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Updated statement on the Hermosa factory in El Salvador

June 24, 2008

Herzogenaurach, 24 June 2008 – Hermosa Manufacturing, an apparel producer located in Apopa, El Salvador was a sewing subcontractor to adidas Group from 2000 until mid 2002. The adidas Group terminated the business relationship with Hermosa in mid 2002 due to quality and delivery performance issues.
The factory closed in 2005, leaving 246 workers out of work, and due severance wages and back pay. The adidas Group continues to work on its two commitments for resolving the troublesome circumstances around Hermosa: championing sustainable solutions that close the breaches in regulation of national labour laws and the constitution, and promoting re-employment opportunities for former Hermosa workers. While we recognise that there has been progress in these areas, this progress has been slow due to the widespread non-compliant and corrupt practices that led to this factory‘s closure.
Since December 2007, the adidas Group has been actively involved in a promising re-engagement by the El Salvador government and important legislative changes. The government of El Salvador re-engaged immediately after the adidas Group published an Open Letter in local newspapers on October 29, 2007. This re-engagement followed more than 8 months without any government communications. Since November 2007, the government has enacted several legislative changes that eliminate lapses in regulatory oversight of local employers and their contributions to workers social security entitlements. Additionally, stricter penalties for the non-payment of social security contributions by employers have been instituted. The owner of the Hermosa factory, Salvador Montalvo, was found guilty of embezzling his employees’ social security and housing contributions. In February 2008, his appeal was rejected by El Salvador's courts and in May 2008, he will have to pay a monetary fine or serve a 2 year prison sentence. If the fine is paid in lieu of prison time, the moneys will be repatriated to the social security accounts of the former Hermosa workers.
Late last year saw the beginning of a credible engagement by civil society and the government to further resolve the case. The inclusion of local civil society is critical to the ongoing government attention to the sustainable solution of regulatory issues and the individual workers rights cases. A local ombudsperson and noted El Salvadoran jurist and labour rights lawyer was engaged by the Fair Labor Association and has successfully opened communication channels with the El Salvador ministries of labour, economy, health, justice and housing, and the former Hermosa workers.
Further, efforts by the adidas Group to facilitate the re-employment of former Hermosa workers have continued throughout the first half of 2008. When the Hermosa factory closed in May 2005, 246 workers lost their jobs. At the end of 2006, approximately 90 workers were still unemployed. At the end of 2007, approximately 60 workers remained unemployed. We have been informed by local groups that an undetermined number of these workers have emigrated to the United States. Additionally, the El Salvadoran apparel manufacturing industry continues to experience factory closures and job losses. Since the number of adidas contracted suppliers is still a small percentage of these shrinking industry players, we promoted steps that would not only expand the audience of potential employers but also enhance the skill sets of the unemployed workers. On March 30, 2008 a worker retraining programme was launched. The nine week programme includes training for sewing and textile machinery, computers, and business language - communication skills. The programme is a collaborative effort between the FLA ombudsperson, the University of Albert Einstein, and the Ministry of Labour, with financial support from the adidas Group and local stakeholder groups. 38 former Hermosa workers are participating in the programme.
On May 9, the government of El Salvador hosted an exclusive job fair for the former Hermosa workers. 13 apparel factories sent recruiters to the job fair, but unfortunately, only 15 former Hermosa workers attended. Several workers spoke with one factory recruiter, and another recruiter from a second factory approached the workers and offered them job applications. The workers stated that they would go to these factories and submit applications within a week. Two additional job fairs are planned over the next two months. In addition, we stress two key facts. First, while several of the workers scored high on qualification tests, most scored well under minimum standards. This cast serious doubt on their intention to be employed. Second, only 15 workers showed up at a job fair exclusively scheduled for them, and those 15 did not take advantage of the opportunity meaningfully to engage with recruiters (even with the recruiters trying to hand the applications out). These key facts raise serious questions whether the workers are actually interested in employment or have another agenda.
The adidas Group will not force factories to hire employees without a fair, objective and monitored qualification process. To do so would discriminate against those candidates who are equally or even better qualified for those jobs. We have facilitated a secure and discrimination free hiring environment for applicants at our contracted factory sites, and have supported retraining for those workers who have said their skills were deteriorated. The adidas Group considers a monitored, objective application and hiring process as the only way to make the business case for these workers re-employment with any factory contracted to produce adidas products. Accordingly, adidas fully supports a clean start with the premise that employers would hire workers if they passed qualification testing, through a process that is reviewed and vetted for objectiveness by external parties such as the Fair Labor Association.
We will continue to regularly report on the developments in this case.