LABOUR RIGHTS IN UNILEVER'S SUPPLY CHAIN - Oxfam

8 AN OXFAM STUDY L ABOUR RIGHTS IN UNILEVER’S SUPPLY CHAINMethodologySummary of findingsOxfam designed the study in ways that would enableit to assess how far people were able to realizetheir rights and whether the company’s policies andprocesses help them to do so.Findings relating to policies and managementprocessesThe study had both a global and national scope.Oxfam established global and Viet Nam-basedresearch teams with expertise in labour standardswithin business. Unilever designated staff membersfrom its global and Viet Nam bases to work with theresearch teams, providing information and access,and discussing findings. A UK consultancy wascommissioned to develop a ‘wage ladder’ for VietNam with appropriate benchmarks for the location ofUnilever’s factory.Oxfam studied UVM and its supply chain within thecountry, to take into account a range of externaland internal factors influencing labour standards.The researchers visited Unilever’s operations at CuChi, near Ho Chi Minh city, where 700 workers weredirectly employed by Unilever and 800 more wereemployed by a labour provider to carry out simpleprocesses such as packing and cleaning. Managersand workers were interviewed. Worker interviewswere a mix of individual and group formats, both onsite and off-site.The research team conducted telephone interviewswith 48 of Unilever’s Vietnamese suppliers, selectedas being in a high-risk environment for labourstandards, but where Unilever was judged to havecommercial leverage based on information from UVN.From these 48 suppliers the researchers identifieda representative spread of three suppliers, referredto in this report as selected or ‘deep-dive’ suppliers.One was a third-party manufacturer supplyinga personal care product, one supplied plasticpackaging and one supplied paper packaging. Onewas privately owned, one state-owned and oneforeign-owned. The three suppliers were visited andinterviews conducted with managers and workersusing a similar format to the one used in Unilever’sfactory. Findings in the report have been anonymized.Commitmente 9RMPIZIV LEW QEHI E GSQQMXQIRX XS WSGMEP responsibility by adopting the UNGP. It also has aCode of Business Principles (CoBP); a Respect, Dignityand Fair Treatment policy; and a Supplier Code, allpublicly stated.e (IWTMXI XLMW LYQER ERH PEFSYV VMKLXW EVI conspicuous by their absence from the UnileverSustainable Living Plan. Social targets focus on thewell-being of consumers and smallholders, but thereare no targets for labour rights.Integration of labour standards into the businessand implementation with supplierse 9RMPIZIV QEREKIQIRX MR :MIX 2EQ [IVI JSYRH XS PEGO the capacity and knowledge to ensure the company’soperations comply with international standards, nor didthey have the authority to support suppliers to do so.e 9RMPIZIV MW E ZEPYIH GPMIRX SJ MXW XLMVH TEVX] manufacturers and suppliers in Viet Nam. However, inrelation to labour rights many suppliers were unclearabout Unilever’s expectations and how best to realizelabour rights in practice.e 7SQI 9RMPIZIV WSYVGMRK TVEGXMGIW [IVI JSYRH to contribute to excessive working hours andprecarious work in the supply chain.Tools and processes for due diligencee 8LI VMWO QEREKIQIRX W]WXIQ MRZSPZMRK WIPJ assessment and audit, is not sensitive to thevulnerability of some workers. Therefore none of theVietnamese suppliers was identified as high riskthrough the risk assessment process.e -X MW TSWMXMZI XLEX XLI GSQTER] [MPP KMZI XMQI JSV improvements if problems are found; suppliers needto know this is the case and to understand thestandards better.e 8LIVI EVI RS XVEGOMRK SV MRXIVREP VITSVXMRK mechanisms covering Unilever’s effectiveness indealing with labour issues; input is not sought onthis from civil society stakeholders.e ;LMPI 9RMPIZIV WLS[W E KSSH PIZIP SJ XVERWTEVIRG] and actively engages with stakeholders at the globallevel, in Viet Nam this is at an early stage.

