Blogpost on COVID-19 and labour rights by Radu Mares, Acting Research Director, Associate Professor, Head of Economic Globalisation and Human Rights Thematic Area
As the corona virus started its global spread and reached Europe and the United States, massive disruption hit global supply chains. Almost overnight, international brands and retailers in consumer goods industries, such as garments, saw demand for their products plummet.
Their stores in affluent markets closed due to social distancing in order to hinder infection of both consumers and employees. Shopping online, an important trend reshaping the garment industry in recent years, would not assist in corona times.
People do not buy non-essential goods when they fear losing their jobs or a future of uncertainty and hardship.
As consumer demand dried up, all businesses acted on their financial responsibility. They took multiple steps to minimize costs and losses. For brands, one such measure was to look hard at their supply chains: they cancelled orders or put them on hold until the situation improves and demand picks up.
To keep business running, companies also looked for ways to repurpose their facilities and supply chains to produce items urgently needed in the corona virus fight; car companies manufacturing respirators, garment factories producing face masks e.g. But, this takes time and it is too little to ensure financial stability.
This essay looks at the impacts of these cost-cutting measures on workers and suppliers in supply chains, taking the garment industry as an example. While some brands make charitable contributions [1] in their home markets, such commendable gestures [2] are not a substitute for dealing with negative impacts throughout supply chains.
The Fast Fashion Model
The garment industry has made the headlines for three decades with its notorious ‘fast fashion’ model, characterized by its agile supply chains, high variety of styles at affordable prices, and low stocks of products held by brands.
These supply chains are also notorious for fierce competition among international brands vying for market share and profits in affluent markets.
But, also relentless competitive pressures on exporting states (China, Bangladesh, Cambodia, Ethiopia) and suppliers operating on ever decreasing profit-markets (3). However, such tightly designed supply chains are particularly prone to disruption.
Signs of trouble appeared before the corona virus escaped China. Garment suppliers began to struggle to obtain their raw materials from China, an important source of fabrics for garment manufacturers from the Asia region (4).
That meant suppliers had to wait longer and pay higher prices for their raw materials. Their production costs further increased due to being penalized by brands for delays in supplying the goods.
In the vast majority of cases, suppliers had no choice but to absorb these costs with little empathy or support from the international brands; a survey of garments suppliers in Bangladesh found that 97% of suppliers received no financial assistance in covering wages or severance costs for workers sent home (5).
Tough Risk Distribution
For those following the industry this was just another instance of the problematic distribution of risks and benefits in buyer-driven value chains.
For decades labour rights advocates criticized this industrial model for systematically pushing risks down the supply chains to the most vulnerable, the workers seeing their rights infringed and the suppliers seeing their profit margins ever shrink.
As corona became a pandemic, brands began cancelling or suspending their orders, supplier factories had to close and hundreds of thousands of workers were sent home without pay. The vulnerability of such workers is unmistakable.
Traditionally working on low wages (rather than living wages) they had little savings and whatever savings were often sent to support families back home.
As in many exporting countries, the social security system is not necessarily reliable or sufficient to cushion laid-off workers. Even those employers committed to act on a sense of responsibility are in an impossible situation due to dire financial circumstances.
Support from worker unions in these difficult times would not be forthcoming as unionists notoriously face harassment and repression in many exporting countries.
Business And Human Rights
Nowadays we have an increasingly elaborate international framework on business and human rights.
What is the responsibility of private and public entities in these supply chains?
One can begin by looking at the top of the supply chain and analyze the actions of brands through the lenses of available internationals standards and the good practices appearing in the industry.
We know that brands and retailers have social responsibilities under two main international frameworks.
Under the UN Guiding Principles on business and human rights (UNGPs), endorsed unanimously by the UN Human Rights Council in 2011, brands have a kind of ‘do no harm’ obligation, that is, the corporate responsibility to respect human rights.
Practically that requires any company to undertake due diligence and thus identify, prevent and correct negative impacts in own operations and throughout their supply chains.
Furthermore, the Sustainable Development Goals or the SDGs (Agenda 2030), adopted by the UN in 2015, is a much broader framework that explains the role of the private sector.
The SDGs confirm the UNGPs but expand beyond it to emphasize the indispensable contribution of the private sector in tackling the world’s developmental challenges. The SDGs emphasize partnerships and the responsibilities and roles of businesses in attaining the development goals, including that of decent work under SDG 8.
So what do these frameworks mean for workers in the garment sector? What does a ‘do no harm’ responsibility mean in the supply chain context? What is the role a brand could play when a problem of such scale affects workers, suppliers and exporting countries? How does harm to workers actually occur and what are the more proactive companies doing about it?
