Skip to main content

‘This is a Crisis Response’: Is it Time for a Global Garment Workers Severance Fund?

From El Salvador to Thailand, garment workers worldwide are being stripped of some or all of their wages following mass dismissals or sudden factory closures. Could a global severance fund that includes mandatory cash infusions from brands and retailers be part of the solution?

Jason Judd, executive director of Cornell University’s ILR New Conversations Project, for one, thinks it could be a start. Covid-19, he said, has thrown into relief the chronic economic precarity long plaguing the apparel and footwear supply chain’s lowest rung. A mechanism that compensates workers who have lost their jobs and therefore livelihoods would be a “first step” in redressing a problem that he estimates has quintupled in size during the pandemic.

Judd is the co-author of an IndustriALL Global Union-supported and Mondiaal FNV-funded paper that examines proposals for a global severance or welfare fund alongside existing approaches intended to provide garment workers with “some degree” of income security.

The crux of the problem, Judd said, is that garment workers frequently lack well-funded and democratically administered social protection schemes for unemployment. Five of the largest manufacturing hubs—Bangladesh, Cambodia, Indonesia, Pakistan and Vietnam—do not even offer statutory unemployment benefits. Together, they make up 12.8 percent of global apparel and footwear exports.

Enforcement of workers’ rights is also lax, which is why employers are frequently able to withhold legally required severance payments without fear of official reprisal. Loopholes that allow employers to dodge severance payments to migrant workers or those with indirect contracts, likewise abound. When it came to the stress test that was Covid-19, these systems buckled completely, resulting in widespread impoverishment and hunger.

Related Stories

“Whenever there’s economic pressure, wage theft increases, but it’s a chronic problem that’s existed [for decades],” said Scott Nova, executive director of the Worker Rights Consortium, whose investigations into missing compensation are widely cited in the New Conversations Project’s study. “The pandemic certainly increased the incentive for wage theft, and the chaos of the pandemic made it easier to carry it out with impunity.”

Nova estimates that factory owners owe terminated workers at least half a billion dollars, and that was in the first year of the pandemic alone. The Washington, D.C.-based nonprofit is currently working on close to 40 unresolved severance cases representing more than $40 million in wage theft. In some cases, the lost earnings are the equivalent of a year’s wages for a single worker.

“And obviously, wage theft is especially pernicious in the context of low-wage work, right?” he said. “It’s not like these workers are paid enough, to begin with. And then you lose 10 percent of your wages, you lose your severance; it’s a brutal form of worker abuse. And there’s a lot of it.”

The crisis resurrected with a vengeance an old question: Who is responsible for decent work? And, as an extension of that, what happens when the apparatus designed to ensure decent work breaks down?

“It shouldn’t be news to buyers that these systems are weak or don’t function,” Judd said. “Buyers treat this as somebody else’s problem—it’s the problem of the national government [and so on], but in a due-diligence regime, you would expect the brands to participate in the remedy knowing through investigation that the systems [are] not in place. But it’s going to take a long time, and in the interim, there has to be some sort of income support for workers.”

Though most buyers’ voluntary codes of conduct require suppliers to dole out all legally mandated benefits, what little data is available suggests that the rate of non-compliance is significant, if not high, calling into question the efficacy of private regulation. Without clearer and stronger language about the obligation of clothing purveyors, the International Labour Organization’s (ILO) opt-in Call to Action likewise garnered little to no financial contributions from the companies themselves.

”Many of the brands we have contacted are refusing to negotiate with us, deferring instead to their participation in the ILO-convened Call to Action,” said Kalpona Akter, president of the Bangladesh Garment and Industrial Workers Federation, an IndustriALL affiliate. “The Call to Action’s fund is based on voluntary participation, without enforcement provisions and without any obligation for the parties to contribute. It is not surprising that it has not delivered meaningful relief for garment workers.”

Judd said that any type of temporary financial relief that a global severance might bring would require “concerted action” by everyone with a stake in the industry: employers, labor unions, governments and civil society organizations, but most of all brands and retailers that “should or do know that, in many of these places, governments are not prepared to play their role.”

“As we’ve seen time and again in debates over wages and other money questions, the money resides chiefly with the brands,” he said. “That doesn’t mean they bear the whole burden, but they have to be, as you saw in the Accord [for Fire and Building Safety in Bangladesh], part of the solution. And that includes binding obligations and money investments.” The success of the Accord, he continued, lay in its specificity, which allowed it to be more enforceable than any apparel industry agreement that came before it.

Though the possible costs of a program and the ability of brands and retailers to fund it were beyond the paper’s remit, it noted that 10 of the top 17 companies for which data is available increased their net profits over pre-Covid levels, sometimes by “very large margins,” by the end of 2021. Hanes, for instance, made 48 percent more in 2021 than it did in 2019, while Uniqlo owner Fast Retailing raked in an extra 35 percent. LVMH Moët Hennessy Louis Vuitton saw profits jump 110 percent. The relative health of these buyers, Judd said, stands in “sharp contrast” with the pandemic experience of many of their workers.

A global severance platform is not new, the study said. A precedent exists in the realm of maritime shipping. Since 1999, the International Bargaining Forum has levied an annual per capita seafarer “tax” on a consortium of Asian and European vessel owners and shipping management firms. Part of this goes into a seafarers’ welfare trust. In apparel, the program’s costs could be incorporated into freight on board or buyers could purchase private severance insurance.

Who gets to govern the global severance is a trickier question that can get mired in politics, Judd said. Global initiatives such as the Clean Clothes Campaign’s Pay Your Workers, which have previously urged the creation of a wage assurance fund, call for a global governance structure underpinned by nationally based committees. Brands and unions could also ink a bipartite agreement, similar to the International Bargaining Forum, that allows them the majority of votes in a governing body that includes members of the ILO, governments, financial institutions and relevant NGOs.

One thing that is clear is that any welfare mechanism must be established “everywhere and all at once” to sidestep questions over one country’s competitiveness over another. A number of enabling conditions, such as workers’ right to collectively bargain, decent purchasing practices and long-term commitments, too, must be in place before a scheme can work effectively.

“One of the reasons why severance pay is a struggle for some of these suppliers is their margins are tiny and they’re facing this constant downward price pressure,” Judd said. It also “goes without saying” that brands and retailers must pay for in-process and completed orders.

“This is a crisis response,” he added. “In the aggregate, private, voluntary regulation of work has failed.”