adidas Group response to Playfair allegations about the closure of the factory PT Kizone in Indonesia

Herzogenaurach, 13 September 2011 – Playfair 2012 recently posted a statement alleging that the adidas Group had refused to pay severance monies to workers at PT Kizone, an apparel factory in Indonesia, which the Playfair Alliance deems to be the adidas Group’s responsibility.

The facts of the case are as follows

In January 2011, the Korean owner of PT Kizone was reported to have fled the country abandoning his business. At that time Green Textile, a buying agent and manufacturer, assumed management responsibility for the factory and in agreement with the local trade union continued to pay wages to complete orders for existing buyers which, we would stress, did not include the adidas Group. The factory continued to operate the business up until the end of March 2011. At that point, creditors filed for bankruptcy and the business officially closed. A court-appointed receiver then assumed control of all assets and liabilities, including any back wages and severance as required by Indonesian law.

Immediately prior to the closure, Green Textile was hopeful of assuming full control of the business, paying off debts and making it a going concern. It was in negotiations with the main creditor bank, and in order to secure the goodwill of the workforce, Green Textile agreed with the local trade union to pay out USD 1 million as partial settlement of severance due to the workers. This it did, only to be replaced by the Court-appointed receiver who promptly closed the business and put the assets up for auction, leaving the workers in a precarious and uncertain situation.

Green Textile was one of two buying agents that previously placed orders for the adidas Group in PT Kizone. The adidas Group’s business relationship to PT Kizone ended in June 2010 when we were advised by the factory that they could no longer make our goods, as they wished to release capacity to another newly secured buyer. At that point the adidas Group informed PT Kizone that it would end its business relationship. Existing orders were completed by October 2010, and a final run of salesmen samples were shipped on 20th November 2010. No further business was conducted with this supplier and the adidas Group had no knowledge of the intended actions by the owner to abandon the business in the following year.

Actions taken by the adidas Group

Although we had no business relationship with the factory at the time of its closure, we have been sympathetic to the plight of the workers and their families and we have taken the following steps to assist them:

1. We have contacted adidas Group suppliers located near the PT Kizone site and requested that they hire former PT Kizone workers to fill suitable, open job positions at their factories. We continue to encourage them to do so.
2. We have commissioned and funded an independent job placement agency to work with former PT Kizone workers and help them in retraining and obtaining new jobs. The programme is up and running at this point in time.
3. We also asked the Indonesian Trade Minister to convene representatives from the Indonesian and Korean government and business community to discuss this case and the situation of illegal factory closures in general.

The immediate steps that have been promised with respect to PT Kizone are that:

• Indonesia’s Trade Minister will ask her counterpart in the Indonesian State Department and Department of Justice to work with the Korean Embassy and determine what legal actions can be taken against owners who fled the country.
• the Korean Chamber will contact KOGA and discuss what actions can be taken to support workers.
• the Minister asked the Korean Chamber of Commerce and the Association to share information of job opportunities with the adidas Group and to support our job placement programme as necessary.

We have continued to monitor and support these outcomes.

Conclusion

Where we have a current and ongoing business relationship with a supplier and are aware of a pending closure or downsizing we ask them to follow our 2009 Guidelines on Redundancy and Layoffs, including the settlement of all severance owed by the employer. We cannot ourselves assume, or accept, the liability for the severance owed by the former owner of PT Kizone, a factory we worked with in 2010. Decisions over the final settlement of severance are now in the hands of the court-appointed receiver, who is managing the bankruptcy and disposal of assets according to Indonesian law. However, we understand the uncertainty, stress and hardship that the closure has created for the workers and their families. We have therefore taken steps, as described above, to help the former PT Kizone workers secure alternative employment and continue to monitor the outcomes and success of these efforts.