L ABOUR RIGHTS IN UNILEVER’S SUPPLY CHAIN AN OXFAM STUDY 9Remediation via grievance mechanismse VMIZERGI QIGLERMWQW MR 9RMPIZIVxW STIVEXMSRW EVI ineffective because workers lack the confidenceto use them, as a result of which potentially severeviolations could be missed.e &EWIH SR XLI TLSRI WYVZI] SRI MR IMKLX WYTTPMIVW said workers do not have any grievances and amechanism was not needed; only one in four have anassigned person and procedures to deal with them.Findings at global levelFreedom of association and collective bargainingCorporate policy appears to provide a good overallframework for these rights. The challenges arisewhen it comes to implementation, since theindustrial relations policy of Unilever (and potentiallyother multinational corporations) may be countryspecific and locally determined.9A commitment to effective implementation hasbeen demonstrated by the actions taken to resolveindustrial relations disputes and by Unilever’ssubsequent corporate engagement with theInternational Union of Food workers (IUF). Thisfollowed four complaints to the UK National ContactPoint (NCP) responsible for the OECD Guidelines onMultinational Enterprises, concerning violations oftrade union rights.10 In June 2012, the IUF lodgeda further complaint with the UK NCP, allegingnon-implementation by Unilever of the agreementreached in 2010 concerning the Doom Dooma factory,in Assam, India, manufacturing personal careproducts.11WagesThe CoBP includes a commitment to comply with allapplicable laws on compensation, including minimumwage. Good practice codes (such as the ETI BaseCode and SA8000) incorporate a commitment to aLiving Wage.Working hoursThe CoBP also includes a commitment to meetapplicable national limits on working hours. Nationallaws are frequently good in this area, but complianceis hard to achieve in a context of low wages.Contract labourTerminology in the CoBP also assumes that allworkers are in an employment relationship; it doesnot make it explicit that workers’ rights are respectedin the supply chain irrespective of employmentstatus, although this was reported to be the intent.Good practice codes (such as the ETI Base Code andSA8000) use the term ‘workers’ to separate rightsfrom employment status and include a commitmentto Regular or Stable Employment.Findings at Unilever Viet Nam levelThere is a UVN union but employees belowmanagement level do not have opportunities to raiseissues collectively with management and have nomeaningful involvement in collective bargaining.More could be done within the constraints of VietNam law to encourage an environment in whichindustrial relations can develop. This is likely also tobe the case in other countries in which freedom ofassociation is restricted by law.The study found that all wages paid in Unilever’s ownfactory clearly were well in excess of the applicableminimum wage, so were compliant with nationallaw and Unilever policy. They also exceeded theinternational poverty line of 2 per day (taking intoaccount household size). However, they were foundnot to meet other key benchmarks of the basic needsof employees and their families, such as the AsiaFloor Wage (just over 4m VND) and Oxfam’s estimateof monthly expenses for an adult with a child (5.42mVND). In interviews, workers were in agreement thatwages were insufficient to make savings or supportdependants (see Section 6).For wage ladder data, commentary and assumptions,see Section 6. Note that poverty and basic needsbenchmarks relate to the needs of a household, notan individual.

Figure 1: Wages and benefits in UVN factory with wage and poverty benchmarks (VND monthly, July 2011)4500000Asia Floor Wage4000000350000030000002500000Average urban income2000000National minimum wage(private sector – qualified worker)National minimum wage(private sector – unskilled worker)1500000Provincial poverty lineWorld Bank poverty line1000000World Bank extreme poverty lineNational poverty lineNational minimum wage(state owned companies)500000Sources: UVN (wage data) and Ergon Associates (benchmarks).Sub-contracted wageJuly 2011 (average)Sub-contracted wageJuly 2011 (lowest)UVN Semi-skilled wageJuly 2011 (average)UVN Semi-skilled wageJuly 2011 (lowest)0UVN pension, medical & other benefitsCash benefits, UVN and Thang LoiBasic wages, UVN and Thang Loi

