Increasingly, UL Responsible Sourcing auditors are finding labor cooperatives in key apparel sourcing countries such as Colombia, Italy, Mexico, and the Philippines; this trend may continue in additional countries as cooperatives become popular worldwide, which poses an increasing reputational risk to companies who have not formulated a comprehensive protocol for dealing with the specific and significant noncompliance issues uncovered at these workplaces.
In addition, the media, NGOs, and governments have begun to publish reports focusing on abusive cooperatives. For example, as part of the free trade agreement signed into effect on October 12, 2011 between the USA and Colombia, President Miguel Santos declared that 100 more inspectors would be hired to target perpetrating labor cooperatives, known by organizations such as the International Labor Rights Forum as a new face in labor exploitation. Companies operating in Colombia should understand the risks associated with their Colombian suppliers in the face of stepped up government enforcement.
The legal intent of cooperatives is to promote power equality through collective ownership; all members have a say in the operation of the business, thus less power is concentrated in the hands of owners and managers. A number of governments are funding cooperatives and have enacted legislation exempting cooperatives from restrictive labor laws, such as the minimum wage, overtime, and maximum working hours. In Mexico, for example, cooperatives receive government loans to assist in development and are not governed by the Federal Labor Law.
However, cooperatives are often abused for precisely the reason that they are founded; with government aid and the benefit of not falling under the general labor law, individuals establish cooperatives in order to reap the benefits. Workers join these labor cooperatives because they have little choice or understanding. For example, the Philippines and Colombia are both known to have “anti-union” governments, giving workers few opportunities for improvement, whereas a surge in asylum seekers in Italy is creating a desperate situation for those seeking work, thereby making them especially susceptible to this type of organizational structure.
Thus, major issues exist where “Member Owners” (the organizers) take decision-making powers and “Member Workers” find themselves agreeing to fall outside the scope and benefits of general labor laws. As a result, it becomes a liability for companies when “Member Workers” in their supply chains are not guaranteed employee benefits, the minimum wage, and other minimum protections. In all countries mentioned above aside from Colombia, cooperatives are exempt from labor law provisions and free to decide on what constitutes “fair and equitable” conditions for their working members. Factories with internal labor cooperatives are not obligated to maintain employment documentation such as: employment contracts, wage registers, time sheets, and training records. In fact, in Italy factory owners do not have the right, due to privacy laws, to monitor employee working conditions for such cooperatives. This creates a heightened risk for brands when the factory does not maintain employment documentation for internal cooperative workers.
Italy has sought to balance the competitive advantage of labor cooperatives’ loose regulations with the need for increased protection of workers from exploitation. This is done on the one hand by administrative requirements for a cooperative’s registration, and on the other by creating substantive collective agreements providing baseline requirements for worker protection. However, this balance still leaves situations where working conditions established in collective agreements can still have potentially negative exposure for companies.
Cooperatives pose a risk for companies that do not include noncompliance issues particular to cooperatives within their auditing scope. As cooperatives become more prevalent around the world due to their progressive nature and government aid, they become a greater concern. In order to mitigate the risk that cooperatives pose, we can help companies understand and combat their concerns by providing practical solutions during the auditing process. For further information please contact Emily Brennan or Daphne Guelker today.
