Wages: a living wage and severance pay

If they think these wages are enough, they should try to live on them for a month and then decide whether they’re OK. • Pakistani factory worker, 18

The majority of workers in the global fashion industry rarely earn more than two US dollars per day. Many have to work long hours for this meagre wage and struggle daily to meet their basic needs such as food, clothes, shelter and schooling. Garment workers often earn less than the national poverty levels as established by the government and by organisations such as the United Nations and the World Bank.

The minimum wage rates established by governments are calculated in a context of ferocious competition to attract trade. This means that a national minimum wage is often not enough to provide even the basic needs. But the research reveals that many suppliers don’t even pay their workers the legal minimum. That is why the Clean Clothes Campaign (CCC) continues to advocate for a living wage or a wage enough to provide the basic needs of a worker and her/his family.

The international standards as set by the United Nations state: “Wages and benefits paid for a standard working week should meet at least legal or industry minimum wage standards and always be sufficient to meet the basic needs of workers and their families and to provide discretionary income.” 

This means that a living wage should

• be paid to all workers and a lower minimum wage would be illegal

• be earned within a standard working week, that is no longer than 48 hours

• be a basic wage: exclusive of benefits, bonuses and overtime pay

• cover the basic needs of the worker and his/her family

• provide a discretionary income amounting to at least 10% of the basic wage.

The Asia Floor Wage is a global initiative that advocates the establishment of decent wages for all Asian garment workers, and the cessation of wage competition between Asian countries, which has the effect of reducing basic wages for all workers. Their “floor wage” would provide an equal basic wage for all Asian workers that would in effect be sufficient to provide for a worker’s basic needs. The notion is that if workers throughout Asia use this floor wage in wage negotiations, brands will no longer be able to use (lower) wages as leverage during negotiations between countries and factories. 

But a living wage is not the only important wage issue.

Severance pay, also known as termination pay, is a form of lump-sum compensation which is paid by an employer to a worker who has been involuntarily laid off. Typically the severance pay is linked to the number of years the worker has been employed, for instance, two weeks of wages for every year in service. Many countries have some form of severance regulations: in several countries it is mandated by law, in others it is either voluntary or provided for through collective bargaining.

Severance pay is important because it forms a buffer for workers to be able to pay their bills and keep their kids in school, while looking for a new job.

In the garment industry severance pay becomes an issue in the event of a factory closure, factory displacement or reduction of the work force due to decreased production. Yet more often than not severance pay is often not paid out
to workers: this is often because the factory which owes them this money has already closed or is in (or claims to be) in a dire financial situation. In many cases the factory is already bankrupt and workers have to wait years to get awarded the money they are owed through a legal process. In many cases there simply isn't the money left to pay
them. That's why it's crucial that global brands pitch in when workers lose their jobs.

The CCC believes that global brands should be making sure that all the companies they do business with are financially stable, that they are paying prices that cover the cost of production and that don't lead to such a financial situation occurs and that if they do leave a factory they make sure that workers don't have to pay the price. When they fail to do this, and workers are left without the severance they are owed the CCC also holds them accountable, so that global brands make sure standards from local law, internationals conventions and their own codes
are met in cases of unpaid severance.

A recent case where severance pay was a major issue is the closure of the PT Kizone factory in Indonesia. This factory producing for adidas (and other brands) suddenly closed in April 2011, leaving 2800 workers without work and without pay. Nike and the Dallas Cowboys contributed to a severance fund several months later. After a global two-year campaign, with picket lines, 50.000 signatures of supporters and a swamped adidas Facebook page, adidas also finally agreed to compensate the workers, setting a precedent for global brands to accept responsibility for
worker's rights in the case of closure of one of their suppliers.

For an overview of the Severance Pay in labor law in different countries in the world, you can take a look at this interactive map of the ILO: http://www.ilo.org/dyn/eplex/termdisplay.severancePay?p_lang=en

For a Urgent Appeal case involving Severance Pay, take a look at the Kizone Indonesia case here: