Statement regarding working conditions at the supplier Hugger, Honduras

Herzogenaurach, 19 April 2005 - In response to allegations raised by the Clean Clothes Campaign (CCC) about substandard working conditions at the adidas supplier factory Hugger in Honduras, we would like to clarify several points.

An integral part of our global corporate policy has been the development of company guidelines regarding acceptable social standards, work place safety, as well as health and environmental protection, and comprehensive monitoring of those guidelines in the production facilities of adidas-Salomon and its business partners. adidas-Salomon has a code of conduct, the Standards of Engagement (SOE) which establishes our global benchmark for working conditions in the supply chain. A professional global team of 35 persons monitor compliance performance against these standards in our contracted factories.

The factory audit component of our monitoring programme includes compliance performance evaluations and a strategic approach to address the root causes of non compliance. Remediation activities include supplier training which is delivered by SEA team members or independent professionals. Factory visits are assigned priority in the location's risk assessment, date of last visit, remediation performance, and factory compliance rating.

Within the framework of our global programme, we support the role of independent organisations in monitoring and verification of production facilities and participation in training and remediation for non-compliance. In 2004, 12 adidas supplier sites were visited by FLA independent monitors. We invite you to review the Fair Labor Association's website which includes a public report of the independent monitors' summary of workplace standards and compliance verification.

For additional details on adidas-Salomon annual social and environmental activities please visit our website. Our five Social and Environmental Affairs annual reports, including the 2004 Report 'Taking on the challenges, wherever we operate', are posted under the "Sustainability" tab.

Supplier status of Hugger

Hugger sews adidas apparel for the North American market as a subcontractor to the main supplier Liberty, a US based company. This means that adidas orders are placed with Liberty, who makes the fabric, cuts it, then contracts the sewing with Hugger, who returns a finished product to Liberty for shipment to adidas. The adidas product volume at Hugger is approximately 20% of the factory's total production capacity.

Dozens of employees have been interviewed and hundreds of employment documents have been reviewed since August 1998, the first time Hugger was audited by the adidas SEA team. The most recent factory visit by the SEA team was in March 2005, the next one will be in May 2005. There is a history of remediation delivery by Hugger's management, sometimes slower than requested, but always improved or completed. Most recently the factory electronically linked all timekeeping functions with the payroll system. 

In August 2003, the Fair Labor Association conducted an independent audit of the factory as a shared audit with 1 other FLA participating company. The findings have been addressed by Hugger's management in a serious manner, and there is satisfactory improvement with the action plan. None of the allegations named by the CCC were found during this audit. 

We continuously monitor the implementation of the measurements agreed upon with the factory management. Factory management has been cooperative in completing compliance action plans. We treat the allegations of non compliance to wages, discrimination, freedom of association, and code awareness seriously and will investigate them further with the factory, management and workers. Answers to the specific allegations follow.

Allegation: The 1.500 workers receive a monthly wage of approximately 110 Euro. Bonus is only paid to workers who achieve the extremely high daily quota.

Wages at Hugger meet and exceed the national minimum wage requirements, and there is a bonus structure with incentives for productivity and quality. The average production floor wage is approximately 260 Euro monthly. 70% of the factory workers earn bonuses for meeting and exceeding the daily quota.

Allegation: The monthly wage of 110 Euro is not sufficient to meet the basic needs of a family.

During the last two years, adidas-Salomon has engaged with academics and NGOs in exploring the Fair Wage and opportunities that can close the gap between national minimum wages and the Fair Wage. Production efficiency programmes and employee cooperatives have shown promise. In the case of Hugger, the average employee wage is more than twice the legal minimum, and the company is supporting the development of a workers cooperative programme.

Allegation: Discriminatory hiring and employment practices are applied by the factory such as pregnancy tests or existence of tattoos (both are reasons for not employing the job applicant).

