The parent company of an Indonesian supplier to Nike has awarded $4.5 million in back pay to 2,000 workers who lost their jobs after the factory closed last October.
The sum, which averages to seven months’ pay for each worker, is the “largest amount workers have won in a single case of legally denied severance,” according to labor watchdog Worker Rights Consortium (WRC), which led discussions with Hojeon, Ltd., a South Korea-based manufacturer that ran PT Kahoindah Citragarment in the West Java city of Bekasi and continues to operate several other garment factories in Indonesia.
An investigation by the WRC, published in April, revealed that the factory had employed “coercion and false representations” to convince workers to resign from the factory before it shuttered, therefore denying them a “significant portion” of the severance owed to them by law. Workers said refusals to resign led to “adverse treatment,” including frequent job transfers and the denial of overtime opportunities to supplement their incomes.
PT Kahoindah Citragarment, according to the WRC, had cited the impending withdrawal of orders from Nike, a longtime client, as the leading cause of its closure and subsequent move to a sister facility in the Cakung area of Jakarta, 14 miles away.
Though the factory’s management had previously claimed Bekasi workers could choose to continue their employment at the Cakung plant, workers said they were ultimately told—through “threats, lies, and retaliation”—that they had to immediately resign without the option to relocate.
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Indonesian law states companies must pay “significant severance and related terminal compensation” to employees if workers are dismissed when a factory permanently ceases operations. The legally required severance payment is further doubled if the cessation of operations isn’t the result of bankruptcy.
“The threat issued by company supervisors that workers would ‘get nothing’ in severance benefits unless they resigned immediately was blatantly unlawful,” the WRC wrote in the report.
Because Nike initially declined to ask Hojeon to pay its workers in full, the WRC asked three other brands that still sourced from Hojeon—Fanatics, Gap and Under Amour—to “take the lead.” Later, Nike sent Hojeon what the WRC described as a “helpful communication” expressing its alignment with the other buyers.
Given this “clear signal” from its customers, the WRC said, Hojeon agreed to make the payouts. The payment of these funds was completed on Nov. 29, the organization has verified.
“For many Kahoindah workers, this represents severance they earned while sewing clothes for major brands for a decade or more,” Jessica Champagne, deputy director for strategy and field operations at the WRC, said in a statement. “It was vital to them and their families to receive this money.”
Nike has been in a similar situation before, and with financial repercussions. In 2016, facing pressure from several universities and the activist group United Students Against Sweatshops, the sportswear giant agreed to pay $1.54 million into a “worker relief fund” after 1,800 workers in Honduras were dismissed following the closure of two subcontractors. The University of Wisconsin, Madison ended its licensing agreement with Nike, and Cornell threatened to do the same unless Nike took responsibility for the abandoned workers.
Wage theft is a significant problem for workers at the garment supply chain’s lowest rungs, particularly in low-cost countries where labor laws are poorly or inconsistently enforced.
In 2016, the owner of a Turkish supplier to Zara abruptly disappeared, taking all the workers’ wages with him.
Uniqlo came under fire this past October after the Fair Labor Association claimed the retailer owed workers in Indonesia $5.5 million in outstanding severance after two suppliers “closed down overnight.”
Occasionally, stories of factory closures have happier endings: In August, Asos came to the aid of 180 garment workers in Mauritius, more than half of them migrants from Bangladesh, after a supplier left them without pay, food or adequate shelter before going into liquidation.
Wage theft can also take the form of chronic underpayment, as in the case of migrant workers in the Mae Sot region of Thailand, a labor-compliance “black hole” that often pays less than the minimally required wage.
“Over and over, employers cheat workers out of the severance pay they earned under our law and the international brands do nothing,” an unnamed union leader said. “In this case, Hojeon, Fanatics and the other buyers have chosen to make things right.”