Currently, we see brands cancelling or changing their orders (6). Respecting human rights means that a company contemplating such changes understand the impacts of their decisions on workers and suppliers.
But first, what orders can the brand cancel?
We hear of brands that cancelled orders already shipped, or already produced and ready to be shipped, or currently under production and not yet finished, or orders on items not being manufactured yet but for which raw materials have already been purchased.
Some brands invoke the force major clause in their contracts to significantly alter the terms of trade.
New Look, for example, only accepts delivery on items already shipped; the CEO informed all suppliers that all orders his company “has not taken ownership are cancelled – for example, orders that are in production, in origin or at port but not yet loaded on to a vessel…
In assessing what is in New Look’s best interests given current circumstances, New Look has concluded that, in this time of great uncertainty, it does not intend to pay you for any costs, including any costs for fabric and raw materials, in connection with any cancelled orders (7).”
Some Practice Accountability
Some brands acted responsibly (H&M, Inditex, Marks and Spencer) and decided to pay for orders under production (8).
Primark decided to cover worker wages for orders that were under production but got cancelled; the company stated that:
”Primark is concerned about the impact of workers engaged in production on further orders that Primark will now not be taking – that is, goods in production that were due for shipment in the month following cancellation of orders.” (9)
But, it is not only about cancelling or postponing orders.
Other changes can change payment terms. Some brands impose steep discounts without consulting suppliers; Urban Outfitters informed suppliers that “we will impose a 30% discount. We are aware that these decisions have significant financial implications for both our companies, but under the above duress we have little alternative.” (10)
Other brands impose delays in funds being transferred; New Look informed its suppliers that “Any outstanding payments that are due in connection with orders for which New Look has taken ownership – for example, orders that have been accepted and are in transit, are in our distribution centre, or in our stores – shall be delayed indefinitely until we see an improvement in trading and in our cash position.” (11)
Better Practices Appear
There are good practices emerging. H&M declared:
“We will stand by our commitments to our garment manufacturing suppliers by taking delivery of the already produced garments as well as goods in production” and “We will, of course, pay for these goods and we will do it under agreed payment terms. In addition, we will not negotiate prices on already placed orders.” (12)
Some brands (Unilever and L’Oreal) decided to transfer the funds owed to suppliers even faster than contractually required. (13)
Some offer to create wage funds and loan facilities; Primark announced it is ”working closely with the United Nation’s International Labour Organisation (ILO) in order to collaborate with governments, international financial institutions, development banks and others in a position to make available medium and longer-term financing to pay the wages and benefits of workers along with economic support to the garment industry.” (14)
The hardship imposed by such cost cutting measures is self-evident for suppliers, especially as they might not have access to emergency loans to covers their costs and pay wages. Abandoned?, a survey by Mark Anner of over 300 garment suppliers in Bangladesh, produced detailed data on the above cost-cutting measures. (15)
Information on how brands decide to mitigate the corona virus disruption hitting suppliers and their workers is not easily accessible on corporate CSR websites; nor surprisingly from multistakeholder initiatives dedicated to living wages such as the ACT (16), which by April 10 had no mention of corona on its website. Such information can be discerned from communications between brands and suppliers, and from media exchanges between exporter associations and brands.
Brands Will Remain In The Spotlight
As the information trickles up in the coming weeks, the spotlight will remain on international brands. There are two issues to pay attention in light of this emerging data: one issue is that of (responsibly) suspending or terminating relations with suppliers, and the other is the broader issue of the (unfair) purchasing practices of brands
One the specific issue is that of ‘responsible disengagement’ which is mentioned in the UNGPs (Principle 19).
That is a last resort measure when brands have exercised leverage over their suppliers and decide to cut links as the only way to eliminate human rights abuses from their supply chain. But, disengagement itself can have negative impacts on human rights.
Therefore, a company has to understand the impacts of disengaging and adopt mitigating measures to minimize those impacts.
Common Misguided Actions
The classic example are misguided actions to eliminate child labour from supplier factories by terminating contracts so children end up in even more hazardous occupations. That is a discredited response and not in line with the UNGPs’ ideas of responsible disengagement and human rights due diligence.
In the corona context, Anner observed that “buyers have a contractual obligation to pay for these orders. But many are making dubious use of general force majeure clauses to justify their violations of the terms of the contract”.
And this occurs “despite the fact that many brands have “responsible exit” policies, in which they commit to support factories in mitigating potential adverse impacts to workers should they decide to exit.” (17)
So, if the brand or retailer has to terminate a relationship or cancel an order, what mitigation measures are to be expected, and what measures are feasible based on good practice emerging from this crisis?
