WRC Update: Adidas’ Relationship with PT Kizone

We write to update you concerning the PT Kizone case in Indonesia. This communication addresses adidas’ claim that it has no responsibility for the violations at PT Kizone because, the company says, its relationship with the factory ended well before the violations occurred. In fact, the evidence demonstrates that PT Kizone was still an adidas supplier when the violations of workers’ rights and university codes of conduct began.

Here are the relevant facts, uncovered through the WRC’s ongoing inquiry:

• As we have reported to you previously, the owner of PT Kizone fled the country in January of 2011, precipitating the factory’s closure and leaving no money to pay severance and other legally mandated terminal compensation to the workforce. Evidence also shows that on January 5, 2011, prior to his flight from the country, the owner failed to pay workers their wages. On that day, workers were due their pay for the entire month of December, but they received nothing.  
• The same month that the factory stopped paying workers their wages, adidas reported PT Kizone as a producer of collegiate apparel. Adidas’ January 2011 quarterly factory disclosure submissions, provided to the WRC by the Collegiate Licensing Company (CLC), reported PT Kizone as an adidas collegiate supplier for numerous universities. Adidas again reported PT Kizone as a collegiate supplier in its April 2011 disclosure.
• Adidas also reported PT Kizone as an active supplier factory on its own website in January 2011. Adidas publicly reports all of its active factories on the site. Adidas describes this list as “a global supplier factory list…which we regularly update.”  When adidas posted the list in January 2011, PT Kizone was on it.  
• After the violations were publicly exposed in the spring of 2011, adidas took the position that it had actually ended its relationship with PT Kizone in “mid 2010.”  More recently, adidas has acknowledged that it continued to produce at PT Kizone well after that point, stating that its most recent orders were completed in late November of 2010. Adidas has not explained why, if it stopped producing at PT Kizone in November of 2010, and had no intention of placing further orders, it was still reporting the factory as a supplier in January of 2011.

Given that adidas reported in January 2011 – through two separate disclosure procedures – that PT Kizone was an active supplier, we cannot see any reasonable basis on which adidas could deny responsibility for labor rights violations that occurred that same month. Adidas’ claim that the business relationship ended in the middle of 2010 was not made until after the violations were publicly exposed. For obvious reasons, university codes cannot be enforced if a licensee can disclose a factory as a supplier and then, after labor rights violations are exposed, disown its own disclosure reports and deny responsibility for the factory.

New information, identified by the WRC over the holiday period, brings greater clarity to the issue. The evidence shows that the labor rights violations actually began not in January 2011, but in September of 2010 – while adidas’ most recent orders were still being produced at the factory:

• On September 3, 2010, PT Kizone stopped paying legally mandated severance to workers whose employment was terminated. This was more than two and one half months prior to the date on which adidas says its most recent orders were completed.
• By November 1, 2010, three weeks before the completion of the most recent adidas production run, 32 workers had been denied legally mandated terminal compensation. Thus, 32 violations of applicable labor codes were committed while workers were making goods for adidas.
• These violations were documented in filings made by worker representatives to the Indonesian Ministry of Manpower and were validated, on April 13, 2011, by the government mediator assigned to the case.
• It is worth noting that when factories stop paying workers legally mandated compensation, this is not only a violation of workers’ rights in and of itself; it is also a glaring red flag, indicating that the business is in financial trouble and that there is a significant chance of deeper problems to come. The deeper problems arrived in January, when the owner stopped paying workers entirely and then fled the country with the factory’s remaining capital. Consistent with its code of conduct obligations, adidas should have 1) identified and addressed the labor rights violations committed in September, October and November of 2010 and 2) recognized that its supplier was in crisis and that additional violations were likely to occur. In a communication to universities dated November 26, 2011, adidas states the following: “While the commercial relationship was open, we monitored the PT Kizone workplace to ensure that it adhered to the standards and practices required in the adidas Workplace Standards, the CLC Code of Conduct and the FLA’s Code of Conduct.” As the evidence reviewed above demonstrates, if adidas did monitor PT Kizone, it did not do so effectively and did not “ensure that it adhered to the standards and practices required in the adidas Workplace Standards, the CLC Code of Conduct and the FLA’s Code of Conduct.”

The effort to undo the harm done to the workers of PT Kizone has been complicated by adidas’ unwillingness to acknowledge responsibility and by the misleading information (we know of no other way to characterize it) that adidas has circulated concerning its relationship with the factory. In letters, messages, and statements, adidas has repeatedly summarized its relationship with PT Kizone in the manner reflected in the following statement from its November 26 communication: “We cannot ourselves assume, or accept, the liability for the severance owed by the owner of PT Kizone, a factory that closed 10 months after our commercial relationship was terminated.” To generate this claimed 10 month gap, adidas employs two rhetorical sleights of hand: First, adidas cites June 2010 as the date when its “commercial relationship” with PT Kizone ended, even though adidas itself admits that Kizone workers were still making goods for adidas five months later. Second, adidas cites the factory’s final closure date as if it were the relevant benchmark. Since adidas’ argument is that it is not responsible for the violations because it left the factory before they happened, the relevant date is obviously the date the violations began. The date of the factory’s final closure, months later, is beside the point. Moreover, whether or not adidas was aware of the violations that were committed from September to November of 2010, the company is unquestionably aware that the owner fled in January 2011, since it has commented on this event in its own communications. Since adidas acknowledges production at Kizone in November, and acknowledges that the owner fled in January, two months later, we don’t understand how the company could, in good conscience, tell its university partners that there was a gap of “10 months.” In light of the evidence recently identified by the WRC, it is of course now clear that there was no gap at all.

Given the information review above, it is our hope that adidas will acknowledge its responsibility to the workers of PT Kizone and that the concerned parties can concentrate their attention, going forward, on getting the violations corrected.

The following chronology summarizes the salient facts reviewed in this communication:

PT Kizone/Adidas Chronology

September 2010:

• PT Kizone begins denying legally mandated severance pay to employees on September 3.
• Adidas goods are produced at the factory.

October – November 2010:

• The labor rights violations continue. So does production of adidas goods. By 1 November, 32 PT Kizone workers have been denied legally mandated compensation.
• Workers finish adidas’ most recent orders on November 20 (according to official statements from adidas).

January 2011:

• PT Kizone fails to pay workers their wages for December.
• Adidas reports on its website that PT Kizone is an active supplier factory.
• Adidas reports in its university disclosure that PT Kizone is a producer of university logo apparel.
• The owner of PT Kizone flees the country, leaving no money to pay workers.

February 2011:

• Adidas comments publicly on the crisis in the Indonesian media.

April 2011:

• Nike reports the labor rights violations at PT Kizone to the WRC.
• The WRC contacts adidas about the crisis; adidas claims that its commercial relationship with PT Kizone ended in “mid 2010.”
• The factory closes.

As always, if you have any thoughts or questions about this communication, please contact us at your convenience.

Scott Nova 
Worker Rights Consortium 
5 Thomas Circle NW 
Washington DC 20005 
ph 202 387 4884 
fax 202 387 3292 
nova@workersrights.org 
www.workersrights.org