Cooperation between Finnwatch and Patagonia leads to improvements in workers’ conditions in Thailand

In May 2019, migrant workers at sportswear manufacturer Sheico’s Thailand factory contacted Migrant Worker Rights Network MWRN, an NGO and a long-time partner of Finnwatch, and told the organisation that they had paid Sheico up to 18 500 baht (approximately 530 euros) in recruitment fees. Such high fees, which total more than two months’ minimum wage, were above legal limits in Thailand and in breach of international human rights standards. No recruitment fees and related costs should be charged to migrant workers, and the employer should bear the full cost of recruitment. In the worst case scenario, fees charged to workers can lead to situations of debt bondage.

Sheico is known for wetsuits. The company makes most of the world’s wetsuits and is a supplier to the all the leading brands in watersports. Sheico’s headquarters are located in Taiwan. The company employs more than 10 000 people and has 11 manufacturing sites, located mostly across South East Asia. In Thailand, Sheico’s factory is located in the Rayong Province south of Bangkok. 

Finnwatch was able to quickly identify that Sheico is a supplier also to the Californian outdoor clothing brand Patagonia. Finnwatch reported to Patagonia problems related to recruitment fees at the company’s supplier factory in the autumn 2019. Apart from excessive recruitment fees, the migrant workers who had contacted MWRN, reported no other concerns in regard to their working and living conditions at Sheico Thailand.

Patagonia’s products are sold world-wide, and the company is a known as a frontrunner in sustainability, an “activist company”. Patagonia, for example, made its supplier list public already in 2007 when very few companies were doing so. In 2011, it extended sustainability audits to the second tier in its supply chains. Currently, the company‘s social responsibility monitoring programme covers 100 percent of its first tier suppliers and its second tier suppliers that account for more than 80 percent of all the materials used in making of its products.

Patagonia began to work towards eliminating recruitment fees in 2014 when it developed a Migrant Worker Employment Standard which applies to the company’s suppliers. The standard was first rolled out in Patagonia’s supply chains in Taiwan only but it was extended to the rest of the company’s supply chains the following year.

An integral part of Patagonia’s migrant worker employment standard is a policy on recruitment fees. According to the policy, only official passport fees and transportation costs in a sending country can be charged to the migrant workers themselves. All the rest of recruitment related fees, such as the cost of visas, medical checks and international transportation as well as recruitment agency and labour broker fees, must be covered by the employer, that is, Patagonia’s supplier. The policy also stipulates that any fees beyond passport and sending country transportation costs charged to the migrant workers must be reimbursed. Patagonia’s Migrant Worker Employment Standard also includes a toolkit that offers its suppliers guidance in meeting Patagonia’s requirements, including a checklist for labour supply due diligence.

Although Patagonia’s recruitment fee policy is not fully in line with the ILO definition of recruitment fees and related costs, published in 2019, it is nonetheless still progressive in comparison to many other company policies on migrant worker recruitment – or lack of thereof. According to Patagonia, their migrant worker employment standard is currently being revised, and the revised version will align with the ILO definition of recruitment fees.

Special investigation audit confirms Finnwatch and MWRN findings

Patagonia monitors the implementation of its migrant worker employment standard through supplier audits. Finnwatch considers it surprising that Patagonia’s monitoring had not picked up excessive recruitment fees at Sheico Thailand until Finnwatch got in touch with the company in September 2019. Following Finnwatch’s intervention Patagonia, however, sprung into action promptly. Over the following months, the company sent numerous communications and held conference calls with both Finnwatch and Sheico, including the company headquarters in Taiwan, offered training to Sheico Thailand staff on human rights aspects of migrant worker recruitment, and met with MWRN in Thailand. Patagonia also commissioned Verité, a specialist service provider on migrant workers rights, to conduct a special investigation audit at Sheico Thailand in late October. 

The special investigation audit confirmed what migrant workers had already told MWRN and Finnwatch: the migrant workers at Sheico who had been hired through an official, transnational recruitment process (i.e. MoU recruitment) had paid 18 500 baht in recruitment fees directly to the company’s human resources department. Another group of migrant workers who had been recruited from within Thailand (i.e. walk-in recruitment) was also found to have been hired despite not having all the legally required documents (e.g. visas, work permits). According to Patagonia, the special investigation audit also revealed other violations of its migrant worker employment standard.