L ABOUR RIGHTS IN UNILEVER’S SUPPLY CHAIN AN OXFAM STUDY 11The Asia Floor Wage (AFW) benchmark was usedas a reference point on the wage ladder becausethis methodology for calculating a Living Wagehas the greatest currency amongst civil societyorganizations. Companies, including Unilever,therefore need to be aware how wages in theiroperations and key supply chain look in comparisonto relevant AFW benchmarks.The findings need to be put into a wider context ofendemic low wages, reflected in a Fair Wage Networksurvey which found 25 per cent of workers in VietNam garment factories do not receive even theminimum wage (see Section 4.2). Nevertheless Oxfamconcluded that Unilever, as a profitable multinationalcorporation, could do more to ensure workers makingtheir products can work their way out of poverty.Unilever’s working assumption at headquarters thatproduction workers were paid well above a LivingWage in its own operations was not borne out by thestudy in Viet Nam and workers’ perspective on wagesand benefits was not found to be well understood bymanagement.Hours worked were found to be within legal limits andpaid at a premium as required.Just over half of the workers in the factory (748 outof 1,385) were sub-contracted to a labour provider,Thang Loi, rather than directly employed. Theseworkers had lower wages and benefits than UVNemployees; their average basic wages were stillcomfortably in excess of the legal minimum wage andthe international poverty line, but less than half theAFW benchmark and Oxfam’s estimate of workers’expenses (5.4m VND). Some workers complained ofunfair treatment and repeat temporary contracts.Unilever has devised a Contingent Labour ReductionRoadmap to reduce the ratio of sub-contractedto directly employed workers where needed in asustainable mannerFindings at Supply chain levelBased on the phone survey, seven out of eightsuppliers had a union, but one in two put workersoutside the wage setting process. Three out of fourregarded enterprise unions as more than a welfarebody and approximately one in two saw them asproviding an effective grievance handling mechanism.Two of the three selected suppliers were found to paya very low basic wage, just above the legal minimum.Unilever regularly checks that wages do meet thelegal minimum; based on the Fair Wage Networksurvey,12 there are many enterprises in the garmentand footwear sector that do not achieve this. In asupplier which had foreign ownership, Vietnamesemanagers and workers alike were unclear how wageswere set.Two of the selected suppliers were found to assumethat offering overtime is necessary to retain workers.At one supplier, workers said they had workedfour hours’ overtime a day six days a week for tenmonths of the previous year: this is well in excess oflegal limits of 200 hours a year. A social auditor hadidentified excessive working hours the previous year.Thirty-two of the 48 suppliers surveyed by phonesaid they use temporary or sub-contracted workers;exploring the causes and impact of these wasoutside the scope of the study.One supplier was found to have reduced its labourforce to a minimum after the contract with Unileverwas signed and managed fluctuations in demandby having a high ratio of temporary to permanentjobs. Since in Viet Nam only workers with contractsof more than six months can join the union, this isa significant barrier to workers having a collectivevoice about issues they are concerned about.At one of the three ‘deep dive’ suppliers, the researchteam found a range of good practices includinghigher wages (though not at the level of Oxfam’sestimate of a Living Wage) and wage transparency.Low season was used to raise skills so workers couldswitch between tasks during busy periods, meaningless reliance on temporary labour. Staff surveysand grievance mechanisms were trusted and used.Workers reported higher satisfaction than at theother suppliers or at Unilever’s factory.The fact that this supplier was managing to operatewith better labour standards, in a similar high riskenvironment to the others studied, appeared to haveno connection to the company’s sourcing strategy.

