” said Miedema. “Workers should be receiving severance that they have built up during their time at the factory. This is essentially [a] postponed wage, which the factory should build up during the workers’ occupation at the factory. However, on the low margins brands offer, many factories fail to do this, so when workers are laid off or factories close, workers are often left with nothing.”

Narayanasamy agreed. As the currencies of several garment-producing countries face some of the steepest drops in recent memory, workers’ “real wages” have also taken a nosedive.

“This isn’t a question of whether brands are aware of whether or not their supply chain workers are earning poverty wages, they are the ones creating this situation based on their sourcing practices,” she said. “They know what they need to do, ringfence labor costs to a level where the wage workers earn is at least a living wage, use the immense economic leverage to ensure that workers always receive what they are owed, and when they don’t, step up and pay.”