FAIR LABOR ASSOCIATION 2009 ANNUAL REPORT

January 1, 2009–December 31, 2009

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June 2010 Board of Directors 2009

Our board of directors includes six representatives of universities, six representatives of NGOs, six company representatives and an independent chair.

Independent Chair Carol Bellamy, World Learning, served from August 2007 until February 2009 Bob Durkee, Princeton University, Acting Chair from March 2009

Business Caucus NGO Caucus University Caucus

Corinne Adam Marsha Dickson Karen Daubert Gildan Inc. Educators for Socially Responsible Apparel Washington University in St. Louis Business Daryl Brown Bob Durkee Liz Claiborne Inc. Linda Golodner Princeton University National Consumers League Nicole Bassett (until June 2009) Joe Ebaugh Patagonia Pharis Harvey (until February 2009) University of Maryland Formerly of International Marcela Manubens Fund Carol Kaesebier (until May 2009) Phillips-Van Heusen Corp. Michael Low (beginning June 2009) Mike Posner (until October 2009) University of Notre Dame Caitlin Morris Elisa Massimino (beginning October 2009) Nike, Inc. Human Rights First Maureen Riedel Penn State University Gregg Nebel James Silk adidas Group Orville H. Schell, Jr. Center for International Craig Westemeier Human Rights, Yale Law School University of Texas Vivienne Riggio (beginning August 2009) Asics Karen Tramontano Global Fairness Initiative

Lynda Yanz (beginning October 2009) Maquila Solidarity Network

The FLA thanks its Board members for their dedicated service to the organization and its mission. The FLA owes a special debt of gratitude to two distinguished and long-standing members who retired from the Board in 2009, Pharis Harvey and Michael Posner, who have been with the FLA from the beginning.

FRONT COVER AND BELOW PHOTOGRAPHY: © 2007 UNIVERSITY OF DELAWARE PROJECT

FAIR LABOR ASSOCIATION n 2009 ANNUAL REPORT 2 Contents

President’s Message 4

Celebrating a Decade of Achievement 6

2009 In Review 12

Monitoring and Verifications 19

FAIR LABOR ASSOCIATION n 2009 ANNUAL REPORT 3 MESSAGE FROM THE PRESIDENT

hen President Clinton commitment by companies to internally convened a meeting monitor their global supply chains and of multinational to allow the FLA staff to arrange for companies and unannounced of randomly selected WNGOs at the White House in 1996 facilities with transparent results. No and challenged them to work together multi- initiative in any sector to improve working conditions in of industry has agreed to performance the apparel and footwear industry—a standards anywhere near those of the process that led to the formation of the FLA. Why? What was so special about Fair Labor Association in 1999—the the negotiating process that it allowed dialogue was highly adversarial. The the FLA constituents to achieve these parties had to hammer out a system for agreements and then to implement respecting labor rights with meaningful them (since agreement is one thing and performance obligations for companies implementation entirely another)? and sufficient safeguards to ensure Looking back on the last ten years, I that the companies lived up to those believe that one of the key factors is obligations. Securing those safeguards the concept of safe space. The FLA in a context in which there was no trust, constituents were able to create a safe precedent or template took a lot of hard space in which adversaries could discuss bargaining. The result, however, was an Looking back and negotiate highly sensitive issues unprecedented level of commitment without fear of being judged, betrayed or by all to respect human rights in global on the last ten ridiculed. Participants did not question supply chains. In the space of three years, the motives, good faith or values of those the negotiations went from a point at years, I believe at the table and were willing to give each which companies contested whether other the benefit of the doubt. Whatever they were responsible for labor standards that one of the private thoughts or feelings participants at contract facilities to one in which they may have had about each other were hung agreed to adopt a code of conduct and on the coat rack outside the door and once key factors is apply it throughout their supply chains. they sat down to work, the issues were Once the FLA was formed and the treated in their technical and practical the concept negotiations moved from questions of context without emotion or ideology. principle and ideology to questions of of safe space. That does not mean for an instant technical detail, the character of the that the participants were uncritically process changed noticeably and the accepting of each other. The ground- focus shifted to how companies should rules of company participation are take responsibility for conditions in substantial and involve a formal, legal their supply chains. The commitments engagement to implement the Obligations made by the companies won a degree of Companies set out in the FLA Charter. of trust and respect from the NGOs and The independent external monitoring universities at the table, and everyone that follows is pursued with absolute started to trust the process. By mid- rigor by the staff. Companies that stick 2002, the negotiations had produced a with the program enjoy the support and methodology with unheard-of levels of trust of all concerned. Companies that

FAIR LABOR ASSOCIATION n 2009 ANNUAL REPORT 4 do not may find themselves subjected to continuous scrutiny by the Board and may Finding new and novel ways to even be placed on special review if they are not upholding their commitments. All educate and inform consumers companies may be the object of a Third Party Complaint that could be investigated has to be one of our priorities for by the FLA. This robust system is one of the reasons that the safe space created the next decade. within the FLA works so well—it is based on real performance and .

The space the FLA creates is safe for educate consumers. We publish a lot but we will have to find creative ways of other constituents as well. NGOs, for of information about labor conditions getting at them. Those creative options example, can engage with companies in in factories around the world as part will include alliances with the ILO a highly regulated process that protects of our commitment to , and other international organizations, their independence but gives them but it is highly technical and requires government-to-government relations significant leverage. The fact that the considerable engagement with the and even multi-stakeholder alliances to FLA system is based on performance material to understand it and research try to get systemic changes made. The obligations means that many of skills to analyze. Finding new and novel plight of migrant workers in many parts the demands NGOs often make of ways to educate and inform consumers of the world is an example of an area companies outside the FLA are actually so that they can distinguish a monitored requiring the intervention of international built into the FLA system and thus are product from an unmonitored product organizations, national governments not contested. Companies affiliated at the point of sale has to be one of our (sending and receiving countries), with the FLA are bound to performance priorities for the next decade. multinational and national companies and standards, and the debate among civil society. constituents is about the most effective What are the other challenges we need ways of getting the job done. to confront? One of them is the issue To systemic flaws we can add structural of sustainable compliance. Many of issues. These relate to the structure of Many of the key NGOs dealing with the remedial measures FLA-affiliated certain supply chains and industrial human, labor or environmental issues companies implement fail to make a sectors. Some involve raw materials or are skeptical of multi-stakeholder lasting change. This may be due to a lack of production processes that are considered initiatives because of a perceived capacity at the factory level to maintain the high risk, and others are produced in lack of commitment by companies standards required for code compliance. high-risk countries. Product categories to monitoring, remediation or The need for capacity building is well that are driven by price competition are accountability (or all three). At the known, but attempts to develop it have particularly likely to put pressure on same time companies soon realize that bumped up against the shortage of local wages and working conditions. there is no value to be had in a toothless resources. The FLA has developed an exercise, in terms of risk management, Tackling these risks will once again online training portal and organizes social responsibility or credibility. In require broad, multi-stakeholder alliances. courses to help build local capacity, but this respect, it is interesting to note These complicated and sensitive issues this remains a real constraint. that the companies active in the FLA will most certainly test the limits of the demand high standards of performance Systemic flaws in the local labor market FLA’s safe space, but it has served us well from their peers, partly to avoid free are equally hard to address. Many in difficult conversations before, and I am riders and partly to ensure that the countries have reasonable labor laws confident we can make progress on these initiative does not lose credibility but are not fully implementing them. topics as well. amongst the civil society organizations Others have an oversupply of labor they engage with. that tends to drive down wages and working conditions. These issues exceed One of the key objectives of the the influence or scope of individual FLA since its inception has been to AURET VAN HEERDEN companies and even groups of companies, PRESIDENT AND CEO

FAIR LABOR ASSOCIATION n 2009 ANNUAL REPORT 5 FLA Celebrates

W a Decade of Achievement G I N O T R C K AT A RECENT OPEN E E find a way to work together to monitor mechanism to inform consumers about T R S MEETING OF THE O labor conditions worldwide and to raise company participation and compliance.

