Hiring Practices and “Flexible” Labor Arrangements

Many factories hire workers on fixed-duration contracts or on other casual bases when there is no justification for doing so, such as seasonal labor demands or other temporary business needs. Workers repeatedly hired on short-term contracts or on a casual basis are more likely to experience the labor abuses documented in this report. They have a lower likelihood of redress and are at a greater risk of experiencing union discrimination, pregnancy-based discrimination, and denial of maternity benefits and sick leave.

Repeated Use of Short-Term Contracts

The illegal use of short-term contracts is common in Cambodia’s garment industry. The threat of non-renewal of such contracts fosters an environment in which factory managers can exploit workers, and workers are too scared to complain for fear of losing their jobs. Use of short-term contracts is often a barrier to healthy workplace conditions, and can facilitate anti-union discrimination, pregnancy-based discrimination, and forced overtime work.[44]  

Cambodian labor law permits factory managers to engage workers either on open-ended contracts of undetermined duration (UDC) or on fixed-duration contracts (FDC) that specify an end-date. The Labor Law states that factory managers can issue short-term contracts and renew them one or more times for up to two years.[45] 

In theory, workers on FDCs enjoy many of the same benefits that workers on UDCs enjoy, though they have less protection against dismissal. Workers on UDCs and FDCs who have at least one year’s uninterrupted service in a factory are entitled to maternity pay and a seniority bonus. The seniority bonus increases annually and is directly linked to job tenure.[46] A key difference is that workers on FDCs are entitled to least 5 percent of their wages as severance at the end of each contractual period or when they are terminated.[47] Factories pay severance for UDC workers only at the end of their employment.

Workers on UDCs have longer notice periods and heavier penalties assessed against employers for unfair dismissals from work.[48] A manager can refuse to renew an FDC without having to give any reason.[49]

Workers have challenged the abusive use of FDCs in collective disputes before the Arbitration Council. The Council has consistently ruled that according to article 67 of the Labor Law, factories cannot engage workers on FDCs beyond two years and that if they do, such workers are entitled to the same benefits and protections as workers on UDCs.[50]

The Garment Manufacturers Association in Cambodia (GMAC) has contested the Arbitration Council’s interpretation of the Labor Law.[51] In March 2014, Ken Loo, the secretary general of GMAC told Human Rights Watch that “very few” employers repeatedly used FDCs, describing them as the “black sheep” of the garment industry. Explaining the use of FDCs, Ken Loo said, “How can we afford to guarantee job security when our buyers place orders seasonally? I don’t know if my buyers will place orders again.”[52]  Human Rights Watch research for this report, however, corroborated by information given by some international apparel brands (discussed in detail below), shows that even factories with assured business use FDCs in ways that appear to contravene the Labor Law.

The Cambodian government has in the past supported GMAC’s position on the repeated use of short-term contracts and has not made monitoring for illegal use of FDCs a priority in its inspections or enforcement measures. For example, Human Rights Watch reviewed the labor inspectorate reports for a factory where all workers were repeatedly issued short-term contracts and found no documentation of the length of the contracts or any assessment of why the factory’s entire workforce was on such contracts.[53] In December 2014, Labor Ministry officials responded to Human Rights Watch’s written concerns about the repeated use of FDCs stating, “[a]s there has been disputation about the interpretation and comprehension of the Labour Law, the result has been that each party has made an interpretation of these provisions in order to serve their own interests.”[54]

Proliferation of FDCs

Human Rights Watch found that many factories issued FDCs to workers who had been working in the factory for more than two years.[55] The duration of the short-term contracts varied from twenty-one days to one year, with three or six-month contracts the most common.[56] Some newer factories appeared to hire their entire workforce on FDCs without basing it on any apparent seasonal or temporary business needs.[57] In some factories, workers said men were hired on shorter term contracts than their female counterparts and believed it was to discourage men’s participation in factory unions.[58] Some factories changed worker contracts en masse from UDCs to FDCs, ostensibly because the factory management had changed.[59]

