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India’s $23.1 Million Wage-Theft Win: ‘It Wasn’t a Few Bad Apples’

The “worst case” of wage theft that garment-industry campaigners have witnessed is barreling toward a hard-won conclusion.

Nearly 210,000 workers have managed to claw back $23.1 million of the $30.7 million they were owed by 21 of the biggest apparel manufacturers in the southern Indian state of Karnataka, where a government-mandated minimum-wage increase went ignored and unpaid for nearly two years, the Worker Rights Consortium (WRC) told Sourcing Journal Thursday.

All 21, the labor-rights group said, have committed to pay both current and former employees their full arrears. They’ve also promised to dole out the current minimum wage, which includes a higher variable dearness allowance that is calculated based on the rate of inflation, moving forward.

For the first time, the WRC is able to report data on confirmed payments to workers on a supplier-by-supplier basis, said Scott Nova, the Washington, D.C. organization’s executive director. As of this month, 16 of the 21 suppliers have compensated all current employees in full, and four have made partial payments, its tracker found. The WRC was unable to confirm payments in only one case: C&A and Matalan supplier Creative Factory. So far, all 21 suppliers have fulfilled their pledge to pay the correct minimum wage.

Earlier this month, the Karnataka labor department posted a notification withdrawing a 2020 order allowing the state’s employers to postpone payment of the variable dearness allowance. With this, the High Court will be able to wind down an ongoing case over the status of the postponement, which previous hearings had declared illegal but manufacturers claimed was still being contested.

“The factories kept saying, ‘Well, they’re still in court, so we don’t have to do anything,’” Nova said. “And that was the excuse that the brands accepted for all those months. Now that the factory owners have given up and [are being] forced to pay the money they legally owe people, the government has finally ended its court case and rescinded its proclamation, so it just puts a nice political bookend on the whole story.”

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Nova credits the efforts of the Garment And Textile Workers Union, which represents more than 5,000 workers in the state, for taking the case to court and winning the “powerful” original verdict around which the WRC built its work.

The argument in favor of the workers was also so iron-clad that brands could not “find legal justification for non-payment,” he said. “And so once we were able to document that and force the issue with the brands, they weren’t able to credibly defend their suppliers and had to acknowledge that the money was owed.”

For Nova, the tipping point came when Gap Inc. and PVH Corp, through aggressive engagement, convinced Shahi Exports to pay its 80,000 workers the correct minimum wage, along with $10 million in arrears.

“We knew it would be crucial because they’re the biggest exporter and others would follow their lead,” he said. “Right up until the point where Shahi finally agreed under brand pressure, their position was adamant that they owed nothing, that they would not pay, that they would never pay, that the court case was still ongoing. And once Shahi decided to pay, the others decided to pay.”

Still, brands were so reticent to act in the beginning because they unquestioningly accepted the manufacturers’ legal claims, demonstrating a “fundamental weakness” in monitoring schemes, Nova said.

“A proper monitoring scheme would immediately identify those claims as specious and result in a requirement that the suppliers follow the law,” he said. “But instead, what we see is brands accepting these flimsy claims without applying meaningful scrutiny. And it’s happened enough in our experience that it’s clear it’s not an anomaly—it’s a built-in flaw in the system.”

Nova said that brands remained on the sidelines even after union members wrote to them. It was only when the WRC brought pressure to bear that they “finally looked at it in a serious way and then had to admit, yup, you’re right, they owe this money,” he said. “So the question is, why didn’t the brands recognize that [before]? They failed massively.”

Making sure everyone is being paid continues to have its challenges. The WRC lacks the operational capacity to track the payments of smaller suppliers, although anecdotal evidence suggests they’re taking responsibility, too, for the roughly $27 million in back payments they owed at the beginning of the year. All in all, Nova expects not every penny but “well in excess” of 90 percent of the $55 million that was originally owed to return to workers.

Another difficulty is compensating workers who are no longer employed at the factories. Together with Gap Inc. and PVH Corp, the WRC developed a method to calculate those arrears, including severance and other benefits, and contact workers, which it has disseminated to the other brands. The organization was able to confirm payments to former employees at eight of the 21 major suppliers, though it doesn’t yet have sufficient data to report specific amounts. It’s now working to confirm the status of the arrears at the other 13 manufacturers.

“The reason why we wanted there to be a very clear formula is we were worried about the employers nickel and diming the workers when they paid out—paying the wages but not the benefits,” Nova said. “We wanted to be very explicit because it makes it much harder for the employers to game the system.”

One thing that the Karnataka case throws into stark relief, he said, is that brands are failing to conduct the meaningful labor-rights supply-chain policing that they’re telling their customers they take seriously.

“It wasn’t a few bad apples,” Nova said. “It wasn’t a few brands whose systems are less sophisticated—it was everybody. Every single brand missed this, just like every single brand failed to do meaningful fire safety inspections in Bangladesh until 2014 after the Tazreen fire and the Rana Plaza collapse. The basic fact is the purpose of the brands’ monitoring schemes in the real world is not to protect workers; it’s to protect brands’ reputation.”

Nova, however, is hopeful that Karnataka will serve as a turning point in how brands perform genuine due diligence, which is expensive, takes effort and virtually always requires conflict with suppliers.

“If brands can’t even catch something as basic and as important as this, then the systems themselves will lose public credibility. And in order for these systems to create a realistic appearance of due diligence, they have to be credible,” he said.

It’s true that brands have their work cut out for them. The Covid-19 pandemic has not only increased the incentive for wage theft but the ensuing chaos has also made it easier to carry it out “with impunity,” Nova said. The volatility stemming from spiraling inflation isn’t helping either.

Amid all this, Karnataka remains a positive story, now that the rule of law has been vindicated and money stolen from workers is finally being returned, he said. “I think we will see more pressure on the brands and their monitors to do a better job in this kind of context going forward as a result of this case.”