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– ASSOCIATION, 9 9 9 to improve working conditions and 10 Few would have thought so much could Acting Chair Bob workers’ lives worldwide through be accomplished in such a short span Durkee looked around the room tripartite collaboration. of time, but the group, then known and was struck by what he saw. “We as the Apparel Industry Partnership As the FLA enters its second decade, we have managed to sit ourselves in an (AIP), took up Clinton’s challenge. On revisit some points along that journey, integrated way, and I like the symbolism November 3, 1998, the AIP presented what makes the FLA unique and some of that,” he said. With potentially its agreement on a Workplace Code of of its biggest achievements, as well as divisive topics on the agenda coming Conduct and Principles of Monitoring the roles its constituents have played in before the Board that day, Durkee to the President. Shortly thereafter, the success of the organization. appreciated that Board members chose the AIP announced the formation to sit not according to constituencies of the Fair Labor Association (FLA) The Multi-Stakeholder Approach but as members of an integrated board. as the independent body that would Globalization revealed governance As Princeton University’s longstanding monitor conditions and hold companies gaps in state systems, and labor law representative to the FLA and a member accountable. violations surfacing in supplier factories of the Board since 1999, Durkee noted Incorporated ten years ago in May around the globe were evidence of that the FLA had come a long way from 1999, the nonprofit FLA would require governments’ failure to implement the first confrontational meetings of affiliated companies to abide by the FLA and enforce worker protection and leading apparel and footwear companies Code and monitoring requirements, labor rights—especially in developing and representatives of labor, consumer establish an accreditation program to countries. With many countries and human rights groups set into determine whether companies met seeking to promote exports by taking motion by a direct challenge from their obligations, develop procedures a lax attitude toward worker rights, President Clinton in 1996. This group to accredit factory monitors around the international attention shifted toward had been called to the White House to world, and institute a public reporting expanding the responsibility and

FLA TIMELINE: 1999–2009 Protecting Workers’ Rights 1999–2009© 2007 UNIVERSITY OF DELAWARE SOCIAL RESPONSIBILITY PROJECT 1999 2000 • The Fair Labor Association is formally • Justice Department issues favorable incorporated business review letter supporting the FLA monitoring approach • Over 100 colleges and universities join and establish the University Advisory • UAC adopts resolution calling on all Council (UAC) school affiliates to require their licencees to disclose factories producing collegiate • NGO Advisory Council is created with 15 products representatives from human rights, labor rights and religious organizations • Collegiate Licensee Program launches • Implementation Benchmarks supporting the FLA Code and the FLA Monitoring Guidance and Instrument are adopted • FLA reviews first applications for monitors

FAIR LABOR ASSOCIATION n 2009 ANNUAL REPORT 6 responsible companies, NGOs and civil society, and universities and colleges— that come to the table with different perspectives and agendas. While this can create tension, this tension is most often constructive and respect is given to the different perspectives. Representatives of these groups must work cooperatively to ensure that the actions taken by the FLA and its affiliates are responsive to constituent needs, while also being practical to implement and credible to the public.

Universities Key to FLA Growth

Universities had a big hand in the growth of the FLA. They were invited to contribute to the process soon after the FLA was formed. Engaging universities and colleges in the process enhanced © 2007 UNIVERSITY OF DELAWARE SOCIAL RESPONSIBILITY PROJECT © 2007 UNIVERSITY OF DELAWARE the credibility of the FLA and had many upsides. role of multinational corporations this context to define the roles and in solving many social, economic responsibilities of affiliate companies With student activism burgeoning and environmental concerns in the with regard to working conditions in on campuses all around the country countries where they operated. their supply chains, and to promote over a variety of concerns related to and implement international standards corporate investment and operations in Many companies had been going in the absence of state laws and foreign countries, universities were very it alone and developing their own enforcement. The multi-stakeholder interested in how they could take up the codes of conduct, but their efforts approach was conceived to ensure concerns of the students and use their lacked credibility with consumers legitimacy in the work of the FLA. influence to hold companies accountable. and civil society because there was Labor issues had become a focal point no standardization in codes from The organization’s policies, procedures following a string of exposés of minors one company to another and no and programs are thus governed by working in factories and generally of very accountability. The FLA emerged in three constituent groups—socially poor working conditions.

ProtectingFLA TIMELINE: 1999–2009 Workers’ Rights 1999–2009 2001 2002 • University representation on the Board • FLA mediates a case in a Dominican increases from one to three persons Republic factory that led to the formation • University licensees begin to submit of a union and negotiation of a collective applications bargaining agreement through its first Third Party Complaint • Monitor Accreditation is established • Board approves the FLA Independent • Third Party Complaint (TPC) process is External Monitoring process implemented • Eleven accredited monitors conducted 24 auditing visits

FAIR LABOR ASSOCIATION n 2009 ANNUAL REPORT 7 “Universities have interests in common with business and with advocacy and humanitarian

outreach.” —Karen Daubert, FLA Board Member since 2007

In 1999, over 100 universities and outreach,” said Karen Daubert, a As representatives of a large segment of colleges joined the FLA and created the UAC representative from Washington consumers and licensors of collegiate University Advisory Council (UAC). University in St. Louis since 2000 and brands, a pivotal role of universities Within the FLA governance structure, on the Board since 2007. “In a unique was to apply pressure to companies the UAC initially had one representative way, we sit in a position that can be producing apparel and other products on the FLA Board. active on both sides of those equations.” bearing their logos to join the FLA and At the same time, Daubert noted, enforce the FLA Workplace Code of At first, the NGOs and companies were universities have more of a connection Conduct in their supply chains. suspicious about the role of universities to the outside perspective through the and colleges in the governance of the The FLA launched the Collegiate students. “Universities bring a more organization. According to Durkee and Licensee Program in 2001. At the end naïve perspective, which is really more others present at the time, companies of 2009, over 2,600 licensees were of a consumer perspective. We’ve had to were convinced that the university registered with the FLA. Representation navigate this terrain with students who representative would always side with by universities and colleges on the are activists and consumers as well.” the NGOs and NGOs were convinced FLA Board expanded to three seats in that the universities would side with The FLA provided a program of 2001 and to six seats in 2007. Various the companies. “We were initially monitoring and compliance that constituents agree that this was one of suspicious that the universities would universities could not carry out on their the most important actions taken by be more like marketers and not own. “No matter how much we cared the FLA Board and may have been the upholders of human rights,” confirmed about the working conditions, we didn’t tipping point in creating greater balance Pharis Harvey of the International have the expertise to figure out how in the organization and a more fully Labor Rights Fund. Harvey was present to hold the companies accountable,” integrated FLA. at the early meetings at the White said Durkee. “The FLA works with House and of the AIP. These concerns companies on a regular basis to develop Mechanisms of Accountability proved to be unfounded. compliance programs that bring them closer to compliance. It is really The FLA governance structure “Universities have interests important to the schools that the FLA itself created an environment in in common with business and play that role.” which constituents hold each other with advocacy and humanitarian