Both prior to and following the investigation audit, Finnwatch and MWRN learned from migrant workers at Sheico Thailand about threats being made against the workers by Sheico’s human resources personnel and the company translator in an attempt to prevent migrant workers from telling the auditors about the recruitment related fees they had had to pay. Information about the threats was immediately passed on to Patagonia. In order to manage any possible repercussions to the workers Patagonia and Verité implemented a hotline through which workers could report issues directly to Verité. Verité also maintained contact with the workers following the audit in order to monitor the situation. 

Excessive recruitment fees remain an issue despite Thailand’s legal reforms

Excessive recruitment fees are not a new phenomenon in Thailand. Finnwatch for one has been drawing attention to excessive recruitment fees in the country since 2013 when the organisation issued its first report on Thailand. Thailand’s export industries, which rely heavily on migrant labour, are known for being in the habit of externalising the cost of recruitment to the migrant workers themselves. High recruitment fees are one key indicator of forced labour and human trafficking – which is one more reason why it is of utmost importance for the realisation of human rights that they are being both identified and eliminated.

According to Patagonia, it had identified recruitment fees at Sheico’s Thailand factory already in 2013. At the time, recruitment fees were collected by Sheico’s Thai labour broker. Patagonia and Sheico took corrective action and in cooperation they were able to eliminate the practice. At that time, however, workers were not reimbursed.

Patagonia reported that their audit in 2013 revealed that workers at Sheico had paid fees to a Thai labor broker. They worked with Sheico to eliminate the practice and were able to verify compliance in subsequent audits. In 2017 when Thai law changed and a new hiring framework between Thailand and Myanmar was established, Sheico’s hiring system underwent gradual yet radical changes that were not well operationalised.

Thailand’s national laws that govern labour migration were revised in 2017–18. The legal revisions were aimed at tackling informal and irregular migration. Whereas before, about a half of migrant workers who came to Thailand from its neighbouring countries were irregular, now more than three million out of almost four million have regular status. Although the revisions have led to a decrease in the amount of fees charged to migrant workers in Thailand, Thailand’s laws remain in this regard in opposition to international human rights standards as they still allow charging of fees to workers themselves.

Both Patagonia and Sheico consider Thailand’s legal changes to have led to a situation in which high recruitment fees have sneaked back into Sheico Thailand’s recruitment practices. According to Sheico, at the time when the company was charging 18 500 baht in recruitment fees to migrant workers, the Thai laws were, for example, unclear on what the permissible fees were. On the other hand, according to Patagonia, the revision and operationalisation of Sheico’s migrant worker recruitment practices did not keep up with the pace of Thailand’s legal reforms as the company shifted from using Thai labour brokers to handling recruitment in-house. Finnwatch would like to note that the corporate duty to conduct human rights due diligence is an ongoing process which requires action in particular when there are changes in company operations or its operating context. The responsibility to respect human rights refers to internationally recognised human rights. This is important to bear in mind especially when international human rights standards and national laws contradict each other.

Remediation underway, Sheico revises its recruitment practices

After the Patagonia-commissioned special investigation audit had confirmed problems reported by migrant workers, Sheico reimbursed recruitment-related fees to 171 of the company’s Thailand factory’s workers. Altogether, the reimbursements paid to the workers total 3,800,000 baht (over 106,000 euros). Sheico also rushed to terminate contracts, with severance pay, of migrant workers whose residence permits and work permits were found to not be in order during the audit. According to the company, the swift action was motivated by the desire to correct a non-compliance. Finnwatch notes that the situation could also have led to legal sanctions. In Thailand, any company that is found to have hired migrant workers illegally is subject to a 10 000–100 000 baht fee per worker and may be banned from hiring migrant workers for three years.

According to Sheico, the company informed the terminated workers that they could return to work at Sheico Thailand if they wanted to through the official, transnational recruitment channel. As of March 2020, according to the company, 48 of the 66 terminated workers have began the process of returning. Sheico is committed to paying all their fees related to re-recruitment. Following an intervention by Finnwatch and Patagonia, Sheico took the additional step of communicating to all remaining Sheico Thailand workers the reason why some of their colleagues had been fired following the special investigation audit. This was necessary in order to put an end to rumours circulating among the remaining workforce and stave off any fears that their jobs, too, were at risk.

Sheico is also committed to reimbursing the rest of its migrant workers, in addition to the above-mentioned 171 workers who have already been reimbursed. However, due to especially some of the longer-tenured workers having been hired through various middle-men, it has proven challenging to establish the recruitment fees and related costs they have paid during the process.

