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Half a Billion in Severance: Laid-Off Garment Workers Still Waiting on Wages

Half a billion dollars. That’s the amount of severance pay that factories supplying clothing to some of the world’s biggest brands are withholding from the workers they’ve let go, according to a new report by a leading labor-rights group.

For chronically underpaid garment workers with no savings and few social protections, the legally mandated severance they are owed when they’re laid off is typically the only thing that staves off certain destitution, the Worker Rights Consortium (WRC) said Tuesday. Yet tens of thousands of out-of-work garment workers, the organization said, are being denied some or all of this vital sum, in violation of both the law and the ethical obligations of the brands for which they sewed.

“In this pandemic, unemployed workers desperately need a safety net. Garment workers’ safety net is their legally mandated severance,” Scott Nova, executive director of the WRC, said in a statement. “When brands stand by while suppliers steal that money, the consequences for workers and their families are devastating.”

The WRC said it identified 31 export-oriented garment factories in nine countries, including Bangladesh, Cambodia, El Salvador, Jordan and Indonesia, where it found “definitive evidence” that 37,637 workers were shortchanged an estimated $39.8 million in legally mandated compensation, which breaks down to an average of more than $1,000 per person.

These cases represent only the “tip of the iceberg,” the organization said. The WRC said it has flagged an additional 210 export apparel factories, across 18 countries, where initial evidence suggests that 160,000 workers have been deprived of an estimated $171.5 million in legally mandated severance.

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Even then, the factories in the WRC’s scope represent only a “modest fraction” of the total number of factory closures and large-scale dismissals—defined as the firing of 50 or more workers—that have occurred over the past 12 months across the entire garment industry, it said. An extrapolation of figures could put the “total severance theft” during the pandemic across the globe at between $500 million and $850 million. The “true amount,” the report noted, could plausibly be in excess of $1 billion. And the coronavirus has yet to be squashed.

“Some garment workers have waited an entire year for their severance and can’t feed their children. Each month more factories are closing and leaving workers with nothing,” said Liana Foxvog, crisis response director at the WRC and primary author of the report. “The long-term problem of repeated severance theft in the garment industry has reached a brutal crescendo during Covid-19.”

Fashion businesses canceled or suspended billions of dollars of orders last spring as widespread lockdowns and reduced consumer spending threatened to sink their bottom lines. When orders started trickling back, buyers began demanding deep discounts, forcing more than half of suppliers to accept some orders below cost, a previous study by the WRC and the Center for Global Workers’ Rights at Penn State University found. Suppliers now have to wait at least twice as long after they complete and ship new orders before they receive payment, further curtailing their ability to pay and employ their workers, researchers said.

One year on, the worsening conditions facing garment workers stand in stark contrast with the health of many of the brands implicated in the report, the WRC said. Adidas, Amazon, Gap, H&M, Inditex, Next, Nike, Target and Walmart have all delivered robust earnings. Amazon, for instance, saw revenues surge a record 38 percent to $386 billion in 2020. Zara owner Inditex, the world’s biggest apparel retailer in terms of sales, made 1.1 billion euros ($1.31 billion) in net profit. Nike, too, did well, raking in a global gross profit of $16.24 billion.

Adidas said that one of the factories in the report, Hulu Garment Co. in Phnom Penh, Cambodia, was a supplier of one of its licensing partners but that the sportswear company did not have a “contractual agreement” with it. The other, PT Victory Chingluh in Indonesia, it said, does not supply to Adidas. (The factories did not respond to a request for comment.)

“Throughout the pandemic, Adidas has been committed to ensuring fair labor practices, fair wages and safe working conditions throughout our global supply chain,” a spokesperson told Sourcing Journal. “We continued to source from our partners and committed to paying all orders, whether they were completed or in process. To this end, we employ a team of more than 50 specialists, who work daily towards more sustainable business practices in our supply chain.”

Walmart said it has been working closely with its suppliers to help “minimize the impact where possible” by honoring commitments and expediting payments to qualified suppliers.

“When we receive allegations that a supplier or facility, including one that has recently closed, is violating our standards, or not complying with the law, we review and take appropriate action to hold suppliers accountable for compliance,” a spokesperson told Sourcing Journal.

H&M declined to provide a statement. Amazon, Gap, Inditex, Next, Nike and Target did not respond to requests for comments.

The only effective way forward, the WRC said, is for brands to sign a binding agreement with unions to establish a severance guarantee fund. The cost to brands, more than 200 endorsing organizations, including the Clean Clothes Campaign, Fashion Revolution and Remake, have said, would be less than 10 cents on a T-shirt. Such a fund could pave the way for brands to pay an additional “living wage contribution” on every order they place, addressing the circumstances caused by the industry’s poverty wages and making good on many of their promises to promote living wages.

But first, workers need immediate access to capital.

”The severance guarantee fund is the only way to hold employers and brands accountable and ensure that fired garment workers are no longer robbed of the severance they have legally earned,” Foxvog said.