Subcontracting

In this report, Human Rights Watch uses the term subcontracting to describe the outsourcing of cut-make-trim and any other functions from one production site to another. Where an apparel brand has approved such outsourcing before it takes place, the subcontracting or outsourcing is authorized. Human Rights Watch uses the phrase “supplier list” to describe the database of all authorized production units—whether direct or outsourced. Where production is outsourced without the prior permission of the brand, Human Rights Watch uses the phrase unauthorized subcontracting. 

Workers from 11 factories supplying to international apparel brands said their factories subcontract to other factories; workers from another 25 factories said they did work on a subcontracting basis for other factories.[282]  Human Rights Watch gathered information about at least another nine small, unmarked subcontractor factories but it was not clear whether these nine factories produced for international apparel brands.[283] 

Factories without export licenses do not have to submit to BFC monitoring. At least 15 of the 25 factories that did work on a subcontracting basis reviewed by Human Rights Watch did not appear to be monitored by BFC in July 2014; [284] 14 factories did not appear to be monitored by BFC according to its latest January 2015 list of factories[285]

Working conditions were typically worse in subcontractor factories than in larger export-oriented factories. They were more prone to casual hiring and employees found it harder to unionize. Because many of these factories were small and unmarked (with literally no signs to indicate the building was a factory), some union representatives said it was easy for factory owners to suspend operations, shut down for a period, and restart operations— hurting workers’ livelihoods. Many subcontractor factories denied women workers benefits such as maternity leave or maternity pay.[286]

A 2011 government regulation outlines a set of permissions and notifications that direct suppliers should follow before subcontracting.[287]  The government also set up an inter-ministerial commission comprising members drawn from the Labor, Commerce, and Interior Ministries, tasking it with tracing unregistered subcontractor factories and ensuring labor compliance.[288] Factories with export licenses subcontracting to unregistered factories can face temporary suspension of their export licenses; repeat offenders can have their licenses revoked.[289] But an expert familiar with these mechanisms said they were ineffective.[290] In November 2014, Human Rights Watch wrote to the Ministry of Commerce requesting information on the implementation of the 2011 government guidelines, but received no response.[291]

Brand Approach to Subcontracting

Brands have a critical role in promoting respect for workers’ rights throughout the supply chain. But a combination of poor supply chain transparency, absence of whistleblower protection, and no information on available support mechanisms—together with a lack of support for remedial measures to protect worker interests in unauthorized subcontractor factories—hamper brand accountability.

Human Rights Watch asked six international apparel brands about their policies and practices around unauthorized subcontracting. Armani did not provide any information to Human Rights Watch. In its written responses, Marks and Spencer and Loblaw did not include information on whether there is any whistleblower protection or support for remediation in unauthorized subcontractor factories that are brought to its attention, where such remediation is feasible. Marks and Spencer said, “In M&S the word subcontracting is only applied to ‘processing’ such as laundry or embroidery, not to fully made garment factories….so we do not have subcontracted sites as defined in your letters.”[292] Loblaw said they “make efforts to prevent suppliers from subcontracting work to unapproved factories. Notably all Joe Fresh suppliers have signed our Standard Terms and Conditions (STCs) which expressly state that unauthorized subcontracting will not be tolerated and is in fact cause for termination.”[293]

H&M, Gap, and Adidas were the only brands Human Rights Watch contacted that acknowledged the concerns raised about subcontracting and reiterated their commitment to protecting and promoting worker rights throughout their supply chain.

Disclosing Suppliers’ List

Only a few brands publicly disclose their global suppliers’ list (a list of all authorized production sites) and update them regularly.[294]  Disclosing this information improves accountability by allowing labor rights groups, the government, and other parties to monitor labor rights in their direct supplier and subcontractor factories.

Brands including Gap, Armani, and Joe Fresh have not disclosed their suppliers’ list publicly.[295] Loblaw did not provide any information in response to a number of questions, including the names and locations of their suppliers and subcontractors. They wrote that “[t]he questionnaire you have asked us to complete requires us to disclose confidential and competitive information which we are not comfortable doing.”[296] Gap provided a written response on other issues but not on supplier list disclosure. Speaking to Human Rights Watch by phone in October 2014, a Gap representative said,

We currently do not disclose our supplier lists. There are commercial reasons—we feel that we have invested a lot in our supply chain—some are our strategic partners and we don’t know the implication of disclosing. And we are still understanding the supplier side of this—how can we manage and update the list? How can we maintain an accurate and current list? I’m not saying we will never disclose but we don’t disclose now. We are not a brand that says one thing and doesn’t follow through. So before we make a commitment we want to understand the implications more.[297]