Survey data shows that factories use FDCs in violation of Cambodian labor law. The Better Factories Cambodia (BFC) reported a drop in factories complying with the two-year rule on FDCs from 76 percent of factories surveyed in 2011 to 67 percent of factories surveyed in 2013-2014.[60] Since 2011, BFC has also consistently found that nearly a third of all factories in each survey period used FDCs to avoid paying maternity and seniority benefits.[61]

The Worker Rights Consortium (WRC), an international labor rights organization, conducted a survey of 127 factories, including 119 GMAC members, between August 2012 and May 2013. The survey results found that nearly 80 percent of factories employ “most or all of their workers on FDCs” and “at least 72% violate the labor law’s two-year limit on successive FDCs.”[62]

Bent Gehrt, WRC’s Southeast Asia field director, told Human Rights Watch that many factories falsely claim they need to use FDCs because of fluctuating buyer demand. For instance, WRC found that MSI Garment (now closed), claimed fluctuating orders forced it to hire more than half of its 1,600 workers on repeated three-month FDCs. But upon close examination, WRC representatives found that its monthly employment figures for 2006 fluctuated by less than 50 from an average of 1,600 workers over the course of the entire year. Gehrt, while stressing that using UDCs does not hinder factories in laying off people when they have a valid reason, explained that if the fluctuating orders were the reason then factories should use the lowest number of workers employed in the preceding 12 months as a baseline and issue UDCs to all workers up to that baseline.[63]

Some proponents of FDCs from the business sector point out that workers themselves often demand FDCs. Ken Loo, the GMAC secretary general, suggested that independent unions were not accurately representing workers’ demands. He said, “Over the last three years we have not really seen cases where workers are demanding UDCs. Now workers are demanding FDCs.” He also said, “Workers know crystal clear what they are signing at the dotted line. So I really don’t understand how a worker hired on an FDC can want a UDC.”[64]

Contrary to GMAC’s assertions, in almost all cases where Human Rights Watch discussed worker contracts in detail, workers said they had no choice regarding their employment contract.[65] Many workers had no information about a written contract—they started working and were orally informed about their wages. For example, Cheng Thai, in her mid-20s, from factory 11, said, “They just told me I would be on a monthly wage. I didn’t sign any contract and don’t know my employment status.”[66]

Where workers said they had a written contract, they were called to the factory office and asked to affix their thumbprint on a document. Sren Seang’s experience in factory 9 is similar to that of most workers interviewed by Human Rights Watch:

First I had a two-month contract [probation]. Now I have a four-month contract….All they say to me when they call me: “If you want to continue working, put your thumbprint here.” Every four months they ask me to thumbprint. I have been working here for three years [on the FDC].[67]

In some cases, the factory managers destroyed FDC workers’ old identity cards and issued new ones, assigning a fresh start date, sometimes a few days after the earlier FDC expired, making it difficult for a worker to demonstrate continuity of service and seniority.[68]

Garment workers, labor activists, union leaders, and lawyers all said that factory managers told workers that an FDC entitled them to a 5 percent wage benefit at the end of each contractual period, but did not explain other differences with UDCs.[69] For example, Preap Win from factory 73 described how managers told workers that they would receive 5 percent of their wages at the end of the contract with an FDC but did not explain the differences in job security and other benefits dependent on tenure and uninterrupted service. She was unaware that other FDC workers in her factory had lost their jobs when they became visibly pregnant or experienced other forms of discrimination.[70]  

Chhorn Sokha, a former garment worker and labor rights activist from the Community Legal Education Center (CLEC), a nongovernmental organization, put it poignantly, “Workers pay a heavy price for that 5 percent [wage benefit]—they lose their voice and their rights. They have to work very hard. They are scared of making any demands or protest. They are constantly in fear that they will be fired.”[71]

Furthermore, not all factories paid FDC workers 5 percent of their wages at the end of each contractual period. Workers felt cheated but that they could not complain. Human Rights Watch heard accounts of non-payments, delayed or inconsistent payments, payments made annually even when workers were on shorter-term FDCs, or promises of payment when the worker finally left the factory.[72] 

Brand response

Human Rights Watch examined the codes of conduct for H&M, Adidas, Gap, Marks and Spencer, Armani, and Joe Fresh and asked the brands about the use of FDCs in their supplier factories.

