The SÜDWIND Institute, Sedane Labour Resource Centre and Clean Clothes Campaign allege that German sportswear brand Adidas Group, a signatory of the Freedom of Association Protocol and member of the German Alliance for Sustainable Textiles, was originally “directly linked” to serious human rights impacts against workers in Indonesia, but should now be considered to have “contributed” to the ongoing impacts by continuing to do business with the company owning the factory but failing to take sufficient action to encourage its business partner to provide remedy to workers.
According to the complaint, in July 2012, 2,000 workers at the PT. Panarub Dwikarya factory (part of the Panarub Group) in Indonesia went on strike to protest several negative human rights abuses by the factory. The factory responded by dismissing 1,300 of the workers, 327 of whom have still not, to date, received their severance pay. In October 2016, the ILO Committee on Freedom of Association declared the dismissals a violation of the right of freedom of association, prompting several negotiations between the government, union, and PT Panarub Industry. The complaint asserts these negotiations were conducted in bad faith, ended without result, and thus left workers without remedy for the harms they had suffered and continue to suffer.
Critically, the complaint asserts that before, during, and after the strike and related events, Adidas has sourced goods from the Panarub Group, maintained Panarub Group as an important business partner, and failed to take adequate action to prevent or mitigate the human rights impacts.
The complaint makes two allegations. First, the complaint alleges that because Adidas had a direct business relationship with Panarub Group and produced its product at the factory itself when the strike occurred, Adidas was “directly linked” to the negative human rights impacts. Adidas thus had a responsibility to seek to prevent or mitigate the risk from continuing or recurring. The complaint notes such responsibility would exist whether or not Adidas also “contributed” to the harms. The complaint asserts that Adidas was well aware of the initial rights violations as well as subsequent failures to provide remedy for workers. The complaint alleges, however, that instead of acting to fulfil its obligation to prevent or mitigate the harm, Adidas tolerated the anti-union attitude of its supplier by condoning the bad faith negotiations and failing to engage itself in the negotiations or otherwise to use its notable leverage with the company to seek remedy for workers.
Additionally, the complaint alleges that Adidas has also “contributed” to the continuation of the human rights impacts by, once becoming aware of the negative human rights impacts, continuing its business relationship with the Panarub Group without taking adequate action to prevent or mitigate the harms, and by failing to provide remedy to the workers. In such case, the complaint argues that Adidas’ failure to respond appropriately to the harms has rendered its continued business relationship with Panarub Group a contribution to the negative human rights impacts.
Relevant OECD Guidelines
After reaching out to both parties for further input on the submission, the German NCP concluded its Initial Assessment on 27 July 2018. The NCP offered mediation to help address some, but not all, of the complainants’ requests. The NCP accepted claims related to wage, freedom of association, and due diligence that dated prior to May 2012 when Adidas stopped sourcing from the factory (PDK). Even thought Adidas still maintains a relationship with Panarub, the NCP rejected all claims based in events after May 2012, namely the actual dismissal of workers in July 2012. The NCP stated that “the mere fact that [Adidas] continued its business relationship with [Panarub] beyond May 2012 is not sufficient for the assumption of a continued business relationship between [Panarub] and [PDK] and a direct linkage between [Panarub]’s products and adverse impacts caused post May 2012 by [the factory]” (NCPs’ final statement).
In a press release following the conclusion of the complaint, the complainants expressed deep frustration at the NCP’s refusal to assess the responsibility of Adidas for actions occuring after May 2012 when it still had a business relationship with Panarub. The complainants argue that “substantial evidence indicates Panarub is the parent company of PDK, including shared management personnel between the two factories,” and that Adidas’ denial of responsibility for workers during the events of July 2012 “not only diminishes the influence they have due to their ongoing relationship with Panarub, it also ignores events that occurred during their production which led to the strike.” Evidence of Panarub’s (and thus Adidas’) ongoing influence over compensation for the workers of PDK is clear from the NCP’s own final statement, which notes that “In parallel to the complaint procedure pending before the German NCP, negotiations took place in Indonesia between officials of the Indonesian government, union representatives and the Main Partner [Panarub] regarding compensation for workers” who had been on strike at PDK in July 2012. If the Indonesian government sought Panarub’s involvement to settle the July 2012 wage disputes at PDK, clearly Panarub had a signifcant and influential business relationship with PDK, creating a direct linkage between [Panarub]’s products and adverse impacts caused post May 2012 by PDK, and thus a responsibility on Adidas under the Guidelines to exert leverage to secure a better outcome for workers.
Mediation over the pre-May 2012 claims proceeded, and during a session in May 2019, some progress was made in discussing wage issues.
The complainants agreed to further mediation, but sought more transparency from Adidas over its handling of the freedom of association violations. Specifically they asked Adidas to share its investigation method and show evidence it had written a report on the freedom of association breaches in early 2012. According to the NCP, Adidas shared its approach in writing and said a report was not available. The NCP asserted that “Adidas expressed the firm view that for a focused and constructive continuation of the future oriented dialogue a list of specific proposals as suggested by the NCP would be essential.”
The complainants were deeply frustrated the German NCP did not push Adidas to share its investigation method or call it out on having done no report (apparently nothing at all) in 2012 in response to the freedom of association violations. Mediation broke down over the NCP’s unwillingness to seek further information from Adidas on its past due diligence failures and its focus, shared with Adidas, on future-oriented dialogue only, rather than an approach to identify and remedy past harms.
The NCP concluded the case without agreement and issued its final statement on 24 April 2020. It recommended that Adidas review its reporting and complaint channels in consultation with stakeholders to identify potential barriers and areas for improvement. It also recommended that the complainants advise future improvement of Adidas’ due diligence procedures. The NCP requested the complainants and Adidas to follow-up on these recommendations within 6 and 12 months, respectively.
In their press release following conclusion of the complaint, the complainants asserted “It is disappointing that the NCP views its own role solely as that of a mediator, rather than a body able to uphold the OECD’s Due Diligence Guidelines and pass its own assessment on specific cases where brands have failed to uphold these Guidelines. We expected a firmer stance to be taken by the NCP.”