Voluntary Codes of Conduct

How Voluntary Codes of Conduct can Improve the Situation of Informal Workers

The Example of New Look, an Ethical Trading Initiative Member Company, Working with Factories to Improve Job Quality for Workers1

Background
The Ethical Trading Initiative (ETI) was formed in 1998 in a context of growing consumer concern for working conditions in global supply chains. The ETI is a tri-partite membership organization made up of companies, NGO’s and Trade Unions. WIEGO has been a member of the ETI NGO Caucus since 2006 and its representative, Elaine Jones, is an NGO representative on its Board of Directors. Member companies are required to adopt the ETI Base Code, which is derived from core International Labour Standards, and to commit to ensuring compliance with the Base Code throughout their supply chains.

In 2006, the ETI commissioned an Impact Assessment with the University of Sussex’s Institute of Development Studies. The report found that while there had been improvements in some areas of the Base Code like health and safety, other areas such as freedom of association and collective bargaining and discrimination remained intractable. It also found that companies were tending to focus principally on the first tier of the supply chain rather than looking further down the chain where there was unauthorized sub-contracting and informal workers such as homeworkers. As a result, the ETI urged its members to go beyond the first tier and to ensure that the code was applied to all workers, including the most vulnerable workers.

However, it has also come to light that even within the first tier of global supply chains in manufacturing units that have the appearance of formal workplaces, informal workers often exist in large numbers. Formal workplaces will often have significant numbers of workers in an irregular situation in breach of the clause which governs “regular employment.” This may be through using internal “contractors” to avoid an employment relationship, or through hiring large numbers of unregistered workers who are deprived of their statutory benefits.

This case study shows how one ETI company member, the High Street retailer New Look, found a situation of irregular employment in one of its key factories in the Delhi region of India and took measures to change the situation.

From Informal to Formal – An Example from Delhi
New Look has been working with one of its key factories in the Delhi region on a factory improvement project. In November 2008, workers identified the following key problems:

  • Casual and insecure jobs – many workers were either hired on a daily basis or kept on short term contracts.
  • Unclear employment relationship – many workers were unclear about who was their employer: the factory or a labour agent.
  • Uncertain benefits – workers paid social security contributions, but were not sure whether or not they would get the social security benefit at the end, fearing they would lose the money at the end of their contract. Some had been unable to access their benefits. This was their most serious concern.

Management identified the following linked problems:

  • high worker turnover – more than 92 per cent of finishing workers left over a three month period
  • very high absenteeism – around 25 per cent of workers were absent every day

The team agreed that high levels of absenteeism and high worker turnover were contributory factors to low productivity, late deliveries and quality issues. The factory and New Look identified the following objectives:

  • increased benefits for everyone – developing true business benefit and improving the situation for workers
  • greater efficiency and higher productivity
  • development of a better relationship between management and workers
  • a better atmosphere for management and workers

New Look worked with the factory on five fronts:

  • improving the contractual status of workers
  • improving the ability of workers to access their social security benefits
  • stabilizing the workforce by implementing an attendance bonus scheme
  • improving communication between workers and management
  • improving productivity and efficiency

The factory decided to move away from using labour contractors, and now all finishing workers are directly employed by the factory. Workers are staying with the factory for longer. The graphs below show a slow but steady increase in the number of workers staying with the factory for more than a year, and a decline in worker turnover from 40 per cent in October 2009 to 12 per cent by March 2010.

Length of service

Worker turnover

The factory now takes responsibility for ensuring that workers receive the social security benefits to which they are entitled. A manager is now responsible for liaison with the local social security office, and he makes sure that all paperwork is in order and resolves problems with payment. There are now no outstanding issues and everyone can access their money.

The factory has implemented a leave policy enabling workers to take leave and continue to receive their attendance bonus. On average, 122 workers received a bonus every month since the scheme was first launched. This has had a very positive effect on absenteeism. Absenteeism is still high at around 12 per cent, but this is a big improvement on previous levels of 25+ per cent.

Average of Absenteeism

Communication between senior management and the work floor has vastly improved. The HR department is running workers’ clinics where workers can raise their concerns. Management is now much more able to listen to workers’ views and act on them – this change in mindset is perhaps the most striking outcome of this project.


 

1This mini case study is based on New Look’s experience in one of its sourcing sites in Delhi, India. WIEGO has been collaborating with New Look within the framework of the ETI Purchasing Practices programme, though WIEGO was not directly involved in the Delhi factory experience.