The Endless Cutting Of Costs
The broader issue of purchasing practices is one where criticism of brands already extends over three decades.
There are well documented and numerous methods in which brands exert a relentless pressure on suppliers to cut costs while still delivering high quality goods in shorter delivery time.
Equally well understood are the impacts on workers who suffer in terms of low wages, long working hours, harassment for union activities and so on.
This crisis brings in stark relief the vulnerability and lack of cushions for workers and suppliers due to purchasing practices.
The Power At The Top Of The Supply Chains
(19) The harsh measures of some brands in response to corona are merely a continuation, a new illustration of their discretionary exercise of power at the top of supply chains.
How will the data from the corona crisis shape this long discussion around unfair buying practices in global supply chains?
While brands are under an undisputable difficulty brought by the corona crisis, they have an opportunity to innovate mitigatory responses and thus define key concepts of responsible business conduct.
They also have a responsibility to act on their own commitments, whether to the UNGPs or SDGs, and observe the widely held societal expectation to respect human rights.
A growing number of regulations on responsible business conduct as well as societal expectations will undoubtedly be shaped by a new awareness to the problematic dynamics in global supply chains and the solutions emerging from this crisis.
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[1]Marks & Spencer, We’re all in this together: M&S shares its plans to support the NHS response to Covid-19, 8.4.2020 https://corporate.marksandspencer.com/media/press-releases/5e0f046f7880b21924350282/we-re-all-in-this-together-m-and-s-shares-its-plans-to-support-the-nhs-response-to-covid-19
[2] Leanne Bayley, Fashion and beauty brands that care during the COVID-19 pandemic, 3.4.2020 www.hellomagazine.com/fashion/hfm/2020032486805/brands-doing-good-during-coronavirus
[3] Mark Anner, Abandoned?, Major buyers of Bangladesh-made apparel and Businesses at the Bottom of Global Garment Supply Chains, 1.4.2020 www.workersrights.org/wp-content/uploads/2020/03/Abandoned-Penn-State-WRC-Report-March-27-2020.pdf
[4] Anner explains how the corona crisis hit the garment sector in 3 phases: scarcity of raw materials, delayed payments to suppliers, and cancellation of orders. Id.
[5] Id.
[6] Human Rights Watch, Brands Abandon Asia Workers in Pandemic, 1.4.2020 www.hrw.org/news/2020/04/01/brands-abandon-asia-workers-pandemic
[7] Isabella Fish, New Look delays payments ‘indefinitely’, 3.4.2020, https://www.drapersonline.com/news/new-look-delays-payments-indefinitely/7040058.article?blocktitle=Latest-News&contentID=15719
[8] Moinul Haque, 5 global apparel brands assure Bangladesh of not cancelling orders, 31.3.2020 https://www.newagebd.net/article/103511/5-more-global-brands-assure-not-cancelling-export-orders
[9] Isabella Fish, Primark to pay factory wages, 3.4.2020 www.drapersonline.com/news/primark-to-pay-factory-wages/7040062.article?blocktitle=Most-popular&contentID=-1
[10] Isabella Fish, Urban Outfitters invokes ‘force majeure’ terms, 30.3.2020, www.drapersonline.com/news/urban-outfitters-invokes-force-majeure-terms/7039986.article
[11] Fish, supra note 7.
[12] Refayet Ullah Mirdha, H&M comes to its garment suppliers’ rescue, 30.3.2020 https://assetsds.cdnedge.bluemix.net/business/news/hm-comes-its-garment-suppliers-rescue-1887454
[13] Anna Triponel and John Sherman, Moral bankruptcy during times of crisis: H&M just thought twice before triggering force majeure clauses with suppliers, and here’s why you should too, 1.4.2020 https://www.business-humanrights.org/en/moral-bankruptcy-during-times-of-crisis-hm-just-thought-twice-before-triggering-force-majeure-clauses-with-suppliers-and-here%E2%80%99s-why-you-should-too?mc_cid=01562071d8&mc_eid=8846e107db
[14] Fish, supra note 9
[15] Anner, supra note 3.
[16] IndustriALL, ACT brands commit to responsible business practices in Bangladesh, 31.3.2020 www.industriall-union.org/act-brands-commit-to-responsible-business-practices-in-bangladesh
[17] Anner, supra note 3.
[18] Human Rights Watch, Paying for a Bus Ticket and Expecting to Fly, 2019 https://www.hrw.org/report/2019/04/23/paying-bus-ticket-and-expecting-fly/how-apparel-brand-purchasing-practices-drive
[19] Better Buying Index, https://betterbuying.org