12 AN OXFAM STUDY L ABOUR RIGHTS IN UNILEVER’S SUPPLY CHAINConclusionsUnilever has a made a significant commitment tosocial responsibility and sustainability, employeestake pride in the company’s values and a motivatedworkforce is seen as key to its business success.People must be the source of the company’svalue. Unilever must be best in class aswe charge a premium for our brands, sowe must invest in training and workingconditions We compete on operatingefficiency, quality, specification ofproducts and responsiveness to customerdemand. All this requires an empowered andskilled workforce All Unilever’s analysisshows that where there are good conditionsand empowerment of employees, thefactory has the best results.Nick Dalton, Unilever, VP HR Global SupplyChain13Unilever’s own analysis shows that the best resultscome from factories with good conditions andempowered workers; however, its business modeldoes not fully reflect this. Based on this report,competitive advantage is still, in practice, pursuedthrough downward pressure on labour costs, whichpushes costs and risks onto workers.Oxfam had expected to find endemic global supplychain issues, such as low wages, weak industrialrelations and precarious work, within Unilever’s‘high risk’ suppliers, but were surprised to find themreported by workers in its own factory. We also foundthat workers, both in Unilever’s factories and in itssupply chain, had a weak voice and experienced‘inadvertent neglect’. We took it to be inadvertentas Unilever gives every sign of wanting to behaveresponsibly. However, it was clear that the workersexperienced neglect, given the lack of a safe spaceto talking frankly about their concerns. This couldmean that potentially severe labour violations do notcome to the company’s attention.operations and stable, long-term supply relationshipsmake it well placed to deliver on this agenda.Unilever now needs to incorporate the UNGP morefully into the way it runs its business, which will helpit to ensure that those rights are realized. This willrequire the company to adopt a more people-centredapproach, in which workers identify issues andpriorities that matter most to them, give feedback onthe quality of their working lives, and the effectivenessof Unilever’s mechanisms; as one stakeholder said ininterview, ‘it all starts with the workers’.14Proactive steps will be needed to address lowwages and precarious work in the supply chain,to strengthen the due diligence process and tocollaborate with other stakeholders, includingcompetitors, civil society and governments. Theimplications of not addressing these concerns will becontinued civil society criticism; difficulty in retainingskilled workers; and security of supply in the face ofincreasing competition for both.Unilever needs to play a leadership role, whiletreating this as a ‘pre-competitive’ issue in whicha range of other stakeholders – governments, civilsociety organizations, other companies – need toplay their part.Oxfam Recommendations to Unilever1. Adjust policies and business model todeliver better quality jobs for workerse 'LERKI GSVTSVEXI TSPMGMIW 'S&4 ERH 7YTTPMIV 'SHI to build in a commitment to a Living Wage andminimize precarious work in Unilever’s operations andsupply chain.e %GORS[PIHKI XLEX XLI QMRMQYQ [EKI MW RSX EP[E]W an adequate proxy for the basic needs of workersand their families.e -HIRXMJ] ERH EHHVIWW PS[ [EKIW ERH TVIGEVMSYW [SVO in Unilever’s own operations.e 7SYVGI SRP] JVSQ WYTTPMIVW [MXL KSSH ,6 QEREKIQIRX industrial relations and grievance mechanisms.e )RWYVI ER] GIVXMJMGEXMSR WGLIQI [MXL [LMGL 9RMPIZIV Demand for higher-quality standards and pressureis associated effectively enables the realization ofon limited resources require smarter production andlabour rights.a more resilient and responsive supply chain from alle 7IPIGX WXVEXIKMG WYTTP] GLEMRW ERH [SVO [MXL companies. This in turn requires more skilled, efficientcompetitors and other stakeholders to improve jobmanagers and workers who are open to innovation inquality (for instance, the tea industry).the workplace. Unilever’s control over its manufacturing

L ABOUR RIGHTS IN UNILEVER’S SUPPLY CHAIN AN OXFAM STUDY 132. Better align business processes withpolicyof rights and needs to be strengthened by othermechanisms:e -RXVSHYGI XSSPW XS WYTTSVX XLI WXVEXIK] MRGPYHMRK–Commission additional off-site worker interviews(e.g. conducted by NGOs) for sites which are ‘highrisk’ and strategic;- Training for buyers to understand the impact oftheir decisions on working hours, low wages andprecarious work in the supply chain;- Measurable targets for buyers to place an increasingvalue of orders with suppliers who are proactive inraising labour standards;- Incentives for suppliers who are proactive in raisinglabour standards.e -QTPIQIRX EPSRI SV [MXL MRHYWXV] TIIVW I K ZME AIM-Progress), a training programme for businesspartners and key suppliers at country level,addressing specific local issues relating to labourstandards.–Specify a higher level of competence/training forthird-party auditors–Require auditors to assess wages against a crediblebasket of needs;–Supplement audits with other mechanisms such asanonymous worker surveys, assessment of HumanResource Management, records of grievances raisedand resolved, and frequency of negotiation of aCollective Bargaining Agreement.4. Work with others to promote scalable ways torealize rights and increase collective leveragee 'SQQYRMGEXI I\TIGXEXMSRW QSVI GPIEVP] XS WYTTPMIVW e ;LIVI 9RMPIZIV LEW MRJPYIRGI [MXLMR MXW S[R business and over suppliers, it should encourage anmaking clear where Unilever will take a continuousenvironment in which industrial relations can developimprovement approach, contingent on the supplierand there can be bargaining on wages and benefits.being transparent.e 1EOI FIXXIV YWI SJ XLI ORS[PIHKI SJ 9RMPIZIV WXEJJ MR e 9WI 9RMPIZIVxW MRJPYIRGI [MXL KSZIVRQIRXW XS advocate that legal minima are adequate for basiccountry about good practice in local conditions andneeds, and to promote public/private strategies forprovide guidance in the promotion of intern

identified was Unilever's management of labour rights. This report is the result of subsequent dialogue on this issue. Funded by Oxfam, the report has two objectives: Objective 1: To assess the labour standards in Unilever's operations and wider supply chain, taking into account international standards and local conditions.