Adidas Tells WI Court It Has No Obligation to Help Exploited Workers

Despite promising U.S. universities that it would help ensure fair labor practices, Adidas, the world's second largest athletic shoe and apparel company, has told a Wisconsin court that it can't be required to "stand in the shoes" of its global suppliers who owe millions of dollars to workers, according to a court document reviewed by the Center for Media and Democracy.

The company was responding to a complaint filed last month by the University of Wisconsin-Madison alleging that the global footwear brand violated a labor rights code of conduct by not making up to $1.8 million in payments to laid off employees of an Indonesian subcontractor. Wisconsin's action against Adidas marked the first time a university has sought to compel enforcement of a labor rights code of conduct in U.S. courts.

Adidas filed the response just days after upping its annual profit outlook to a record of nearly $1 billion thanks to the London Olympics 2012.

Adidas Pays $11 Million for Sports Sponsorship, Zilch to Laid Off Workers

In the late 1990s, Wisconsin adopted a policy that all manufacturers producing University of Wisconsin-branded apparel comply with an anti-sweatshop code of conduct. The university adopted the code after raucous sit-ins by students demanding fair labor conditions for workers. The codes are intended to remake the globally-fractured apparel "supply chain" -- including, in this case, all the factories used for collegiate production by Adidas -- into one unit of brand responsibility.

The university is currently in the second year of a five-year sponsorship agreement with Adidas, worth about $11 million. Under that agreement, the university contends, Adidas agreed to follow a code of conduct that requires it to take responsibility for remedying violations by contractors and subcontractors.

More than 2,600 Indonesian apparel workers were originally owed some $3 million after the Korean-owned PT Kizone factory near Jakarta abruptly shut down in early 2011. Nike and its suppliers, operating in the same factory and under the same code of conduct as Adidas, agreed to pay the workers what Nike called its proportional share of the amount owed, more than a third of the total. The Dallas Cowboys merchandise affiliate also paid a small amount for its share of the production. But not Adidas.

Worker Rights Consortium executive director Scott Nova, the university's labor rights monitor, has blasted the company for refusing to pay the workers, saying they had been "robbed of legally earned income. This is grossly irresponsible and immoral behavior."

"20 Years of Corporate Responsibility Turned on Its Head"

A key section of the Wisconsin's labor code provides that contracts with Adidas and other companies expressly "encompass all of Licensee contractors, subcontractors or manufacturers which produce, assemble or package finished Licensed Articles for the consumer." According to Nova, of the Worker Rights Consortium, that provision means that brands must either pressure contractors to come up with the funds or pay wages and benefits that a contractor cannot or refuses to pay. The code also states that failure to comply with the code "shall be considered a breach of the License Agreement regarding the applicable Collegiate Institution."

According to Adidas' August 13 answer to the university's complaint, its contract with the University of Wisconsin-Madison "does not obligate adidas to stand in the shoes of its subcontractors and pay the wages and severance payments of subcontractors' employees." (The company insists on the lower-case spelling of its name in all communications, including legal actions.)

Adidas asserts in its answer that it merely agreed to "contract with" factories that adhere to the code of conduct, not to take financial responsibility for the factories' adherence to the code. According to Nova, such a position "turns twenty years of corporate social responsibility on its head, and insists that no obligation is owed [by the brands] to the workers employed by contractors."

Adidas also claims that it had ceased making orders in the Indonesian factory as early as June 2011 -- before the severance payment demands began -- a claim that the monitoring group says it has disproven with shipment records and the company's own reports in its monitoring databases. Adidas urges the court to reject the university's complaint on grounds that Indonesian bankruptcy courts should determine what the workers are owed.

But worker advocates have noted that the legal process is expected to take years, that the Indonesian courts are notoriously unfriendly to worker claims, and that the codes were intended to protect against situations of delay like this. According to Nova, the most workers might receive is about 20 percent of the debt in bankruptcy. That would leave more than $1 million still owed.

Adidas in Denial as Apple Pumps Millions into Factories

Codes of conduct like this have garnered attention in recent months as a tool for improving working conditions when firms live up to their obligations. Apple this month unveiled millions of dollars in wage and benefit increases -- shared by the company and its subcontractors -- after the company came under fire for code of conduct, and potential legal, violations in China.

While refusing to walk in the shoes of its Indonesian workers this summer, Adidas also launched a shoe designed with chains and shackles on the back. After protests by civil rights groups, sales of the shoe were discontinued.