FLA TIMELINE: 1999–2009 Protecting Workers’ Rights 1999–2009© 2007 UNIVERSITY OF DELAWARE SOCIAL RESPONSIBILITY PROJECT 2003 2004 • FLA releases its first Annual Public Report • Reebok International Ltd’s compliance • Auret van Heerden is named President program for footwear is the first to be and CEO accredited by the FLA • FLA establishes European office in • FLA launches pilot program with Geneva Syngenta Seeds to test FLA methodology in agricultural sector • FLA Board places Gildan on special review for failure to implement remediation plan • FLA Board reinstates Gildan after significant improvement

FAIR LABOR ASSOCIATION n 2009 ANNUAL REPORT 8 accountable. Participation of civil to selected factories to assess working collegiate licensees freely admit that society was critical to this mix because conditions. The unannounced audit at first they were concerned that the representatives of this group over ensures that we know real conditions on FLA’s transparency requirements time have helped to embed in the FLA the ground. The results of the audits and could prove harmful to their interests, system the expectations civil society has remediation plans are then made public. but companies like Asgard Press and of corporations. Syngenta Seed Inc. found them to be a The FLA Third Party Complaint positive. “The role of the NGOs was to make Process was of particular importance certain there was some reality in to the NGOs, according to Harvey. The “The FLA forces us down this path of the way that the FLA went about complaint mechanism was put into the transparency and accountability that its business,” said Harvey, a charter structure in order to provide a grievance allows us to tell our story,” said Peter member of the NGO caucus who was channel for workers in factories Shin of Asgard Press. “Being part of instrumental in developing the FLA producing for FLA companies that had the FLA is now part of our company code and chaired the FLA Monitoring not been visited by an FLA monitor or identity; we’re proud of our sourcing Committee. “This was especially to call attention to issues that might and manufacturing and it’s a good story important during crucially difficult not have surfaced in the FLA auditing to tell.” years when tensions with stakeholders process. When a complaint triggers an Transparency was an attractive outside of the FLA were high.” independent investigation by the FLA, component from the start, said Juan any reports and corrective action plans Several measures were built into González-Valero, Syngenta’s Head also are made public. the FLA system early on to ensure of Public Policy and Partnerships. greater accountability and credibility In a multi-stakeholder organization, Syngenta wanted to be more in its processes. “Joining the FLA is transparency is important for building forthcoming with its stakeholders a voluntary action, but from then on trust among FLA constituents and about its work with the FLA and its participation is anything but voluntary,” with stakeholders outside of the efforts to monitor and prevent child said Auret van Heerden, President and organization. Public reporting of FLA labor on its seed farms, as well as its CEO of the FLA. When a company joins factory audits, verifications and third efforts to ensure fair labor standards the FLA as a Participating Company, it party complaint investigations is a for farm workers. “We have received agrees to comply with ten obligations, foundation of the FLA’s commitment very positive feedback about our which are structured to help companies to transparency. For a company to join transparency.” create a culture of compliance the FLA and commit to this level of company-wide and throughout their transparency is not a small step because Meeting Companies Where They supply chain. the issues in its factories are laid bare to Are the public as are the remediation plans One of these obligations is to provide Early company affiliates—adidas, Eddie to address these issues. up-to-date factory lists; the FLA samples Bauer, Liz Claiborne, Reebok (now an that list and sends monitors unannounced Some FLA company affiliates and adidas Group brand), Nike, Nordstrom,

ProtectingFLA TIMELINE: 1999–2009 Workers’ Rights 1999–2009 2005 2006 • FLA launches pilot of new sustainable • Chen Feng becomes the first compliance methodology (FLA 3.0) in Participating Supplier to join the FLA soccer equipment factories in China and • Board increased UAC representation from Thailand three to six persons • The labor compliance programs of • Nordstrom’s is first retail labor compliance adidas, Eddie Bauer, Liz Claiborne, Nike, program to be accredited by the FLA Phillips-Van Heusen and Reebok (apparel) are accredited • FLA creates emergency fund to benefit workers at the Hermosa Manufacturing plant when the owner unilaterally closed its doors without providing compensation to workers

FAIR LABOR ASSOCIATION n 2009 ANNUAL REPORT 9 Patagonia, Phillips-Van Heusen, among compliance and improve its services so FLA’s program managers. “We were others—have done a lot to pave the way that the learning curve for newcomers barely crawling in labor compliance for other companies that have joined to CSR and labor compliance isn’t as when we started,” said Ben Turner of the FLA. steep. “Based on the experience of other Colosseum Athletics. “We realized that businesses and the ability of the FLA to we needed a lot of training and support Many FLA companies are what Marsha adapt the tools to the agribusiness, we and the FLA has been a great help in Dickson, FLA Monitoring Committee were in a position to learn faster and providing those…. The FLA is very Chair, described at a stakeholder make fewer mistakes than others may structured and continues to expand meeting in June 2009 as social have,” said González-Valero, Syngenta. what they offer to companies and to responsibility leaders (“SR leaders”)— define the steps companies need to take those that have buy-in of their top While the FLA’s Participating to put together a compliance program.” management, join organizations and are Companies are often the most visible accountable to external parties, engage representatives of the organization, “Each year that I have belonged they are with stakeholders, and perhaps most the FLA works with thousands of small trying to making it easier for companies importantly have SR decision makers and medium-sized licensees (SMEs) to participate and to make things on the ground with veto power over the striving for better labor compliance increasingly electronic,” said Holly sourcing departments. These companies programs. The FLA has taken many of Strohm, Herff-Jones Inc. “The hard part are doing far more than others in their the tools and training developed and is getting started but once you get on industry. piloted in projects with Participating board, it’s rewarding. We’re here and Companies to provide SMEs services— we’re going to stay here.” Within the FLA, affiliated companies such as online tools, training, factory have actively participated in pilot “You need not fear the FLA or the assessments and checklists for assessing projects to test new methodologies to work involved; it’s a process and not new suppliers—that make achieving improve monitoring and remediation ‘a judgment from people on high’ with their goals possible even with fewer in factories, engaged in training their mandates beyond your control,” said resources. “The FLA has been willing suppliers’ staff about labor compliance, Shin. “The FLA encourages us to be part to work with people where they are and shared best practices with of the conversation...about transparency and find solutions to the issues,” said colleagues. They have opened their and continuous improvement, with Daubert. “They don’t want to leave labor compliance programs up for a program where we feel like we are anyone behind.” scrutiny, and taken responsibility for working toward a common goal, rather issues in their supply chains. Collegiate licensees agree that any early than complying with a strict set of fears about whether they would be rules.” For many of these companies, the able to fulfill the expectations of their learning curve was steep but through These SMEs say that participation has licensors and of the FLA dissipated their participation, the FLA has been helped them open a new dialogue with quickly once they started learning more able to improve its approach to labor their suppliers, make better decisions about the FLA and consulting with the

FLA TIMELINE: 1999–2009 Protecting Workers’ Rights 1999–2009© 2007 UNIVERSITY OF DELAWARE SOCIAL RESPONSIBILITY PROJECT 2007 2008 • FLA launches the Enhanced Licensee • FLA holds first Board meeting in Program and web-based assessment and Asia (Kunshan City, China) and holds training tools stakeholder forum on China’s new Labor • The June FLA Board meeting and Law Reform stakeholder forum is held in the • FLA launches web-based Licensee Profile Dominican Republic to focus attention and Self-Assessment tool on labor challenges in that region • The labor compliance programs of Puma AG, Gildan Activewear and New Era Cap are accredited