Sheico has also begun developing a long-term remediation plan, including a complete overhaul of the way it engages migrant workers and the implementation of Patagonia’s policy on recruitment fees at Sheico Thailand. In other words, Sheico is committed to covering all recruitment fees and related costs itself going forward. Rolling out the remediation plan will take several months to fully implement and refine. Patagonia’s in-country staff are offering support and monitoring to its supplier. Sheico has also hired Verité for an extended period of time to provide direct consultation.

Due to its market leader status, Sheico is unlikely to face difficulties even if the changes to its migrant worker recruitment practices lead to an increase in its labour costs and  those costs are then reflected in its product prices. Buyer companies in comparable situations should, however, not punish suppliers who implement responsible recruitment policies by switching to a supplier who offers a better price. On the contrary, buyers should take the full cost of sustainable production into account in their own purchasing offers.  

Scaling up requires making corporate human rights due diligence mandatory

It has taken a lot of convincing by numerous NGOs, human rights defenders and migrant workers themselves over the years for companies, certification schemes and auditors to start paying attention to how migrant workers are being recruited in Thailand and elsewhere. Still, practical examples of policies that prohibit charging of recruitment fees and related costs to migrant workers, let alone their effective implementation, remain rare, and examples of workers in Thailand having been reimbursed recruitment related fees are even rarer. In December 2019, an electronics supplier Cal-Comp began reimbursing migrant workers an estimated total of 10 million US dollars in recruitment fees. To Finnwatch’s knowledge, it is the largest single reimbursement of recruitment fees to date. Cal-Comp workers’ demands for compensation were supported through a joint project by Finnwatch and MWRN.

It is common that auditing and certification schemes do not identify or intervene in recruitment-related problems. The above-mentioned Cal-Comp factory was RBA-audited, Sheico Thailand is a Fair Trade Certified manufacturer. Fair Trade Certified, which is owned by Fair Trade USA, is different from Fairtrade certification, known in Finland as Reilu kauppa, and owned by Fairtrade International. Fair Trade Certified standard for factory work prohibits recruitment fees charged to the migrant workers themselves from the initial certification audit onwards. Clearly then, in the case of Sheico Thailand, Fair Trade USA’s monitoring had also failed. According to Patagonia, it has kept Fair Trade USA aware of the findings of Sheico Thailand’s special investigation audit.

The case of Patagonia and Sheico highlights some of the many challenges that companies face in trying to tackle the issue of responsible recruitment of migrant workers in Thailand. One key problem area is the official, transnational recruitment process itself the advantages of which – the security brought about by the regular nature of the process itself and the official immigration status it grants to migrant workers – do not outweigh its disadvantages. The disadvantages of the process stem from its being utterly complicated, time-consuming and inflexible. These make the process itself a contributing factor towards making migrant workers dependent on recruitment agencies and the services of all kinds of middle-men, some more supervised by the relevant authorities than others. This is why the majority of migrant workers themselves consider informal or even irregular forms of migration as more attractive.

In addition to highlighting these challenges, the Patagonia–Sheico case is also an example of how recruitment fees and related costs can be tackled in the supply chains. Results are achieved, firstly, through transparency in the supply chain, which allows stakeholders to bring issues to the attention of companies. Further, they are achieved through preparedness to admit that there might be issues that have gone undetected despite all the effort that has gone into ensuring this is not the case. Even then, it is only possible to act promptly if companies have already identified their human rights risks and devised plans for their management. When the risks then materialise, these plans can be rolled out in a timely fashion and before the situation escalates.

Results also require cooperation and a relationship built on trust between buyers and suppliers. To get to that point, buyer companies should encourage their business teams (including design, sourcing and product development) to be a part of the discussion with their CSR teams to ensure a joint message is sent on the importance of the issue.

The Patagonia–Sheico case is, even at its best, still just one example of good practice in addressing recruitment related abuse in supply chains. As long as companies can gain competitive advantage by abusing human rights, human rights violations in the context of business operations are most likely to continue. Scaling up good practice requires making human rights due diligence mandatory for companies. In Finland, the government is committed to adopting due diligence legislation and currently the Ministry for Labour and Employment is undertaking a judicial analysis on details of a national mandatory human rights due diligence law. The government must ensure that a legislative proposal which also ensures access to effective remedy to victims of business-related human rights abuse, is brought to the parliament during 2021.