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A key part of ethical trade is doing the right thing when supplier businesses go wrong.

When a production site faces financial trouble, whether through lack of orders, changes in global sourcing patterns, issues with servicing debt, changes in tariff and duty structures, poor management or simply bad luck, how can the supply chain work together to protect workers?

Over the past few years, Impactt has come across a number of cases where factories under pressure have underpaid workers or indeed not paid workers at all, as the business struggles to survive.

Early warning signs…

…include a lack of responsiveness from management, steep decline in quality, and, of course, whistle-blowing from workers themselves.

In all cases managed by Impactt, whistleblowers played a key role in exposing factory troubles, having reported irregular payments, including 3-5 months of unpaid wages and abuse by factory management.

Failing to pay wages starts a vicious circle. Workers who are not properly paid are unsurprisingly anxious, looking around for ways to leave the factory, and are not focused on producing good quality product efficiently. Fair working conditions are essential to managing a successful business. Over and over again, labour studies in global supply chains around the world demonstrate that strong management systems support worker productivity and satisfaction, while happy workers reinforce operational efficiency.

Once it has become clear that a supplier business is in trouble…

…the first step is to investigate the factory’s financial situation, and the impacts on workers. In many cases, it is possible to work with factories to boost the order situation and improve business and production processes.

Where factory support options have been exhausted…

…closure may be the only option for factories in a particularly difficult financial position and with little capacity to make improvements or ‘work their way out of trouble’. In such cases, it is vital to ensure that workers receive the money and other benefits they are entitled to, and are supported to find new employment.

The MFA Forum’s useful document, Guidelines for Managing Responsible Transitions provides an overall framework for dealing with managed exits, looking at the national and regional level.

Impactt’s own Guidelines for Supporting Workers During Factory Closure provide a step-by-step enterprise-level guide to minimising negative impacts on workers, ensuring their human rights are respected and their expectations met.

Download Impactt’s step-by-step guidelines for responsible management of factory closure here.

These guidelines are based on our work with government, retailers, agents, factories and workers to get the best possible outcome for all stakeholders, in particular workers. In all the cases Impactt worked on, there has been no trade union present in the factory, and so workers have had no viable representation to bargain on their behalf.

Clearly, where effective, enterprise-level trade unions are present, stakeholders should work with the union to gain workers their rights. These guidelines are principally for use with non-unionised workplaces.

We invite you to review and share your experience and ideas on the guidelines. Contact us at info@impacttlimited.com.