Other international apparel brands are collecting, publishing, and updating supplier information. For example, H&M, which produces fashion apparel, publicly disclosed its supplier list for the first time in 2013 and annually updates its suppliers and subcontractors lists.[298]

A Marks and Spencer representative wrote to Human Rights Watch stating that the company had launched new transparency commitments in 2014 and the brand “will publish an annual list of all…active clothing manufacturers” by 2016. However, no information was provided about how frequently the database would be updated to keep the information current.[299]  

Adidas, which produces sports apparel, told Human Rights Watch that it first started privately disclosing its supplier list in 2001 to academics and NGOs and moved to a public disclosure system in 2007. Starting in 2014, Adidas moved to a system of disclosing their suppliers and licensees’ lists twice a year.[300]

Whistleblower Protection

Whistleblower protection for workers involved in uncovering an unauthorized subcontract is important since they risk retaliation from factory management for reporting it.

Unauthorized subcontracting constitutes a breach of contract with business implications for both the factory that outsourced production and the subcontractor.[301] Workers who knowingly, or unknowingly, reveal the names of apparel brands being produced in their factory and report on working conditions there are at significant risk because of the commercial interests involved.  

For example, Human Rights Watch received information from one factory where workers reported retaliation for having told external monitors in 2012 that their factory outsourced production to other manufacturing sites. [302] Workers told Human Rights Watch that the managers filed false complaints of theft against one worker and compelled others to testify against the “accused,” threatening dismissal if they did not obey. Several workers were dismissed.[303] 

In practice, brands sometimes depend on unions to alert them to unauthorized subcontracts. For example, H&M acknowledged that workers who report subcontracting arrangements play a whistleblower role. It has distributed a translated copy of its suppliers’ list to local unions and labor rights groups to encourage such whistle-blowing.[304]

Except for Adidas, none of the brands that provided information to Human Rights Watch had clearly articulated whistleblower protections for workers.[305] Three brands—H&M, Adidas, and Gap—stated that they took confidentiality seriously and took measures to ensure that their suppliers did not learn about the source of the complaint. But there were no minimum guarantees for workers and unions who took risks while reporting an undeclared manufacturing site. Except for Adidas, which clarified its process in October 2014, the other two brands presented no clear picture of what current protections exist and how brand representatives inform workers of how to avail themselves of any existing protections.

A Gap representative told Human Rights Watch that the company dealt with reports of unauthorized subcontracting, including complaints about retaliation, on a case-by-case basis, but did not specify what steps Gap takes to protect whistle-blowers or how these mechanisms were accessible to workers.[306]

Adidas wrote saying that they do not “actively encourage workers to act as whistle-blowers to report subcontracting and outsourcing production activities,” but explained that when people come forward, their identity is protected. Adidas added that “if by some other means a supplier comes to know the identity of a complainant, and this leads to intimidation or harassment, then we would take immediate and direct action to remedy this situation, invoking the non-retaliation clause in our manufacturing agreements.”[307] Adidas representatives explained that retaliation against workers for providing information to the brand is treated as a “threshold issue” in their code of conduct enforcement guideline.[308] They said that they would examine the facts of each case and decide about the nature of protection needed but emphasized early intervention to prevent retaliation.[309]

In October 2014, Adidas introduced a new clause in its grievance redress reporting format stating that Adidas takes retaliation seriously, will investigate complaints of retaliation, and will “find tailored solutions” where there is evidence of retaliation. At this writing, Adidas was also translating this into local languages to upload on its website to make such information more accessible to workers.[310]

Remediation

Brands draw a distinction between authorized and unauthorized subcontracts and their liability for each. While international apparel buyers understandably seek to avoid unauthorized subcontracts, their response to the discovery of unauthorized subcontractor factories should be consistent with the principle of improving human rights for all workers involved in manufacturing their products.

Human Rights Watch acknowledges the complexities involved in tackling unauthorized subcontracting and international apparel brands’ need to balance multiple concerns. For example, brands’ need to consolidate orders with long-term partners as part of their business strategy, and create business incentives for factories complying with their code of conduct and operating transparently. Preventing unauthorized subcontracting by tackling the underlying causes and supporting remediation for affected workers in undeclared units should also be a central concern.

Human Rights Watch believes that where feasible and appropriate, brands should give factories a reasonable opportunity to take remedial measures before severing business ties. When brands terminate contracts with suppliers because of unauthorized subcontracts without any commitment to monitor remediation in the undeclared unit, the workers in the undeclared units who reported the problems face the loss of their livelihoods instead of seeing a tangible improvement in their working conditions. This is an outcome brands should work assiduously to avoid.