Marks and Spencer’s Global Sourcing Principles discourage the “excessive” use of short-term contracts to avoid obligations arising from a “regular employment relationship.”[73]  However, the brand did not respond to Human Rights Watch questions on the use of short-term contracts in its supplier factories in Cambodia.[74]

Gap prohibits modifying or terminating worker contracts to avoid paying benefits in its Vendors’ Code of Conduct.[75] Gap did not provide specific information about the use of FDCs in its supplier factories in Cambodia or how the brand’s 700 performance indicators integrated these in factory audits.[76] Nevertheless, Gap confirmed that “FDCs are a common practice in Cambodia” and reiterated its commitment to the Arbitration Council’s ruling limiting use of short-term contracts.[77]

H&M’s Code of Conduct does not explicitly prohibit the repeated use of short-term contracts. But its 2008 Guidance for Implementation of Good Labour Practice, which is currently being updated, advises that the “employment contract must never include clauses stating conditions that are below the legal requirements,” “may not be used as a means to restrict the worker’s right to compensation and or employment security,” and that “short-term contracts may not be used as a measure to deprive workers of social benefits.”[78]

H&M representatives told Human Rights Watch that they had many “strategic partners” who were assured of between three and five years of steady business in Cambodia but did not provide a breakdown of FDC use by their suppliers.[79]  H&M representatives said that in 2015, H&M would require its suppliers to adhere to the Arbitration Council ruling on the use of FDCs and that failure to do so would be treated as a violation of H&M’s Code of Conduct and factored into internal audits. They also said that they would seek legal clarification from the government on these issues, but it’s not clear that the government position would improve workers’ rights.[80]

The Armani Supplier Social Code of Conduct states that “the use of contract, temporary or other non-full-time employment schemes shall not be used to systematically avoid the payment of worker benefits.”[81]

The 2009 Supplier Code of Conduct of Loblaw Ltd., which owns Joe Fresh, states that suppliers “should reflect the commitment of Loblaw to fair and reasonable labour and employment practices” and “are expected to comply with all local and applicable labour laws and employment standards.”[82] As of mid-January 2015, it carries no explicit prohibition against the repeated use of short-term contracts or casual hiring arrangements that can be used to defeat other labor rights protections.[83]

Adidas classifies the use of “contract workers on a continuous basis, on multiple short-term contracts, or as regular practice, to support normal business needs” as code non-compliance.[84] Adidas was the only brand that provided detailed information to Human Rights Watch about its suppliers’ and licensees’ use of FDCs or UDCs: 55 percent of workers producing Adidas products were on UDCs and the remaining were on FDCs, of which 10 percent of workers were in newly formed factories.[85] Two of its long-term suppliers employed the factory’s entire workforce on FDCs. Adidas pointed out that the two factories were yet to convert worker contracts into UDCs because the factories were new and less than two years old.[86] Adidas representatives did not explain how this squares with brand policy to disallow the regular use of short-term contracts to meet regular business needs.

Adidas told Human Rights Watch that 7 of its 19 long-term suppliers and 2 of its 4 licensees use FDCs beyond the two-year limit because workers or unions in the factories had “opposed” UDCs.[87] It added that some of its suppliers had faced difficulty instilling worker confidence in UDCs because “during the 2008-9 financial crisis foreign factory owners fled the country, leaving behind debts, unpaid wages and severance owed to workers. This had a profound effect on workers’ belief in UDCs.”[88]

David Welsh, the Cambodia country director of Solidarity Center, told Human Rights Watch that worker representatives in factories cannot legitimately use their negotiating power to reduce legal protection for workers.[89] Collective bargaining agreements with the management should at a minimum respect the law or introduce better legal standards, he said.