FAIR LABOR ASSOCIATION n 2009 ANNUAL REPORT 10 “... we find our membership increasingly meaningful

as a differentiator in the market.” —Peter Shin, Asgard Press

about their partners, and thus have substantial impact on the ground in The FLA has embarked on a Sustainable a bigger impact on their factories or China, Central America and many other Compliance Initiative (SCI) that suppliers. exporting countries addressing systemic analyzes workplace conditions in labor law challenges. an entirely new way. Alternative to “A few years ago our participation with current auditing techniques, the SCI the FLA may have resonated more with “One of the greatest accomplishments approach evaluates how a facility’s niche groups, but as fair labor standards is that we have in place a viable practices, policies, and procedures become a more mainstream concern, respected, functioning organization impact workers throughout the lifecycle we find our membership increasingly that has evolved from a confederation of their employment. This leads to meaningful as a differentiator in the of constituencies to an integrated greater understanding about workplace market,” added Shin of Asgard Press. organization that is having a positive conditions and how sustainable impact on companies,” said Durkee. A Confederation of improvements can be made. “Our Constituencies United “There has been recognition that a hope is that SCI will be the enabler broader number of companies have of collaboration in the industry,” said As the FLA has matured, it has been taking the process seriously,” said Nike representative Angela Frank. continued to strengthen its Harvey. “There hasn’t been the need “It has the potential to change the requirements and procedures, for frequently coalescing to develop DNA of compliance.” Leading FLA broaden its oversight, and increase counter arguments against the other companies once again are contributing its reach. Today, the FLA’s policy- constituent groups.” their expertise to bear on the project, making Board of Directors includes with FLA stakeholders guiding its As it enters its second decade, the equal representation (six members) implementation in the FLA program. from its three core constituencies FLA is working to fulfill its mission in (companies, civil society organizations, more innovative and comprehensive FLA constituents agree that the and colleges and universities). There ways, putting even greater emphasis on organization’s shift from “policing to is increased accountability for FLA- collaboration among companies and coaching” is the right direction. “We’re affiliated companies and oversight of with local civil society organizations to lucky to have as visionary a CEO as product areas that reach well beyond increase the likelihood that compliance we have to keep the FLA current and the apparel and footwear industries, to efforts will be effective and sustained moving forward,” said Harvey. agriculture, non-profits and technology over the long term. sectors to name a few. The FLA has had

FLA TIMELINE: 1999–2009 Protecting Workers’ Rights 1999–2009© 2007 UNIVERSITY OF DELAWARE SOCIAL RESPONSIBILITY PROJECT 2009 • FLA places Russell Athletic on special review for insufficient remediation efforts regarding a shuttered factory • FLA reinstates Russell following historic agreement with unions in Honduras • FLA receives a grant from the State Department to foster sustainable compliance in Vietnam

FAIR LABOR ASSOCIATION n 2009 ANNUAL REPORT 11 2009 IN REVIEW

he global economic crisis shown an increasing sophistication in Enlarging the Tent that began in 2008 and consumers’ abilities to ask questions Despite the economic challenges continued into 2009 about the companies and products they in manufacturing, the number of generated a mood among buy, and even to be more discriminating companies and collegiate licensees TAmerican and other western consumers about claims with the explosion affiliated with the FLA grew in 2009. that we as a society could not go back of ethical labels and trust marks. There were 32 leading brands affiliated to business as usual. Faith in a U.S. Companies that treated the environment with the FLA as Participating Companies consumer-driven economic model and its employees well were seen to be and 12 Participating Suppliers. Affiliates had been shaken. People lost trust the most socially responsible. Where that join the FLA at this level agree to in companies and their products, labor issues had been more of a second- comply with ten obligations, which and organizations like the Fair Labor tier social issue, more recent studies include submitting their entire supply Association proved to have even greater show greater support for workers and chain to the FLA independent external relevance in this climate. fair treatment. monitoring process. Barnes and Noble Companies’ corporate responsibility This was the backdrop for many of College Booksellers, ChicoBag Company, programs did not become casualties of the activities and issues addressed by and New Balance Athletic Shoe, Inc. the economic crisis, and on the contrary the FLA in 2009, and supported the joined as Participating Companies and were often seen as differentiators that continued growth and enhancement of Maxport Limited (Vietnam) joined as a reflected well on brands. Surveys have the FLA programs. Participating Supplier. © 2007 UNIVERSITY OF DELAWARE SOCIAL RESPONSIBILITY PROJECT

FAIR LABOR ASSOCIATION n 2009 ANNUAL REPORT 12 Companies and suppliers that meet the obligations and demonstrate substantial FLA Factory Audits and Workers Impacted 2009 compliance with the Workplace Code Factories Audited by the FLA 120 of Conduct throughout their supply FLA Audits (including shared facilities) 140 chain are eligible to have their labor Total Number of Factories 4,202 compliance programs accredited by Estimated Number of Workers in Factories that Received FLA Audits 112,298 the FLA. Accreditation is the most in 2009 advanced recognition by the FLA of a Estimated Number of Workers 4,012,157 company’s labor compliance program. This dedicated group currently includes and sustain labor standards in their FLA affiliates are responsible for adidas, H&M, Gildan, Liz Claiborne, supply chains. Certain categories of working with the facilities following an New Era Cap, Nike, Nordstrom, licensees must submit their facilities inspection to develop a corrective action Patagonia, Phillips-Van Heusen and producing collegiate products to the plan (CAP) to address any violations PUMA AG. Each program must be re- FLA independent external monitoring of the code and for conducting accredited every three years. process as well. In 2009, the FLA follow-up visits to ensure the plan is expanded our monitoring program to a implemented. The FLA also conducts One of the strategic goals of the FLA pilot group of collegiate licensees. follow-up visits for a select group of is to expand our methodology into audits to verify the actions taken by the new sectors and to expand the range Monitoring and Verification FLA affiliate and supplier. of participants in the FLA. The FLA’s recent work in the agricultural sector The FLA system is a verification of Transparency is a cornerstone of monitoring labor conditions on companies’ internal programs. The FLA the FLA system. The FLA posts the Syngenta Seeds farms and initiatives performs due diligence on companies’ results of all audits on our website, we have undertaken in non-industrial internal monitoring programs through as well as the actions plans that FLA- sectors such as with the nonprofit Zeitz independent, unannounced external affiliated companies develop with their Foundation has attracted increasing monitoring and verification, and assists suppliers to correct any issues that interest in 2009 from other sectors. with training, capacity building efforts are found. Companies that submit to and in measuring impact. the FLA external monitoring process Growing the Collegiate Licensee The FLA conducts factory audits demonstrate a willingness to open up Program all over the world, including: the their labor compliance programs to the scrutiny of consumers and other The fastest growing affiliate groups Americas; Europe, Middle East, and stakeholders. are collegiate licensees, with more Africa (EMEA); South Asia; South East than 2,600 registered with the FLA, Asia; and East Asia. In 2009 there were Aggregate findings from audits including 38 Category B Licensees, over 4,000 facilities subject to FLA conducted in 2009 can be found on 800 Category C Licensees, and over independent monitoring. In that year, page 19. 1,800 Category D Licensees. More FLA accredited monitors conducted 120 than 200 colleges and universities are factory visits in 22 countries across the Developing New Approaches to globe. affiliated with the FLA and have placed Sustainable Compliance requirements on these licensees to The majority of factories the FLA join the FLA, to disclose the names of While the FLA’s current monitoring audited in 2009 were in the apparel and facilities producing collegiate products system is a valuable tool for identifying footwear sector (over 72%), followed by and to uphold the FLA Workplace Code labor issues and assessing compliance a variety of other industries including of Conduct in their supplier facilities. with the code of conduct, the process collectibles, jewelry, hosiery, paper neither identifies the root causes of products, home goods, electronic The FLA’s Collegiate Licensee Program labor violations nor does it necessarily products, and bags. The FLA also staff and materials meet licensees at result in sustainable improvements in expanded its auditing of Syngenta Seeds their knowledge and resource level, working conditions. The result is often a farms in 2009 and has posted the results providing guidance and tools to vicious cycle of policing, quick fixes, and of those audits on our website. help them progressively implement recurring noncompliance issues. The