Brands may well encounter scenarios where abuses associated with unauthorized subcontracting are so egregious or pervasive, or where the likelihood of remedy is so remote, that they are in fact warranted in severing business relationships. In such cases, however, brands should take steps to provide some form of remediation to workers whose livelihoods are impacted as a result of that decision. The presence of unauthorized subcontracting in a brand’s supply chain may reflect a failing by the brand itself. The brand should therefore accept some responsibility to help workers transition out of employment that is eliminated because of corrective actions taken by the brand. Similarly, if brands temporarily halt production while remedial measures are underway, they should endeavor to help offset the financial harm caused to workers in the undeclared units during this period.

Marks and Spencer provided no information about remediation when unauthorized subcontracts are brought to the brand’s attention. A representative wrote to Human Rights Watch in September 2014 saying:

We will not under any circumstances accept production from non-approved factories or goods supplied from sites that differ from our contracts system for each specific contract. In order for us to maintain the highest level of our integrity of our [sic] corporate social responsibility commitments, our contracts system must be up to date and accurate. Any changes made to the proposed manufacturing site that has been previously approved must be communicated and agreed by the buying department prior to any production starting. We will impose strict penalties on any supplier in breach of these conditions.[311]

Gap wrote to Human Rights Watch in April 2014 saying:

If we find a case of unauthorized subcontracting (UAS), the Monitoring and Remediation Specialist (MRS) escalates the incident to the Vendor Engagement & Monitoring manager and director in accordance with our Issue Escalation Policy for High Risk Incidents. The local MRS advises the factory to immediately stop production and ensures all goods (finished or unfinished) are returned to an approved Gap Inc. factory, segregated and held until the issue is resolved. An investigation is conducted at the factory to determine whether there are any critical issues.[312]

When Human Rights Watch raised concerns with Gap about the impact of interim stop production orders without a clear commitment to supporting remediation in the subcontractor factory, Gap responded in September 2014 that they “investigate and take appropriate action to resolve the situation in a manner that protects workers' rights and well-being.” Furthermore, “[w]here possible, we engage management to take corrective actions and meet our requirements for approved suppliers.”  They also stated that, “in cases where factories close or are no longer able to employ workers, we ensure that any appropriate wages or severance are paid by the vendor to the factory employees.”[313]

H&M stated that it “requires that the suppliers presents  [sic] an action plan which shall include a management system with a clear policy, well documented and fully implemented and communicated routines, designated responsible staff, and a control and follow up mechanism to prevent repeated violation.” [314] It further stated that “[i]f the supplier cannot present a sustainable action plan or is not willing to do so it can lead to a termination of the business relation.”[315] A repeat violation “can lead to a termination of the business relation” but in such circumstances “a detailed phase out plan is worked out in order not to jeopardize the well-being of the workforce (the supplier is given time to find new buyers to avoid layoffs of workers).”[316]

The accounts of workers in subcontractor factories who spoke to Human Rights Watch, however, suggest that they were concerned about bringing their working conditions to the brand’s notice.

For example, soon after workers and unions alerted H&M in 2013 that its clothes were being produced in factory 40, a factory that did not appear on H&M’s supplier and subcontractor list, they witnessed a spate of inspections. The factory management suspended workers; while they still received half their regular monthly wages, the reduction hurt their livelihoods.[317]

In factory 57, another factory not on H&M’s list, workers reported that H&M labels stopped appearing in their factory soon after the subcontract was reported to H&M in 2013, but the factory’s working conditions remained largely unchanged. These included the repeated use of short-term contracts, casual contracts, child labor, anti-union discrimination, forced overtime, and discrimination against pregnant workers. None of these problems had been resolved in April 2014 when we checked to see if reporting of factory conditions to H&M had benefited workers.[318] 

H&M confirmed that it had severed business relationships with suppliers because of unauthorized subcontracts and other reasons, but said that it could not furnish additional information because of its confidentiality policy.[319]  Human Rights Watch wrote to H&M sharing the above examples of how workers in subcontractor factories had actually suffered instead of experiencing a tangible improvement in their working conditions after subcontracting arrangements were brought to H&M’s attention. 