Welsh, together with other industry experts familiar with brand practices, told Human Rights Watch that most international apparel brands are not doing enough to examine whether unions in their supplier factories are genuinely representing worker concerns and need to do a lot more to ensure their supplier factory unions are not merely parroting management preferences.[90]

The Solidarity Center office in Cambodia is working closely with independent union federations to gather additional information on brands’ use of FDCs in supplier factories and exploring the option of taking collective action to challenge their illegal use.[91]

Casual Workers

Garment workers interviewed by Human Rights Watch said most workers hired on daily, hourly, or other casual bases did not join unions, collectively bargain for better working conditions, or file complaints because they feared their contracts would be terminated if they did so. It was practically more difficult for them to assert their rights even though the Arbitration Council ruled that they are eligible for the same benefits as regular workers after they have worked 21 days for 2consecutive months.[92] They are less likely than regular workers to be paid the minimum wage.[93]

Even though our research did not focus on casual workers in the garment sector, we spoke to at least 30 workers employed on an hourly, daily, weekly, or other casual bases from at least nine factories that worked as subcontractors for larger factories.[94] And union leaders from two other factories supplying to international brands said their factories periodically hired daily wage workers and employed them for months without giving them the benefits of regular workers.[95] 

About half of the casual workers we spoke to had worked continuously for consecutive months. Workers from several factories reported being on contracts titled “Kechsaniya Karngea Madong Makal,” literally “once in a while work contract” or casual contracts, although they were working six-day weeks for months on end.[96]

Most workers employed on a casual basis said they had no worker identity cards or other proof of employment in the factory. This creates barriers to raising collective labor disputes or claiming wages and other due benefits.[97] For example, one union leader from a large factory that supplies to international brands described how his factory periodically hired casual workers first in 2010, estimating that 500 of the factory’s 1,400 workers were hired on a daily-wage basis during peak production season from March through November. He said:

Daily wage workers don’t sign attendance records. When they come to the factory they get a small white piece of paper with some Chinese writing on it. We don’t even know what is written on this paper. When they finish the day’s work, they have to take this paper and go to the office—and he [the official] will take that paper back—and give them their wages for the day. We cannot even keep that paper to photocopy it.[98]

Outsourcing to Home-Based Workers

Some garment factories also use home-based workers seasonally. Home-based garment workers are not counted as workers, are not able to join factory unions or unionize, and their work remains unregulated.

Women engage in such subcontracted work because it provides them income with flexible working hours, letting them juggle caregiving work at home.[99] Older women—especially age 40 and above—were able to earn money this way even when factories refused to hire them.[100] Women also saw it as a form of work that allowed college and school students to supplement family incomes without disrupting their education.

Human Rights Watch spoke with 25 women in two districts of Phnom Penh who have been engaged in seasonal home-based work for garment factories in surrounding areas, many of them for 10 to 15 years. Middlemen employed these women mostly to trim extra thread from stitched garments, embroider, make button holes, or package garments into plastic bags.

The work is often available when factories have rush orders with deadlines to meet. The workers said they typically got orders from November to April with extra orders coming to them in the months of March and April. They supplemented their income by making and selling crafts. 

These women typically made less than the minimum wage. If they damaged clothes, the resulting penalties cut significantly into their earnings. For example, one group of women said they get 5,000 riels (US$1.25) for trimming thread from 100 garments and 2,000 riels ($0.50) for every 10 buttonholes they made. If they damaged any clothes, the contractors deducted $10 per damaged piece from their earnings.[101] Workers also said that they had been receiving the same pay for many years and in some cases, the amounts had dropped.[102] The women had no information about the factories or brands they produced for.[103]