Frequently Asked Questions for Governments

Since the beginning of the covid pandemic in 2020, the Clean Clothes Campaign has reached out to over 100  brands, including H&M, Adidas, Nike, Patagonia, Gildan & Hanes, C&A and many others. While none of the brands is willing to take the first step towards a financial commitment, the Agreement as such received broad recognition that a structural solution like this is needed and very little criticism. Some smaller brands like Kuyichi immediately expressed their support for a proposal.

Implementation of a Severance Guarantee Fund in one country alone leads automatically to the penalty that sourcing from that country is more expensive. If the Fund would start in only one country, it therefore would have to come with strict enforceable commitments to keep sourcing from that country for at least another three to five years to ensure that the country is not abandoned at the moment that it attempts to set up a working system to pay out severance. An in-between solution could possibly be to start with a region. The practicality of choosing and defining which region would need to be done in direct negotiation with the union committee.

Most obviously, workers without freedom of association will be less likely to raise their voice if they have no assurance that they will  receive their legally owed severance pay. Frequently, severance is only paid after workers speak up and can make a strong gesture towards the factory owner through their collective power.

Maybe less obvious, but equally important, without the Severance Guarantee Fund in place, one of the biggest hurdles for unionizing in garment factories is the everlooming threat that once dismissed, workers will not be able to receive severance pay. Academic research has shown that unionized workers risk being dismissed and unionized factories are at a greater risk of closure during crises. The Severance Guarantee Fund, therefore, is in itself a major building block towards establishing and guaranteeing the exercise of freedom of association.

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The Clean Clothes Campaign does not advocate for the Severance Guarantee Fund instead of a living wage. The Clean Clothes Campaign is one of the initiators of the campaign on living wage and at the forefront of the Citizen Initiative at the EU to create a legally mandated living wage across the EU (with significant garment production spots in countries like Romania). A living wage is necessary to secure an adequate standard of living for garment workers and the Clean Clothes Campaign is committed to a living wage in its lobby and advocacy work. Severance payments are equally a necessary part of the equation to contribute to an adequate standard of living, to ensure that workers are protected once their job is terminated.

Many brands claim to have a commitment to ensure living wages throughout their supply chains. Such commitments have not, however, led to an actual living wage for workers. According to some calculations in the Wage Forward Campaign for living wages, brands would need to pay up about 24% FOB to secure living wages. The financial commitment required from brands for the Severance Guarantee Fund is only 0.5% FOB. Despite their rhetorical commitments, brands currently fail to pay to accommodate payment of either a living wage or support the start of a global Severance Guarantee Fund.

Wage and severance theft is endemic to the textile, garment, shoes and leather (TGSL) industry. Even before the covid pandemic hit, the lack of severance pay was already well-known. The Covid-19 pandemic brought to the forefront the issue of wage and severance theft. Trade unions and labour rights groups have documented dozens of cases in countries where textiles, garments, shoes and leather are produced. Many factories in the TGSL industry had to close or downsize due to cancelled orders and delayed payments by brands, and reduced demand during the pandemic. A study conducted in 2021 by the Workers Rights Consortium (WRC) among garment workers in Ethiopia, Honduras, India, and Myanmar showed that 13 percent of the surveyed workers had their pre-pandemic contracts terminated, with nearly 80 percent of them not receiving full severance pay and over two-thirds receiving nothing at all. According to the WRC, brands shifted damage and potential losses onto suppliers and workers who could least afford it. Another study published in 2021 by the WRC found that tens of thousands of garment workers, who had been laid off due to the pandemic’s impact on factory orders, were owed millions of dollars in severance pay. The study discovered that 31 factories supplying clothes to global brands owed about $40 million in severance pay to 40,000 laid-off workers. The WRC estimated that garment workers in factories worldwide missed out on at least $500 million in severance during the pandemic. It is important to note that the figures above are likely an underestimate, as many instances of severance theft go unreported or undocumented. Severance theft is a widespread problem affecting millions of workers around the world, particularly in the TGSL industry. As factory closures are expected to happen even more with the ongoing climate crisis, it is foreseeable that more workers will be terminated without receiving their legally owed severance payment as long as their is no structural solution in place. 

The significant impact of severance payments on the future and ability of workers to create an independent livelihood is made visible in this short film comparing two female garment workers after losing their jobs: https://www.payyourworkers.org/stolen-futures. In August 2019, 2,000 workers from the Kahoindah factory in Indonesia finally received the US $4.5 million they were owed, the equivalent of seven months work, a life-changing amount. The film shows how this allows female garment worker Siti to start her own business and become economically independent. Severance payments thus play a key role in the development of societies. It contributes to the economic life in a country.

Social security is intrinsically connected to development. The Severance Guarantee Fund Agreement supports the economic role of garment workers in producing countries. If workers lose their job in mass dismissals or factory closures, this can have an impact on the tax revenue, especially in those countries where the garment industry is one of the largest employers. Currently, private partners are getting away with not contributing to the system.

During the past decades, it has become clear that companies cannot rely on MSI’s for complying with their due diligence. The Severance Guarantee Fund Agreement is an alternative to the weaknesses of MSI’s in ensuring compliance with the commitment to pay severance in supply chains that were exposed during the covid pandemic.

A transition to a circular economy and its aim to reduce emissions can involve a reduction in production volumes as well as changes in the type of available jobs and relocation. This can lead to job losses. The Severance Guarantee Fund can become relevant if circularity policies lead to mass dismissals and factory closures, while the employer cannot be compelled to pay severance.