A certification scheme cleans up its act in India: thousands of workers get a pay rise

Anu Kultalahti |

In the spring of 2019, Finnwatch, in collaboration with the Indian NGO Cividep India, published a report according to which Vallila's Indian supplier R .K. Exports had refused to pay its employees statutory minimum wages. The publication of the report had a complex aftermath that involved Finnwatch, the SA8000 certification scheme and an Indian home textile industry association. What was it about and what comes next?

R.K. Exports, a home textile manufacturer, is located in the city of Karur in the state of Tamil Nadu. Tamil Nadu is known for its textile industry and Karur is a major home textile manufacturing hub.

In December 2014, Tamil Nadu authorities issued a government order, revising the minimum wages for the tailoring industry, which had been applied by the entire textile industry, for the first time in ten years. The government order led to significant increases in minimum wages, especially in the lower pay grades, for which the minimum wages were doubled.

Karur Textile Manufacturing and Export Association took the state to court.

The Karur Textile Manufacturing and Export Association (KTMEA) got agitated and took the state to court. The industry association had come up with a notion that if the home textile industry was considered an industry in its own right, separate from the rest of the textile industry, then the tailoring industry minimum wages would no longer apply to its member companies. A separate minimum wage rate would have to be set for the home textile industry. It was hoped that this would not only delay the entry into force of new minimum wages but also result in wages lower than the minimum wages for the tailoring industry.

KTMEA was successful in their pursuit. According to a court issued interim order, its member companies do not have to pay the textile industry minimum wages to their workers until a minimum wage has been set for the home textile industry. 

There has since been no particular rush to set minimum wages for the home textiles industry. For example, R.K. Exports still continues to pay its workers tailoring industry minimum wages from before the revision i.e. 2004, although admittedly taking into account inflation.

What was particularly striking in the R.K. Exports case was that the company had long been SA8000 certified. SA8000 certification is often regarded as the most ambitious certification for various kinds of production facilities. One of the main reasons for the appreciation of the SA8000 certification scheme is that SA8000 requires the certified organisations to pay their workers a living wage. Although R.K. Exports has refused to pay its workers the 2014 revised statutory minimum wages (which are not sufficient for living) on the grounds of the court process, it has still passed SA8000 audits. 

Finnwatch raised this issue with SAI which owns SA8000 already at the time of writing of the Vallila report. As a result of the dialogue, SAI revised its SA8000 audit requirements in the summer. According to the revised requirements, workers must be paid at least the minimum wage published by the authorities, even when the wages have been challenged in court. This means that R.K. Exports has to raise its wages.

SAI’s decision does not apply only to R.K. Exports. According to SAI, there are about 100 home textile manufacturers in Tamil Nadu that are SA8000 certified. Because many industries have seasonal fluctuations and high turnover, SAI does not share its employee-count data publicly as it can quickly become outdated. But according to even a conservative estimate, SAI's revised guidelines could mean higher wages for thousands of home textile workers. For example, R.K. Exports has around 400–500 workers according to the company itself. The decision also has implication for the rest of the textile industry in Tamil Nadu, which is fighting a separate legal battle against the 2014 revised minimum wages.

It is clear that not all SA8000 certified production facilities are able or willing to increase salaries they pay their workers, and they will lose their SA8000 certifications. This, in turn, is likely to result in companies that have lost their certification also losing at least some of their customers. 

Finnwatch asked Vallila whether it would continue purchases from R.K. Exports even if workers’ pay rises led to an increase in prices too. In response, Vallila said that the company is committed to continue to work with R.K. Exports towards common goals and requires R.K. Exports to implement the requirements of SA8000 certification. According to Vallila, it will continue its cooperation with R.K. Exports as long as the supplier meets SA8000 criteria for labour rights, working conditions and effective management system, that are valid at any given time, and Vallila’s requirements on, for example, quality and delivery. 

How to make companies that undermine minimum wage legislation pay their workers a living wage, however, remains an open question. For example, R.K. Exports has repeatedly told Finnwatch that it is committed to paying its workers only the future home textile industry minimum wages, not a living wage. 

Thousands of employees will now receive higher statutory minimum wages.

The minimum wage for the textile industry in Tamil Nadu in 2018 was only about 56–60% of the living wage. According to SAI, it is currently developing ways to apply the living wage benchmark which was calculated for Tiruppur city (located less than 100 kilometers from Karur) to the rest of Tamil Nadu. In addition, the guidance on SA8000 audits will be updated in the future so that the assessment of a living wage during audits will be based on the ambitious and widely recognised Anker methodology. For the time being, certification bodies conducting SA8000 audits may use other methods to assess living wage levels. Finnwatch has already identified these mixed methods as problematic in the past.

Thousands of employees will now receive higher statutory minimum wages they are entitled to and the SA8000 certification scheme will better implement in practice the promises it has made in its certification criteria. All's well that ends well?

Here at Finnwatch, we cannot help but think about the extent of malpractice and problems associated with the current voluntary corporate responsibility and the related certification business. We have repeatedly reported problems with the quality of audits and the scope of criteria under various certification schemes. The current system is clearly not working and there is a need for more actors to clean up their act, too.

As a solution, we have proposed regulatory oversight of responsibility certification schemes and campaigned for a mandatory human rights due diligence law. As long as abuses do not lead to sanctions and accountability, they will continue.

Anu Kultalahti

Anu on tutkija Finnwatchin Ihmisarvoisen työn tutkimusohjelmassa. Ohjelmassa keskitytään järjestäytymisvapautta, työaikoja, elämiseen riittävää palkkaa ja työturvallisuutta koskeviin kysymyksiin yritysten alihankintaketjuissa kehittyvissä maissa.