FAIR LABOR ASSOCIATION n 2009 ANNUAL REPORT 13 Supplier Profile 2009 Top Ten Countries Hosting Factories Supplying FLA Companies* Country Number of Factories Percent of Total In 2009, FLA-affiliated companies reported that they sourced from 4,202 China 1,519 36.2 factories, located in 81 countries. Turkey 310 7.4 Approximately 17% of the factories United States 306 7.3 supplied collegiate licensees. The largest concentration of factories supplying FLA Vietnam 250 6.0 companies in 2009 was in China, where India 205 4.9 1,519 factories or 36.2% of the total Indonesia 171 4.1 number of factories were located. Thailand 155 3.7 The FLA estimates that the facilities Bangladesh 112 2.7 supplying FLA companies reported Mexico 90 2.1 to the FLA employed over 4 million workers in 2009.1 As a group, the top-ten Sri Lanka 68 1.6 locations accounted for over 86% of total Top Ten 3,186 75.8 employment in factories supplying FLA Rest of the World 1,016 24.2 companies. China also accounted for the Total 4,202 100 largest number of workers in factories supplying FLA affiliates with 1.5 million *PC, PS, and Category B Licensees workers.

The distribution of the FLA supplier base by FLA region shows some interesting shifts in sourcing, which has largely favored China over the last five years. 2009 Top Ten Countries with the Largest Workforce in Factories Supplying FLA Companies The share of FLA suppliers located in (in thousands)* East Asia (primarily China) began to drop back to 2006 levels in 2008 and Country Estimated Number of Workers Percent of Total has continued to dip in 2009. However, China 1,513 38 the table shows a big gain in 2009 for Vietnam 575 14 the EMEA region. The Americas have Indonesia 432 11 continued to remain relatively stable with some pick-up in 2009. India 187 5 Bangladesh 179 5 Thailand 171 4 Cambodia 136 3 1. In some instances, employment levels are estimated since employment information was Honduras 82 2 not available for each factory. In such cases, Sri Lanka 81 2 missing data were extrapolated from factories in that country for which data were reported. Turkey 80 2 Top Ten 3,436 86 Rest of the World 576 14 Total 4,012 100 *PC, PS, and Category B Licensees

Distribution of Suppliers by FLA Region (percent of suppliers) Region 2005 2006 2007 2008 2009 Americas 18.2 19.1 16.0 16.7 17.2 Europe, Middle East and Africa (EMEA) 17.4 11.2 9.9 8.3 13.1 South Asia 8.4 7.2 8.3 9.9 10.8 East Asia 35.5 45.3 48.0 45.8 41.3 Southeast Asia 20.5 17.2 17.8 19.4 17.6

FAIR LABOR ASSOCIATION n 2009 ANNUAL REPORT 14 and shrinking access to credit. The Companies that submit to the overarching goal of the group was to limit the impacts of the global crisis on FLA external monitoring process workers and to promote “responsible competitiveness” as the economy demonstrate a willingness to recovered. The FLA convened in June 2009 a open up their labor compliance range of stakeholders to discuss the impacts of the global economic crisis programs to the scrutiny of and to gather views from different regions and stakeholder groups. The consumers and other stakeholders. panels explored various approaches for mitigating the impacts on workers and the prospects for the industry’s recovery FLA has been focusing on innovative and verification process and allow and opportunities for the promotion approaches to sustainable compliance, the FLA to collect comparable data of labor standards. U.S. Government which represents a fundamental change across assessments for better analysis officials provided insight into the in monitoring philosophy. of impact and more actionable Obama Administration’s approach to information to help guide companies international labor standards. Based on more than a decade of in remediation, training and capacity experience monitoring factories, building. More information about this Protecting Rights of Migrant Workers conducting extensive surveys of factory in Malaysia new approach and new tools will be management and their employees, forthcoming in 2010. Fundamental labor rights, as embodied and exploring new methodologies, in the ILO Core Conventions, apply the FLA came to recognize that Creating Fora for Dialogue to all workers without exception, simply assessing whether a factory on Global Concerns including migrant workers. Despite meets international labor standards the importance of migrant workers is not enough. An assessment must The global economic crisis focused the to the Malaysian economy, a number evaluate how a facility’s policies, concerns of many international labor of national and international reports procedures, and practices impact rights and human rights organizations, have independently documented workers throughout the lifecycle of as well as of multi-stakeholder the prevalence of labor and human their employment—from recruitment initiatives like the FLA, on the plight rights violations against migrant and hiring, through workplace conduct of the workers, especially the most workers throughout the recruitment and industrial relations, to termination vulnerable laborers such as women and and migration process and their and retrenchment. The monitor must migrant workers, and other labor issues employment in Malaysia. The number evaluate whether the factory has exacerbated by the global crisis. of cases involving labor and human systems in place to ensure workplace Retrenchment and Responsible rights violations against migrant standards are upheld. Recovery workers in Malaysia points to systemic In 2009, the FLA undertook an The FLA participated in various MFA deficiencies in labor migration policies initiative to develop a new approach to Forum multi-stakeholder discussions and labor protection systems. sustainable compliance. The initiative concerning industry restructuring and The FLA joined with the Malaysian Bar envisions the creation of a technology recovery from the global crisis. The Council to hold a multi-stakeholder platform that will help FLA-company group sought solutions for protecting roundtable discussion on the issues affiliates develop internal sustainable retrenched workers and extending surrounding migrant workers in compliance programs, as well as engage credit to the more responsible factories Kuala Lumpur, Malaysia, in August in greater cooperation and sharing of that had orders in hand but still faced 2009. Participants discussed risk information. The platform also will possible closure or were retrenching factors for migrant workers in enhance the FLA’s current monitoring workers because of high operation costs Malaysia during distinct phases of the