There has never been a finding of this practice at Hugger. However, we are aware that for several years there have been discriminatory actions by the Free Trade Zones (FTZ) where many factories in Honduras, including Hugger, operate their businesses. Factories hire new workers directly in many cases, but we have found that some of the FTZ administration offices (which are independent corporations that own the buildings in the FTZ and lease them to manufacturing companies) do vet candidates for employment at the FTZ offices, prior to sending successful candidates to a factory requesting new personnel. This can include a physical check for tattoos which are indications that the candidate has gang ("mara") affiliations. adidas-Salomon joined an FLA initiative that is engaging local government, NGOs and the Maquila Association AHM to explore ways of eliminating this practice by FTZ's.

Several suppliers have sent letters to their FTZ administrators asking them to eliminate this practice and to allow each company to hire all new employees without pre-screening by the FTZ administration. We will continue to work towards the elimination of discriminatory hiring practices and influencing the local regulatory agencies who oversee FTZ operations.

Allegation: There is no right to freely organise in the factory and workers that were interviewed stated that they are not joining a union because they are afraid of being dismissed.

Hugger is not a unionised factory but we have not seen findings that indicate Hugger management is hindering workers rights to freely associate. If we are presented with evidence that any employee has had their rights of association infringed, we will investigate this immediately and take the appropriate remedial steps.

We are however, aware of the general evidence that companies in Honduras do not always promote the freedom of association. Therefore we will continue to promote worker and management training on the freedom of association, and the development of effective worker management communications at Hugger.

Allegations: Workers are not aware of an adidas code of conduct which should prevent such conditions.

Spanish language versions of the adidas-Salomon Standards of Engagement have been posted in employee common areas of this factory and other previous Hugger factory sites since 1999. This was verified by the FLA audit conducted in 2003. Workers have also been made aware of the purpose of the standards during the numerous worker interviews and compliance training conducted by the SEA team practice over the last 5 years.

Based on these allegations, the Clean Clothes Campaign has requested that adidas-Salomon:

Ensure that the factory pays wages and benefits which are always sufficient to meet basic needs of workers and their families.

The Standards of Engagement state that wages are essential for meeting the basic needs of employees and reasonable savings and discretionary expenditure. In all cases, wages must equal or exceed the minimum wage required by law or the prevailing industry wage, whichever is higher, and legally mandated benefits must be provided. Wages must be paid directly to the employee in cash or check or the equivalent. Information relating to wages must be provided to employees in a form they understand. Advances of, and deductions from wages must be carefully monitored and comply with law. In addition to compensation for regular working hours, employees must be compensated for overtime hours at the rate legally required in the country of manufacture or, in those countries where such laws do not exist, at a rate exceeding the regular hourly compensation rate.

The SEA team has monitored Hugger's employee compensation practices to ensure they are in compliance with the above.

In order to pragmatically understand what a fair wage means, we have conducted studies in several different countries investigating the basic needs requirements, and the saving and spending nature of the workers. The findings have been discussed with scientists, academics and social interest groups, including Non-Governmental Organisations, and local unions.

Based on the findings we have defined a broad strategy which is addressed to our business partners. We ask them to establish a wage-setting mechanism that

• Is transparent and has direct input from the workers - i.e. ideally through negotiation or collective bargaining
• Acknowledges and rewards workers for productivity gains
• Meets in full all legally mandated benefits
• Benchmarks basic pay at a level that is higher than the local minimum wage
• Includes and takes into account data on general cost of living and workers' needs
• Is part of a broader and much improved human resource management system
• Where practical, promotes and supports the development of worker cooperatives.

Secure the unrestricted right of all workers to freely organise

The right of workers to organise themselves and to present their views to management is one of the core principles of our 'Standards of Engagement', the Group's code of conduct. We believe that if a factory has an atmosphere that promotes freedom of association and collective bargaining, many labour issues will be resolved.
 
To that end, we have developed freedom of association training modules for management, supervisors and workers, delivered by SEA team trainers.  
 
We will continue to engage in effective activities - including partnering with third parties and Non-Governmental Organisations - to promoting worker-management awareness, compliance with the freedom to associate, and compliance verification.

Monitoring of working rights by an independent organisation where workers and groups of the civil society take part.

Hugger has been monitored by a Fair Labor Association accredited monitor, and is subject to future verification visits by the FLA. The SEA team has frequent engagement with local workers rights and women's groups to better understand local working conditions. A stakeholder dialogue with workers, facilitated by a local NGO, will be held in third quarter 2005.