Big Brands Reach ‘Historic’ Agreements to Support Higher Wages

Brands including Tommy Hilfiger-owner PVH, H&M Group and e-commerce giant Asos have made legally binding agreements to support better wages in Cambodia, a key sourcing hub.

The unprecedented commitments are expected to serve as a critical unlock to secure a collective bargaining agreement on pay between individual manufacturers and trade unions currently in the final stages of negotiation.

The bi-lateral agreements between brands and global union IndustriALL are designed to ensure companies’ sourcing practices don’t undercut efforts to raise salaries. Though the particulars vary from brand to brand, they commit signatories to ring fence labour costs so that the prices rise alongside wages; guarantee sourcing volumes from the country to assuage concerns businesses might cut and run if labour costs go up; and contribute to a training fund to develop skills among workers. Manufacturers that sign onto a wage agreement with unions stand to benefit from the terms.

The binding commitments level up a sourcing framework established under Act, a near-decade-old initiative covering 20 major apparel businesses that aimed to promote living wages in key manufacturing hubs — to little effect.

In Cambodia, the move from voluntary commitments to legally binding ones is expected to finally help get a collective bargaining agreement to raise wages over the line. Though the deal will only cover factories that choose to sign on, rather than the industry as a whole, an agreement is now “within an inch of being done,” Mick Bride, senior vice president for corporate responsibility at PVH told an audience during the Copenhagen Fashion Summit this week.

The brand commitments mark the first time brands have given binding assurances they won’t just pivot manufacturing locations if wage increases in one country lead to higher prices.

“It’s a real shift in responsibility in the supply chain,” said Christina Hajagos-Clausen director for the textile and garment industry at IndustriALL. “Here’s something that really says, ‘We have skin in the game.’”

The concept is similar to the Bangladesh Accord, a groundbreaking framework established following the fatal factory Rana Plaza collapse in 2013, that saw hundreds of brands sign legally binding commitments with IndustriALL to ensure health and safety standards in the country. But delivering similar results when it comes to purchasing practices is more complex and politically fraught, not least due to antitrust considerations.

Brands who support the initiative say they expect it to help them meet incoming due diligence regulations and improve stability in their supply chains.

“This makes sense, not just from a human rights perspective, but from a good business perspective,” said Bride.

Supporters of the agreements hope to prove out a new template that could be deployed elsewhere, but first more brands need to sign on. Not all Act signatories are on board. Zara-owner Inditex, for one, has not signed a binding agreement. The company said it would prefer to see an industry-wide wage agreement, though it will nonetheless support higher wages through its existing purchasing practices.

To date, such ambitions have failed to deliver results, in part because there is little trust that brands will live up to voluntary commitments when prices rise. The move towards binding agreements is an effort to shift the paradigm.

“We really believe that this is a new model for supply chain industrial relations,” said David Cichon, head of programmes at Act. “It has the potential to unlock significant improvements in both wages and working conditions in the sector and hopefully set a new standard.”