FAIR LABOR ASSOCIATION n 2009 ANNUAL REPORT 15 employment lifecycle—recruitment, wages, work on this topic has remained to support the network that will allow employment, and retrenchment. rather fragmented. the FLA and other stakeholders to Stakeholders provided their collective collaborate on data collection, research, The FLA held a conference in October input to the development of specific case studies and pilot projects. 2009 in Washington aimed at mobilizing recommendations prioritized around: a more cohesive and enhanced recruitment of migrant workers, Innovating for Greater Impact approach to addressing wage issues including the use of agencies; and Reach along the supply chain. Academics employment contracts with migrant and practitioners provided different The FLA engages in special projects workers; health care for migrant theoretical and empirical perspectives to test new methodologies, to workers; retrenchment processes of on wage issues, as well as reported on develop new FLA services, and to migrant workers and cancellation current wage practices and the work of help constituents adapt to new and of work permits; and freedom of various corporate social responsibility changing circumstances affecting labor movement. The work on migrant CSR initiatives in this field. compliance. In 2009, the FLA traced workers in Malaysia is ongoing. cotton back to the fields to assess The conference also sought to clarify feasibility of monitoring risks along Wage Issues Along the Supply Chain the most relevant dimensions of the supply chain, helped an EU-funded “fair” wages and to launch future Within global trade, wage project develop and deliver training in engagement on the topic that could lead practices along the supply chain CSR to various sectors, and continued to to a dynamic framework for improving are characterized by a number of develop the FLA sustainable compliance wages for workers within a broad “fair serious problems, which have long methodologies through implementation wage” spectrum. Participants in the fair gone unaddressed and were further in different countries. Increasing wage conference recommended that exacerbated by the current global collaboration with local stakeholders is at the FLA create a Fair Wage Network. A economic crisis. While there is the heart of many of the FLA’s activities. website is currently under development increasing international concern on

FAIR LABOR ASSOCIATION n 2009 ANNUAL REPORT 16 Tracing Cotton Production and Training Professionals in CSR Bringing Sustainable Compliance to Identifying Risks Bangladesh and Vietnam Eight European partners joined Uzbekistan’s state-sanctioned use together in 2007 for a two-year multi- The PREPARE project in Bangladesh of child labor in the harvesting of stakeholder, collaborative approach to aims to improve the efficacy of worker cotton has focused international and improve the human resource and CSR representation in factories by providing consumer concerns on the social and standards and policies of companies a platform for labor-management environmental issues associated with across many industries. The HERMES- dialogue; establish a system of cotton cultivation and harvesting. OSR project developed training communication, consultation, and Apparel companies understand the need programs to train trainers, who will negotiation; provide capacity training to be aware of whether the cotton they in turn train executive staff. Modules to worker representatives and use in apparel production embodies covering CSR broadly, including such factory management on their roles violations of human rights, labor topics as labor compliance, corporate and responsibilities; and promote a standards or environmental norms. The ethics, and the environment, were sustainable training model that will FLA Cotton Project conducted a pilot completed and translated into several ensure that all workers and supervisors exercise to transparently trace cotton languages. Pilot seminars were in the factory receive regular training on along an entire supply chain of apparel conducted to train the trainers and end- local labor laws. producers to identify risks in the chain. users in a number of small and medium The tracing exercise led to interesting sized enterprises. With a grant from the A “top-down bottom-up” approach was discoveries and some recommendations Swiss government, the FLA oversaw used to ensure ownership at all levels of that can be useful to retailers and the overall methodology, reviewed the the company and baseline assessments brands. training content and helped define the to assess gaps in factory performance. strategy for labeling and dissemination In-factory trainings and key performance of the HERMES trainings. indicators for workers and management were completed to address issues. As the PREPARE project comes to a conclusion, impact assessment are underway to

FAIR LABOR ASSOCIATION n 2009 ANNUAL REPORT 17 determine actual progress. The project’s success will be measured by the ability of The FLA Third Party Complaint managers and workers at participating factories to identify and resolve problems Process was built into the FLA which have an effect on compliance.

FLA received a grant from the U.S. system early on to ensure greater Department of State to foster sustainable compliance in Vietnam through the accountability. FLA 3.0 methodology. Borrowing from some of the PREPARE project’s tools and the FLA sustainable compliance Estofel, S.A. were the primary reason for the closure methodology, the Vietnam Project aims of the plant, clearly inappropriate and Eight workers at the Estofel, S.A. to enlist 50 factories supplying FLA- unacceptable actions were taken that factory that shut down in late 2007 affiliated companies and non-affiliated raised serious questions about Russell raised allegations of labor violations, companies to engage in a consultative, Corporation’s adherence to freedom including failure to pay severance. The multi-stakeholder process working toward of association and the protection of FLA and the Worker Rights Consortium increasing respect for workers’ rights workers’ rights. (WRC) therefore commissioned an and improving working conditions in investigation that estimated that 974 The FLA Board made recommendations Vietnamese factories. The project also former Estofel workers were owed to Russell on a remediation plan. Based seeks to enable workers and managers total benefits of more than twice what on insufficient progress in remediation to regulate their own workplaces in a was paid. The collaborative efforts efforts identified through an independent sustainable manner consistent with of the FLA, the WRC, University of investigation in June 2009, the FLA Board national labor law, international labor Washington, GFSI, Inc., Hanesbrands, placed Russell on special review. Special standards, and labor best practices; and Phillips-Van Heusen, Ghim Li (former review required specific actions be taken foster multi- owner of Estofel), and the Collegiate by Russell within 90 days to address in the region. The FLA has conducted Licensing Company resulted in securing issues related to the closure of the JDH several preliminary meetings with additional severance payments of over factory in order to be in good standing government agencies, trade unions, $520,00 for former Estofel workers. with the FLA. This included negotiating industry associations and brands and in good faith with SITRAJERZEESH and looks forward to working with factories as Russell Corporation the General Confederation of Workers soon as it receives the requisite operation (CGT) in Honduras. permit from the Government of Vietnam. Throughout 2009, the FLA was deeply involved in a high-profile labor dispute Negotiations resulted in an agreement Achieving Resolutions through involving Russell Corporation and its with the unions that is being hailed as the Third Party Complaint Process closure of Jerzees de Honduras (JDH). historic. The negotiations addressed The FLA launched three investigations The FLA constantly strives to have many of the key concerns that the in response to allegations that Russell’s greater impact and reach with our FLA Board expressed in placing decision to close the factory was programs, but our monitors cannot be Russell on special review and went motivated by a desire to shut down the in all factories. The FLA Third Party beyond opening a new factory in union SITRAJERZEESH in violation of Complaint process allows workers, Honduras, Jerzees Nuevo Dia, hiring the FLA Workplace Code of Conduct on companies, NGOs or any other workers from JDH and engaging in freedom of association. An investigation stakeholder to bring a complaint about collective bargaining discussions with into the business case was conducted persistent issues at a factory to the FLA’s SITRAJERZEESH union. at Russell headquarters in Bowling attention. There are several steps in our Green, Kentucky, and two independent More details about these Third Party process intended to identify and correct investigations were conducted on Complaints, including investigative any noncompliances found. In 2009, freedom of association at JDH. While reports and FLA Board resolutions, can the FLA successfully resolved two Third the FLA could not determine definitely be found on the FLA website. Party Complaints filed with the FLA. that anti-union sentiments and actions

FAIR LABOR ASSOCIATION n 2009 ANNUAL REPORT 18 INDEPENDENT EXTERNAL MONITORING

he Fair Labor Association 2009 IEMs by Country 2009 IEMS by Country (FLA) is committed 40 to ensuring the 38 implementation of 35 our Workplace Code of Conduct. T 30 Upholding that commitment requires due diligence. A core component 25

of the FLA’s program is conducting 20 unannounced Independent External 15 14 14 Monitoring (IEM) of factories used 9 by FLA affiliates and evaluating 10 6 5 5 4 compliance with all code elements. 5 3 3 3 2 2 2 2 2 Submitting to the FLA’s monitoring 1 1 1 1 1 1 0

y o a e program is one of the ten obligations e tes as sia au an a xic ador dan y agua China urk tnam India emala Japan apor aiw T Me Jor Canada epublic t Mac ar T Vie Mala Thailand ed St Hondur Sri Lank Cambodia Nic Sing El Salv Bangladesh an R Gua affiliated companies are required to Unit fulfill. Transparency is important to the Dominic process and therefore, the findings for all inspections are posted to our website 2009 IEMS by Region 2009 IEMs by Region as Tracking Charts, which can be found at www.FairLabor.org under Public 45