In September 2014, H&M representatives told Human Rights Watch that its remediation plans were focused on preventing a repeat occurrence of unauthorized outsourcing, and that the workers in subcontractor factories that produced H&M goods without authorization were not part of the remediation plan. They said that they could not incorporate all undeclared units into their supply chain because that approach diluted their overall strategy to build a sustainable business that rewarded suppliers who operated transparently and in accordance with their code of conduct. But they recognized the problems faced by workers in undeclared units and revisited their approach to subcontracting. In November 2014, H&M wrote to Human Rights Watch stating that: 

The approach we are looking at is to work closely with the subcontracting supplier, in securing that they take ownership of any improvement work needed at the subcontractor. H&M can support with our technical expertise in ensuring that an action plan sufficiently addresses all areas needed, and does so in a qualitative manner (addressing systems and root causes, not solving issues through quick fixes). We are also discussing asking the supplier to enroll the subcontractor in BFC’s program.[320]

H&M’s letter also stated that, at the Buyers Forum in Ho Chi Minh City in October 2014, H&M shared with other international apparel brands the Human Rights Watch view that brands should first try remediation when unauthorized subcontractor factories are brought to their attention, and the response of the brands had been positive. H&M said: “We asked our peers to indicate their position on roughly the same questions we have discussed, and found that there is consensus on the need and willingness to extend our responsibility towards unauthorized subcontractors.”[321] In a later communication, H&M stated that “[w]hilst a majority of brands agreed on the difficulty of committing business to unauthorized subcontractors, on the other, we were positive about involving BFC in any remediation plans to improve working conditions.”[322]

H&M also stated that it severed business relationships with the supplier if there was a repeat violation and that it had a one-and-a-half year phase-out plan to enable the affected factory time to find other business.[323]

H&M officials also explained that in May 2013 they held a workshop on undeclared production units for all of their Cambodian suppliers. At that time, H&M gave suppliers a two-week grace period to reveal any undeclared production units they had used the previous year. H&M said,

Throughout the two week grace period following the workshop, there would be no consequences as per our normal policy and routine for unauthorized subcontractors. A number of subcontractors were subsequently reported back to us, and where feasible our auditors followed up with on-site inspections after which a number of these factories were approved for H&M production.[324]

Adidas representatives provided detailed information about their approach to subcontracting. In a written communication to Human Rights Watch, they said that in the past 10 years only one case of unauthorized subcontract was brought to their attention and the business relationship was not severed. Human Rights Watch informed Adidas of at least one past licensee factory that was periodically subcontracting to three other factories likely missed by Adidas’ monitoring systems.

The company reiterated a commitment to “safeguarding worker’s rights, including livelihoods” in subcontractor factories. Where unauthorized subcontracts are reported to Adidas, “[n]ormally existing committed orders can be completed, but no further orders can be placed with the facility until approval has been received from SEA [Social and Environment Affairs team].”[325]  According to Adidas, once it confirms that an undeclared production unit is being used, then the business entity that placed the orders must report the factory to the Fair Factories Clearinghouse, an international online platform for collecting and exchanging information for businesses. An initial assessment is then carried out to verify working conditions and approve its use as a supplier.[326] The approval process, may take about four or five months, including a two or three month period for remediation where required.[327]

Subcontracting Case Studies

Human Rights Watch contacted the brands concerned in each of these cases below.  Because of concerns for the job security of the workers involved, however, we do not provide the names of the factories implicated.  We recognize that this makes it more difficult for the brands to respond to specific cases, but hope that this will encourage them to address the broader issues.

H&M Case Study

Factory 1 subcontracts work to many other smaller factories.[328]  In November 2013, Human Rights Watch visited a subcontracting factory whose workers said that H&M was one of the brands they produced for, work that was ongoing as of April 2014. The factory had no visibly displayed name board. Workers identified the factory using a nickname. The subcontractor factory managers did not issue workers identity cards or written contracts.

In one case, team leaders in the factory 1 told workers that they should work Sundays at an unauthorized subcontractor to help meet production targets. Workers were not paid any special overtime rates for work on Sundays and public holidays. This allowed factory 1 to bypass labor laws governing overtime wages and a compensatory day off for night shifts or Sunday work.[329]

Human Rights Watch spoke to five workers from one subcontractor factory who said they were supplying to factory 1 or one of its branches. They knew they were producing for H&M because the managers had discussed the brand name and designs with workers. The factory also subcontracted with other large factories in the Svay Rolum and Sethbau areas in Kandal province that produce for international brands. The workers were paid on a piece-rate basis and when the factory received many orders, workers said they were forced to work overtime on Sundays and public holidays. On some days they were also forced to do overtime until 9 p.m. and sometimes overnight until 6 a.m. The workers said they were not given any overtime wages.[330]

Workers said they were fearful of forming a union and that eligible workers did not receive maternity leave or pay. From employee accounts, some workers were children younger than 15, the legally permissible age in Cambodia. One woman estimated that 20 of the 60 workers in her group were children. Children worked as hard as the adults, they said, including on Sundays, nights for overtime work, and public holidays when there were rush orders.[331]

H&M acknowledged that it could take more responsibility for remediation in unauthorized subcontractor factories, including seeking to register the subcontractor factory with BFC and providing technical expertise for remediation.[332]

Marks and Spencer Case Study

Factory 5 is a small subcontractor factory that produced for Marks and Spencer and received regular orders from one or two direct suppliers at least until November 2013, when we met with workers from the factory.

