Update - Actions taken by PT Panarub, Indonesia, in response to Worker Rights Consortium Assessment

Herzogenaurach, 9 March 2005

Summary of findings & recommendations, 20 May 2004

Mid-2004, we committed to providing quarterly updates on the progress of remediation at PT Panarub. Since that time, due to the complex nature of several remediation issues, we have delayed posting an update. However, regular feedback has been provided to the WRC and other critical stakeholders. This update serves as a consolidated progress report and is based on the findings of adidas compliance staff during their frequent visits to PT Panarub over the second half of 2004 and early 2005. First, the WRC recommendations that factory management has acted on and resolved are:

• Menstrual leave - workers confirm that physical examinations are no longer conducted and that the procedure for taking sick leave or visiting the factory clinic is clear and reasonable.
• Sick leave/factory clinic - the new policy regarding sick leave was implemented in September 2004 and communicated to all supervisors and managers by the Human Resources and HSE Departments. adidas-Salomon compliance staff conducted training for all middle-management, including production supervisors on the procedures to be followed. Appropriate clinic staff have been recruited and trained also.
• Annual medical checks - comprehensive health checks of the workforce commenced in September, with those workers in 'high risk' areas, in relation to occupational health, being prioritized. Results from the first group of 1,400 workers have been analysed and any necessary treatments recommended by the factory doctor. Check-ups for the balance of the workforce continue.
• Factory Health & Safety Committee has been established and registered with the Indonesian Manpower Department.
• Workplace Health & Safety - occupational risk assessments (such as noise surveys, ergonomic assessment and tracking of VOC levels) have been conducted for more than 300 production processes and the proper Personal Protective Equipment ('PPE') has been provided to workers. While previous training in use of PPE has been provided to workers, a new round of training started in November. Sampling of air quality has shown that VOC levels are within safe limits. A 'pre-assessment' of the workplace was conducted by SOS International in December, with a view to fully implementing the occupational health training project throughout 2005. Drinking water dispensers have been installed in those areas where the WRC found access to potable water to be inadequate. Dust and fume extraction systems have been installed/upgraded in the rubber warehouse and screen printing areas, and turbo fans have been fitted in a number of areas to manage the air temperature within several buildings.
• Abusive Behaviour by Supervisors - Management issued warning letters to 10 supervisors about whom workers complained. Since June 2004, more serious disciplinary action has been taken against supervisors for any abuse of workers, including the termination of one department head.
• Reinstatement and Back-payments - On the recommendation of WRC and adidas-Salomon, three groups of workers have been reinstated:
  1) those who were dismissed for providing false documentation at the time of their recruitment;
  2) workers who felt pressured into leaving due to ill health; and
  3) those union board members whose dismissals were unreasonable or not handled with due process.
  There was some delay in coordinating the back-payments of wages to workers for the periods of their unemployment, but as of December 2004 back-payments were being made together with the monthly salary. Additionally, management extended the period for workers to come forward and correct any false information in their personnel files. This is critical for workers to be able to access social security and other benefits.
• Contract Workers - starting September 2004, management ceased hiring workers on a contract basis and all new recruits are hired with permanent status. For existing contract workers, when their short-term contracts end, they will be offered permanent positions.
• Inappropriate Expenses - workers confirm that they are no longer asked to contribute to funds used to decorate production lines, or to contribute to the costs of work tools or equipment.

Regarding those items which are still outstanding:

• Factory health plan - the medical coverage previously offered to workers did not fully comply with the legal requirements. Family coverage was extended to male employees only, which the WRC highlighted as a discriminatory practice. Initially, management decided to fully implement the JAMSOSTEK (national health care) scheme, but this was rejected by both unions, SPN and Perbupas. Recently, management and unions were able to reach agreement on the health insurer, PT Ramamusa Bakti Husada. The new coverage will be provided from 1 March 2005. Given the considerable expenditure that this item requires by management, adidas-Salomon agreed to subsidise these costs.
• Female employees on evening shift - while the night time transportation issue has been resolved, there is ongoing debate between the unions and management as to the meal allowance to be provided. This will be resolved through the next round of collective bargaining. Full details will be provided in the next update.
• Freedom of Association - there were a number of different items listed in the WRC findings under FOA, but the key issue was how to verify union membership to the satisfaction of both unions and the management. This matter was further complicated by the fact that key Perbupas union officers had been previously dismissed, and the history of poor relations between the two unions, and between the management and unions. Then in September 2004, Perbupas lead a strike at the factory in protest of the annual bonus structure. The strike was unlawful (ie the organizers failed to register the strike with Manpower), and some of the participants acted in a manner dangerous to themselves and other workers. Nonetheless, adidas-Salomon had lengthy discussions with management about whether legal action could reasonably be taken against strike organizers. Our recommendation was that the participants who had acted dangerously be disciplined according to the company rules and collective bargaining agreement, ie receive warning letters, rather than management becoming embroiled in protracted legal action against workers.
  On a positive note, in recent discussions with both SPN and Perbupas, adidas-Salomon compliance staff convinced union officers of the benefits of the verification exercise. What now remains is for the unions and management to identify an independent third party with whom they all feel comfortable, to observe and assist with the exercise. The parties will also need to agree on the framework for the verification exercise to ensure that it is managed in a proper manner and that workers may have confidence in the results. We have been seeking the advice of the ILO in Jakarta, senior staff at the FLA (Fair Labor Association) and other relevant parties in relation to this remediation item and will offer any assistance necessary. At the same time, we appreciate that the exercise must be conducted independently of adidas-Salomon, if it is to be credible to our stakeholders.
• Overtime Work - while there have been general improvements in this area - for example, workers report that the pre-work meetings and other unpaid but work-related activities have been curtailed - the key issue of voluntary overtime remains unresolved. Management is yet to identify a method for workers to indicate whether or not the overtime they work is truly voluntary. The biggest hurdles in this regard are: (1) changing the mindset of workers and supervisors alike; and (2) training enough workers in different job functions to create the flexibility needed for workers to rotate positions and schedule their own overtime on a voluntary basis. This issue will take some time to effectively resolve, and updates will be provided over the course of 2005.

In addition to the specific remediation programme in place, PT Panarub continues to be monitored according to the SOE programme as part of the adidas-Salomon supply chain.