Reporting. 40

In 2009, FLA-accredited monitors 35 conducted 120 factory visits in 22 30 41 countries across all five regions. Participating Companies accounted 25 31 for the bulk of the monitoring in 2009 20 with 74 of 120 audits. FLA-accredited 15 20 monitors conducted 12 audits for Participating Suppliers, a new but 10 17

11 expanding group of affiliates. There 5 were 27 IEMs conducted for Category 0 B Collegiate Licensees and for the first Americas East Asia EMEA South Asia SE Asia time in 2009, Category C Collegiate Licensees were brought under the scope of the FLA’s monitoring program with 9 factories owned and/or producing for these companies audited by FLA- accredited monitors in the Americas, methodology due to their agricultural 1. One of these audits was shared by a 1 scope. As with all the IEMs, the Participating Company and a Category B East Asia and South East Asia. Licensee, and another by a Participating Tracking Charts for these audits are Company and a Category C Licensee, In addition, the FLA conducted 5 IEMs available on the FLA’s website. which were counted twice in the at seed farms operated by Syngenta in breakdown by affiliate category above. India. These audits are not covered in this section as they follow a different

FAIR LABOR ASSOCIATION n 2009 ANNUAL REPORT 19 CODE COMPLIANCE AND REMEDIATION

he FLA’s Workplace Code of Conduct is based on International Labour Organization (ILO) Tstandards. Each code element is supported by specific benchmarks that help us measure a factory’s compliance with that code element. The charts on page 21 show the distribution of noncompliances by code element. At least one benchmark in the Health and Safety code element was breached in 93 percent of the factories audited in 2009. Noncompliances in factories were also high for Hours of Work, Wages, Benefits, and Overtime, and Freedom of involve better production planning, the element were of a procedural or Association. creation of a new work shift, or even the miscellaneous nature (94% in 2009) expansion of a facility or construction rather than a direct violation involving FLA affiliates are responsible for of a new one so that additional the employment of children. Procedural working with the factory following workers can be recruited. Multi-year violations included, for example, not an inspection to develop a corrective remediation plans are common with having an age verification system that action plan (CAP) to address the regard to complex noncompliance meets FLA standards or ignoring certain noncompliances, to conduct follow- issues. legal procedures, such as employing up visits to ensure the plan is juvenile workers of an eligible age but implemented, and to provide status Each code element is evaluated based who have not registered with the local reports to the FLA. on a combination of compliance labor bureau or who have not had the benchmarks: Different forms of noncompliance lead physical examination required by law. to different approaches and timing Substantive benchmarks are More details on the FLA benchmarks regarding remediation plans. Some considered a direct violation of the can be found at www.FairLabor.org. noncompliances may be relatively easy rights and duties embodied in the FLA In 2009, the total number of instances to fix, such as adding fire extinguishers Workplace Code of Conduct. of noncompliance found dropped by or recharging them. In these cases, Procedural benchmarks refer to 578 compared to the previous year, with remediation can be carried out quickly systems or administrative processes the same number of IEMs conducted and documented through certificates, whose absence in a factory could lead to in both years. This significant decline photographs, and other simple the violation of a code provision. was due, in large part, to the decrease documentation. in the number of procedural and Miscellaneous benchmarks refer to Other noncompliances, however, are miscellaneous violations reported by issues that do not fall squarely under more complex and take much longer monitors, who were urged by FLA to existing FLA benchmarks. to remediate, such as violations of focus their efforts more on issues of a freedom of association, discrimination, This distinction is important because, substantive nature. or excessive hours of work. In the as you will note, for example, the The charts on page 21 show the case of excessive hours of work, for vast majority of noncompliances distribution of noncompliances by code example, a corrective action plan might with respect to the Child Labor code element for 2009.

FAIR LABOR ASSOCIATION n 2009 ANNUAL REPORT 20 2009 Non-Compliances by Code2009 Non‐Compliances b Element y Code Element

100% 93%

90%

78% 80% 72% 73% 70%

60%

49%

t of IEMs 50% 111 cen

er 94 P 40% 87 87 86 32% 30% 25% 22% 59 20% 38 39 30 10% 26

0% Forced Labor Child Labor Harassment or Discrimination Health & Safety Freedom of Wages, Benefits Hours of Work Abuse Association & Overtime There were 531 instances in which at least one benchmark of the FLA Workplace Conduct of Conduct was breached.

2009 Procedural vs. Substantive2009 Pr Non-Compliancesocedural vs. Substantive Non‐Compliance

100% 2 4 24 11 6 11 7 5 90%

152 74 80% 10 35 116 70% 62 25 60%

28 50%

40% 437 187 27 30% 71

110 20% 20 37

10% 3 0% Forced Labor Child Labor Harassment or Discrimination Health & Safety Freedom of Wages, Benefits Hours of Work Abuse Association & Overtime

Substantive Procedural Miscellaneous

There were 1,464 instances of noncompliance based on the benchmarks reported by accredited monitors in 2009, which translates into an average of 12.2 instances of noncompliance per factory inspection.

FAIR LABOR ASSOCIATION n 2009 ANNUAL REPORT 21 2009 Regional Non‐Compliances in Comparison 2009 Regional Non‐Compliances in Comparison 2009 Regional Non‐Compliances in Comparison 2009 Regional100% Non-Compliances in Comparison 100% 100%90% 90% 80%90%

ype 80% 80% ype 70%

ype 70% 60%70% 60% 50%60% 50% 40%50% 40% 30%40% 30% 30% % of IEMs with Noncompliance T 20%

% of IEMs with Noncompliance T 20%

% of IEMs with Noncompliance T 10%20% 10% 10%0% 0% ty T 0% tion fe tion ork ty T e ork ced Labor tion f tion fits & OT s of W Child Labor t or Abuse ty or tion fe tion ork F fits & O ced Labor t or Abuse Discrimina Health &Sa Hours of W or Child Labor es, Benefits & O F ced Labor assment or Abuse s of W or Child Labor Discrimina Health &Sa ag Hour F Har eedom of Associa W assmen Discrimina es, Bene Hour Health &Sa Fr ag Harassmen eedom of Associa W es, Bene Fr ag Har eedom of Associa W Americas East Asia EMEA Fr South Asia SE Asia Americas East Asia EMEA South Asia SE Asia Americas East Asia EMEA South Asia SE Asia Overview: The 120 audits conducted across all five regions resulted in 1,464 findings of noncompliance, or roughly 12.2 findings of noncompliance per audit. The code element most frequently breached was Health & Safety, with at least one breach of the benchmarks associated with this code element identified in 111 out of 120 audits (93%), followed by one or more in 94 of the audits (78%) for Hours of Work and 87 (73%) in Wages, Benefits, and Overtime.