Workers received three-month fixed term contracts. In order to renew, they affixed their thumbprints on standard form printed contracts whose terms were left blank.[333] The managers repeatedly extended such short-term contracts beyond the permissible two-year period set out in Cambodian law. The factory management did not pay its workers the mandatory 5 percent wage benefit at the time of contract renewal.

Factory managers allegedly dismissed or chose not to renew the contracts of workers who raised concerns about working conditions. Issues raised by workers that we interviewed included discrimination against pregnant workers, lack of sick leave, forced overtime, and threats against unionizing. For example, Chhum Nary, a male worker, said, “We cannot even speak of a union. Anyone who is slightly brave and challenges the factory is dismissed.”[334]

Women workers we interviewed said the contracts of visibly pregnant women were not renewed. Pregnant workers and other workers who fell sick were not permitted to take any sick leave without having their entire attendance bonus deducted.

Overtime work and wage rules were flouted in factory 5 and did not follow Cambodian labor law. Workers said they often worked beyond the permissible 12 hours of overtime work per working week. On some occasions, workers in the ironing department worked all night, until 5:30 a.m. Non-renewal of fixed-term contracts was used as a threat to make workers stay and do overtime work.

The factory signed contracts with parents to employ their children. While workers guessed that these children were above the legally permissible minimum age for work in factories, they said the children were forced to work overtime alongside adults. Factory management allegedly maintained two sets of attendance records for children: one set that recorded the actual number of working hours to calculate wages; another to cover up overtime work for children.[335]  

Marks and Spencer did not provide any information about its approach to remediation for workers in unauthorized subcontractor factories brought to its attention.[336]

Joe Fresh Case Study

In 2013, factory 4 produced for Marks and Spencer, Joe Fresh, and other international brands and periodically subcontracted work to other factories.

Workers from two subcontractor factories with the same owner told Human Rights Watch that they were hired on three-month fixed duration contracts that were repeatedly renewed for more than two years. Many workers were paid wages below the stipulated minimum wages of US$80. For example, one worker who was earning $71 per month said, “When we ask the boss for the minimum wage, they start cursing us. They say: ‘If you want to work here you work. Otherwise you don’t need to.’”[337]

Workers were assigned daily production targets and were forced to work overtime to meet the targets, and were not paid overtime wages. Women workers who worked beyond one year did not get maternity pay. Workers had their entire monthly attendance bonus deducted if they took even a single day of approved sick leave.

The factories did not have a legally-mandated infirmary even though there were more than 50 workers in each factory.[338]

Workers said the factories employed children and made them do overtime work.[339] Others said they had seen factory managers make the children hide when there were “visitors.”[340]

Joe Fresh did not provide information on its approach to remediation for workers in an unauthorized production unit when the existence of such a unit was brought to its attention. They reiterated that their suppliers were aware that unauthorized subcontracting would lead to a termination of the business relationship. They provided information on measures they took to prevent unauthorized subcontracting, including implementing the “Green Light Project,” an initiative with DHL’s International Supply Chain Management. As part of this initiative, DHL was supposed to verify the supplier name, and the manufacturing-factory name and address, against Joe Fresh’s list of approved factories.[341]

Gap Case Study

Factory 60 is a small subcontractor factory that was periodically producing for Gap when we spoke to workers there in December 2013.

The workers in this factory had worked there for more than two years but did not have written contracts. Instead, managers would periodically issue them new worker identity cards with a new start date each time. The workers had no information about the terms of their employment and were scared of forming a union or openly organizing within factory premises because the managers had previously run another factory known for being hostile to workers.

The factory discriminated against pregnant workers at the time of hiring and did not give maternity pay even to workers employed at the factory for more than a year. Workers were forced to do overtime work, and those we interviewed had seen a colleague dismissed for refusing such work. Workers said they had to work continuously from 12:30 p.m. until closing time without a break. Even though the factory had more than 300 workers, there was no infirmary or nurse in the factory. The factory management kept some bandages in the factory office, but that was all.[342]

Gap’s overall approach to remediation in unauthorized subcontractor factories is outlined above. In addition, Gap wrote to Human Rights Watch saying that it had partnered with BFC to provide training on “Prevention of Unauthorized Subcontracting (UAS)” in all of Gap’s approved factories in Cambodia, with the most recent round of trainings in July 2014.[343]