- Kristi Dosh, Sports Business
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Lost in the chatter about the new uniforms adidas created for some of its partner schools during March Madness: the fact that 17 schools terminated or suspended their contracts with the apparel giant.
What did adidas do to raise the ire of so many schools?
The issue revolves around the closure of PT Kizone, a factory in Indonesia with which adidas, along with Nike and the Dallas Cowboys, had contracts for the manufacture of goods. According to a report produced by the Worker Rights Consortium (WRC), violations at PT Kizone began in September 2010 when it failed to make mandatory terminal compensation payments to employees who left the factory. In December 2010, the factory failed to make regularly scheduled payments to current employees. The owner of the factory then fled Indonesia in January 2011. Thereafter, the buying agent, Green Textile, ran the factory and paid workers through March 2011. In April 2011, PT Kizone was declared bankrupt and closed.
The WRC, United Students Against Sweatshops (USAS) and other worker rights advocacy groups claimed adidas was refusing to pay $1.8 million in legally mandated severance owed to the 2,800 workers of PT Kizone. Total severance and other pay due under Indonesian law to the workers, who had no advance notice of the factory’s closure, totaled $3.3 million. Both Nike and the Dallas Cowboys contributed partial severance, but for nearly two years, adidas has maintained it does not owe any of the monies.
Beginning last fall, Cornell, Rutgers, Washington, Georgetown, University of Montana, Santa Clara University, College of William and Mary, Northeastern University, Temple University and Washington State terminated contracts with adidas. In addition, administrators at Oregon State told USAS they sent a termination letter on April 16. Oberlin and three University of Minnesota system campuses (Twin Cities, Crookston and Morris) advised adidas that they would not renew when their current athletics apparel contract are completed. Wisconsin has sued adidas, with the assistance of the Wisconsin attorney general, and in mid-March, Penn State suspended its contract, giving adidas 60 days to rectify the situation.
Not all of these schools have their athletics apparel contract with adidas. Some only have licensing agreements for merchandise sold in campus bookstores and through other retailers. However, a growing number of universities who have exclusive all-sport contracts with adidas, such as Wisconsin and Michigan, began to give ultimatums and threaten contract termination over the past month.
Not coincidentally, that’s when things took a turn for the better for the former PT Kizone workers. Last week, just days after adidas participated in a conference call with Michigan and neared the end of Michigan’s 45-day cure period, adidas announced a settlement. The agreement is confidential, but a press release from the former PT Kizone workers states, “the former workers will receive a substantial sum from adidas.”
When asked by ESPN.com to address the contract suspension by Penn State last month, adidas responded with a statement that asserted its claim that the situation in Indonesia was not its responsibility. According to adidas, the factory was closed six months after adidas placed its last order, and all monies due under its contacts with the factory had been paid in full.
The WRC disputed adidas’ version of the facts, stating in its report that adidas goods were produced in the factory until November 2010, and the first violations occurred in September of that year.
In addition, in adidas’ filings in the lawsuit brought by Wisconsin, adidas claims its contracts did not “require it to guarantee the unpaid benefits” of a contractor. However, universities continued to raise concerns with the apparel giant about adidas’ role in the PT Kizone situation, most citing non-compliance with codes of conduct for apparel producers. The WRC agrees with the universities, stating in its report that university codes of conduct require adidas to ensure compliance by contractors and remediate any damages caused by those contractors.
University of Michigan currently enjoys the most lucrative adidas contract in college athletics, a deal worth $60 million. A chapter of USAS on the Ann Arbor campus has been engaged in dialog with university president Mary Sue Coleman since April 2012 regarding the PT Kizone situation. Coleman began written correspondence with both adidas’ president and head of social and environmental affairs in September 2012, requesting the company send monthly updates on the situation and efforts adidas was engaging in to aid workers and resolve any legal issues in Indonesia.
In the statement on Penn State in mid-March, adidas pointed out that despite the company’s belief that it had no legal responsibility to the PT Kizone workers, it had provided assistance to former workers and their families. Adidas gave $525,000 in humanitarian aid to former workers in the form of food vouchers prior to the settlement. In addition, the apparel giant says it contacted adidas supplies near the PT Kizone factory and, “actively encouraged them to hire former PT Kizone workers to fill suitable, open job positions at their factories.”
In a letter from adidas to University of Michigan in September 2012, the company indicated it had hired a recruitment consultant near the PT Kizone site to assist in finding workers new jobs. According to the adidas statement on Penn State, more than 1,000 former PT Kizone workers have found new employment.
According to a subsequent letter from adidas addressed to Coleman in January 2013, Adidas indicated it had completed three distributions of food vouchers to workers impacted by PT Kizone’s closure. In addition, adidas said more than 1,900 workers received medical services and checkups in December as a part of adidas’ third distribution.
Michigan’s Advisory Committee on Labor Standards and Human Rights continued to review the situation, however, and decided adidas has not fulfilled its obligations. On March 14 of this year, Coleman addressed a letter to adidas in which she gave the apparel company 45 days to submit to her, “... a plan for remediating the outstanding issue of legally mandated severance to the former PT Kizone workers.” She warned that, “[f]ailure to produce an adequate plan could lead the [University’s Advisory Committee on Labor Standards and Human Rights] to examine recommendations concerning the future of [Michigan’s] partnership.”
On April 19, a call was scheduled between Michigan and adidas, a meeting Coleman requested when she set the 45-day window for resolution. The settlement between adidas and PT Kizone was announced on April 24.
Combined with its own efforts, USAS believes the involvement of the universities that called adidas to task led to the eventual settlement.
"After two coast-to-coast worker tours, crashing a Selena Gomez adidas fashion show, and escalating on-campus actions across the country, the 'Badidas' campaign provoked the largest collegiate boycott of a top-three sportswear company in history, with 17 total universities and colleges ending their contracts with adidas,” said Garrett Strain, USAS international campaigns coordinator.
“Adidas knew the university pressure wasn't going away, and this was a strong motivator for them to pay severance to the PT Kizone workers."
Wisconsin’s case against adidas is currently pending in Dane County Circuit Court, the union for the workers having been allowed to intervene in the case in January. The Indonesian district labor union, which represented the former PT Kizone employees, will ask for a dismissal as a result of the settlement.
It remains to be seen whether the universities who terminated their contracts with adidas will now reconsider. Adidas, in the meantime, says it will focus its efforts on preventing this issue from arising in the future.
“We are continuously exposed to complications resulting from lapses in governance across the global market economy and supply chains. This poses risks to all stakeholders -- buyers, workers and consumers alike,” said Glen Glenn Bennett, member of the adidas group executive board, responsible for global operations.
“The industrywide initiative led by the Global Forum for Sustainable Supply Chains represents a meaningful step toward long-term change in addressing what workers’ advocates, industry experts, universities and brands are all after -- an end to the problem of unethical factory closures and better protection of workers’ unemployment and severance rights. This remains an ongoing priority for the adidas Group and is critical to our business. It is also the right thing to do.”