The Americas: The 31 audits conducted East Asia: The 41 audits conducted of noncompliance per audit. In 91% of in the Americas resulted in 220 findings in East Asia resulted in 625 findings of the audits conducted in the region, FLA- of noncompliance, or roughly 7.1 findings noncompliance, or roughly 15.2 findings accredited monitors recorded at least of noncompliance per audit. The code of noncompliance per audit. For all 38 one violation of the benchmark regarding element most frequently breached in IEMs conducted in China, FLA-accredited Health & Safety. the Americas was Health & Safety, with monitors recorded a violation of the at least one breach of the compliance benchmark regarding the right to freedom South East Asia: The 20 audits conducted benchmarks associated with this code of association.* In total, 40 out of 47 in South East Asia resulted in 257 findings element identified in 26 out of 31 IEMs. audits conducted in this region had at of noncompliance, or roughly 12.9 findings least one noncompliance with respect of noncompliance per audit. One or more EMEA: The 17 audits conducted in the to the Freedom of Association and of the benchmarks associated with Health EMEA region resulted in 216 findings of Collective Bargaining code element. & Safety were recorded by FLA-accredited noncompliance, or roughly 12.7 findings of Noncompliances were also high for Health monitors as breached in all 20 audits. For noncompliance per inspection. At least one & Safety, Hours of Work, and Wages, all 14 IEMs conducted in Vietnam, FLA- benchmark regarding the Hours of Work Benefits, and Overtime, with at least one accredited monitors recorded a violation and Wages, Benefits, and Overtime code benchmark in each element breached in of the benchmark regarding the right to elements was breached in 16 of the 17 audits at least 37 of 41 inspections. freedom of association.** In total, 18 out conducted in the region. Noncompliances of 20 audits (90%) conducted in the region were also high for Health & Safety, with at South Asia: The 11 audits conducted had at least one noncompliance with least one benchmark of this code element in South Asia resulted in 146 findings of respect to the Freedom of Association and breached in 15 of 17 inspections. noncompliance, or roughly 13.3 findings Collective Bargaining code element.

* Each of the IEMs conducted in China has the following text included on the corresponding tracking chart to reflect the systemic noncompliance with the FLA benchmark on Freedom of Association: “The Chinese constitution guarantees Freedom of Associations (FOA); however, the Trade Union Act prevents the establishment of trade unions independent of the sole official trade union—the All-China Federation of Trade Unions (ACFTU). According to the ILO, many provisions of the Trade Union Act are contrary to the fundamental principles of FOA, including the non-recognition of the right to strike. As a consequence, all factories in China fall short of the ILO standards on the right to organize and bargain collectively. However, the government has introduced new regulations that could improve the functioning of the labor relations mechanisms. The Amended Trade Union Act of October 2001 stipulates that union committees have to be democratically elected at members’ assemblies and trade unions must be accountable to their members. The trade union has the responsibility to consult with management on key issues of importance to their members and to sign collective agreements. Trade unions also have an enhanced role in dispute resolution.”

** Each of the IEMs conducted in Vietnam has the following text included on the corresponding tracking chart to reflect systemic noncompliance with the FLA benchmark on Freedom of Association: “Vietnam has not ratified ILO Conventions 87 or 98. Under Vietnamese law, all unions are required to affiliate with the single trade union, the Vietnam General Confederation of Labor (VGCL), which is affiliated with the Communist Party. With respect to such union monopolies, the ILO Committee on Freedom of Association has stated that the rights of workers to establish organizations of their own choosing implies… the effective possibility of forming… [trade unions] independent both of those which exist already and of any political party. Vietnam’s legal framework is therefore not compatible with the ILO Principles on Freedom of Association and, as such, all factories in Vietnam fail to comply with the FLA Code standard on Freedom of Association.”

FAIR LABOR ASSOCIATION n 2009 ANNUAL REPORT 22 INDEPENDENT EXTERNAL VERIFICATION

he FLA selects a sample complex remediation plans. Verification of the audits conducted reports are posted on the FLA website. Verifications in previous years and Two important points should be arranges for an accredited highlight issues taken into consideration in reviewing Tindependent external monitor to the results of the verifications. First, revisit the factories to verify that unlike inspections that are selected at that the FLA’s corrective actions were taken to remedy random, the verification visits target noncompliances. In 2009, the FLA some factories facing critical and sustainable conducted 24 Independent External challenging noncompliance issues, such Verifications of corrective action plans as nonpayment of wages, egregious compliance for inspections conducted in previous safety and health violations, freedom years. In our experience, a two- to of association, and harassment or three-year period should lapse between initiative aims abuse issues. The FLA targets cases for the development of a corrective action verification based on the severity of the plan and verification in order to be to address. issues that emerged from the inspections. able to measure the impact of the more

FAIR LABOR ASSOCIATION n 2009 ANNUAL REPORT 23 Second, in returning to these factories, than one finds overall in general FLA-accredited monitors were asked to inspections. focus on the original noncompliances or Verifications illustrate a challenge risks of noncompliance identified in the with using a monitoring system alone audits and to evaluate progress toward for due diligence. An unannounced, remediation. The monitors were also external audit of a factory provides a asked to cite any new noncompliance snapshot of issues within the factory issues they observed. © 2007 UNIVERSITY OF DELAWARE SOCIAL RESPONSIBILITY PROJECT at a point in time but does not identify The largest number of the root causes of the problems. In noncompliances monitors reviewed revisiting factories to verify remediation was in the Health & Safety area, of past noncompliances, monitors reflective of the distribution of often identified additional or new noncompliances for all inspections in noncompliances. As we have come general. Since the verification audits to understand the limitations of were weighted toward reevaluating monitoring, the FLA has been at the situations where complex and critical forefront in developing a sustainable issues had emerged in the inspections, compliance methodology that we there were a higher number of cases believe will have significant impact for involving Harassment or Abuse change at the factory level.

IEVs by Region In 2009, 37% of noncompliances were Region Number of Verifications Percent found to be fully remediated by the FLA affiliate and its suppliers, and in 66% of the Americas 7 29% issues identified previously, monitors were East Asia 9 38% able to verify full or partial remediation. EMEA 0 0% Within 24 factories, 128 new findings of South Asia 6 25% noncompliances surfaced during the verification audits, requiring additional Southeast Asia 2 8% remediation steps. The majority of the TOTAL 24 newly-identified noncompliances were also in Health & Safety (41%), followed distantly by Wages and Benefits (16%). 2009 Verification Audit Results by Code Element

Code Element Complete / Improved / No Risks Risks Not Original % Success* New Verified Pending Change Addressed Addressed Findings Rate Findings Code Awareness 16 9 20 1 3 49 53% 2 Forced Labor 10 1 3 3 4 21 67% 9 Child Labor 4 1 2 6 3 16 69% 6 Harassment or Abuse 17 0 9 6 6 38 61% 12 Discrimination 11 2 3 9 3 28 79% 4 Health & Safety 72 31 26 17 6 152 79% 52 Freedom of Association 2 3 5 13 2 25 72% 3 Wages & Benefits 27 12 31 7 3 80 58% 21 Hours of Work 17 11 33 8 1 70 51% 12 Overtime Compensation 9 1 7 0 0 17 59% 5 Miscellaneous 2 1 3 2 1 9 56% 2 Total Verifications 187 72 142 72 32 505 66% 128 % By Status 37% 14% 28% 14% 6% n/a n/a n/a

* Completed plus improved remediation on noncompliances plus risks addressed.

FAIR LABOR ASSOCIATION n 2009 ANNUAL REPORT 24 JOIN THE FLA To learn more about affiliating with the FLA, please visit our website at www.FairLabor.org or contact [email protected].

1707 L Street NW, Suite 200 Washington, DC 20036 202.898.1000 www.FairLabor.org