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Adidas reaches labor rights compromise

Ann Marie Jakubowski | Wednesday, May 1, 2013

After controversy over labor rights in an Indonesian factory prompted several universities to terminate contracts with adidas, the German apparel giant has reached a settlement regarding unpaid funds owed to laborers.

As of April 8, 10 schools suspended their contracts with adidas at the urging of the United Students Against Sweatshops group, according to a USA TODAY report. The schools included Cornell, Penn State and Georgetown, but not Notre Dame.

In 2005, Notre Dame signed an exclusive 10-year contract with adidas to have the company supply footwear and apparel to the Irish varsity athletic teams. The current contract lasts through the 2013-2014 season, according to a 2005 press release.

A report dated Jan. 18, 2012, from the Worker Rights Consortium (WRC), a labor rights monitoring association said the PT Kizone factory in Tangerang, Indonesia, employed approximately 2,800 people before its closure in April 2011. It produced collegiate licensed apparel for adidas and Nike, and non-collegiate apparel for Dallas Cowboys Merchandising and other brands.

The crisis began in 2010, when PT Kizone “stopped paying mandatory terminal compensation to workers separated from employment,” the report said. In January 2011, the factory owner fled the nation, “precipitating the factory’s eventual closure and leaving no money to pay severance.” The report said at the time of closure, employees were owed $3.4 million in total.

Before the compromise was announced April 24, the WRC took issue with adidas being the only university-related company affiliated with the factory to not contribute or pledge to the severance fund or, according to the report.

“Adidas has taken the position that it has no obligation to provide funds to the affected workers,” the report said.

Before the settlement, adidas “did not disclose the violations, denied responsibility and refuses to pay anything,” it said.

The report also said under university codes of conduct, “it is the duty of licensees to correct code violations.”

Michael Low, Notre Dame’s director of licensing, said Notre Dame was the first university to adopt a Code of Conduct, which is applied to all of its licensees.
Low said the University stayed in contact with adidas during the episode and reviewed reports and recommendations from the WRC and the Fair Labor Association.

 “Any time that there is an issue with factory workers and our licensees, we are concerned,” Low said in a phone interview Friday. “In our case, [Notre Dame’s] Code of Conduct doesn’t really address the issue of unpaid severance.

“This was not an adidas factory, this was a factory that adidas contracted with, and this is a case where the owner of the factory basically left the country overnight and stole the severance funds that he was required to pay by the Indonesian government,” he said. “In talking to adidas, … we know that they paid their bills and paid into the severance fund. They did not believe, and our Code supported the fact that they were not responsible for the illegal act of a third party.”

Low said he considers adidas to be “a worldwide leader” in its efforts to enforce codes of conduct in the factories they contract with.

“It’s always unfortunate when these things happen, but at Notre Dame, we don’t force a settlement by canceling contracts,” he said. “We continue to work through issues with our licensees.”

James Paladino, associate director for business operations at Notre Dame’s Center for Social Concerns, worked on the original formation of the Code of Conduct under former University president Fr. Edward Malloy. He said the University’s approach to issues of social justice focuses more on remediation than shaming.
“Remediation goes along with the rights and responsibilities theme of Catholic Social Teaching,” Paladino said. “If you see an injustice, you shine the light on it. But you also work for positive change rather than just pulling out of the situation.”

Administrators at other universities brought a different approach. Rodney Erickson, president of Pennsylvania State University, sent a letter to the company on March 13 to announce his university’s decision “to suspend the adidas license with Penn State for 60 days, effective immediately.”

“We are confident that adidas’s actions fall short of our expectations for fair, just and humane behavior by licensees toward the laborers that sustain a system from which all of us, particularly our licensees, benefit enormously,” Erickson said in the letter.

The letter stated that if adidas pays its portion of the funds owed to the workers denied compensation within 60 days, the university “will lift [the] suspension and proceed under [the] prior relationship with adidas. However, should adidas fail to do so to the satisfaction of both the Worker Rights Consortium and Penn State … the university will terminate the license.”

Paladino said his past experiences with workers’ rights disputes in Latin America emphasize the benefits of remediation over termination.

“I went down to El Salvador with a group, and we met with workers who had been laid off. They said, ‘whatever you do, fight for us. Don’t make them pull out,'” he said. “They really wanted to go through remediation. That’s the true piece of justice, making the changes and getting the situation resolved.”

On April 24, adidas announced a solution to the situation in a letter to its university partners, provided by Notre Dame’s associate vice president for auxiliary operations David Harr. The letter said a compromise had been reached to the satisfaction of both adidas and the PT Kizone workers.

“We have been and remain sympathetic to the plight of all former PT Kizone workers,” the letter said. “We have been supportive of the factory workers since we first learned of the factory’s closure and the workers’ hardship.

“The additional aid comes on top of adidas’s earlier contributions in humanitarian aid, job placement services and advocacy on issues related to workers’ rights,” the letter stated.

When a third party is involved in such a dispute, as it was in the PT Kizone case, Low said the University relies on the reports from the Worker Rights Consortium and the Fair Labor Association to advise courses of action.

“Our expectation is that if the company is found to be at fault, they will remedy [the situation] appropriately to satisfy the issue,” Low said. “There’s no issue for us as long as the companies are working in good faith [and] going through remediation.”

The Code qualifies in terms of ethical principles:, “Notre Dame Licensees must be committed in the conduct of their business to a set of ethical standards which are not incompatible with those of Notre Dame.”

The Code of Conduct includes honesty, integrity, trustworthiness and “respect for the unique intrinsic value of each human being” in its list of ethical standards, according to the document. Paladino said Notre Dame’s Code is unique in its strong emphasis on the dignity of labor, which is another part of Catholic Social Teaching.

William Purcell, associate director of Catholic Social Teaching for the Center for Social Concerns said the compromise is a “victory” for both adidas and the global community.

“The bottom line here is how we can apply Catholic Social Teaching. It only happens in a practical way,” Purcell said. “You can have all the ideas of solidarity and rights and responsibilities, but how does it get carried out? It’s not just any one thing, but looking at the whole package.

“We integrate Catholic Social Tradition in all we’re trying to do, including in a practical way using the University’s resources and the resources we engage in our local community and the global community,” he said.

Contact Ann Marie Jakubowski at ajakubo1@nd.edu