A laborer works with fabric at clothing factory in China (Carlos Barria / Reuters)

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All Your Clothes Are Made With Exploited Labor

Patagonia tried to stop human trafficking in its supply chain, but, as recently as 2011, internal audits found continuing abuses. Is the problem too massive for companies to solve?

GILLIAN B. WHITE

JUN 3, 2015

In the more than 40 years since its founding as a clothing company, Patagonia has become a symbol of well-heeled outdoor adventure. But the apparel and sporting company, which sells everything from fleece jackets to smoked salmon, thinks of itself as more than just a retail company. Patagonia is an accredited and founding member of the Fair Labor Association; its website is as much an educational tool about environmental and social responsibility—filled with information on issues such as preservation of land in Chile, labeling GMO products, and responsible sourcing—as it is an online store. In a note launching the company’s food division, Patagonia Provisions, company founder Yvon Chouinard restated the brand’s central ethos: “We aim to make the best product, cause no unnecessary harm, and perhaps most important, inspire solutions to the environmental crisis.”

And yet, despite these aspirations, four years ago internal audits turned up multiple instances of human trafficking, forced labor, and exploitation in Patagonia’s supply chain, according to Cara Chacon, the company’s director of social and environmental responsibility, and Thuy Nguyen, the manager of supply chain social responsibility and special programs.

The audits examined not Patagonia’s first-tier suppliers—the factories that cut, sew, and assemble Patagonia’s products—but the mills that take raw materials and produce the fabrics and other parts that later become jackets, backpacks, and so on for the world’s adventuring class. About one-quarter of those mills are based in Taiwan, and the majority were found to have instances of  trafficking and exploitation.

The problems stemmed from how those mills found the people to work their factory lines. They didn’t hire workers themselves and instead turned to so-called labor brokers. These labor brokers charged migrants exorbitant, often illegally high fees in exchange for jobs. There were other red flags, too. Suppliers would open bank accounts into which the workers deposited their paychecks, so that fees for labor brokers could be automatically deducted. Workers’ movements were also restricted through the confiscation of passports. The recruitment and hiring process used by many labor brokers can create a cycle of fear and debt that leaves workers neither able to leave their jobs nor to make a decent living.

The use of labor brokers is common practice in Taiwan. The country has had a long-standing labor shortage and many companies rely on brokers, who solicit recruits and bring workers from places like Thailand, Vietnam, Indonesia, and the Philippines to work in the country’s numerous factories and mills. The practice itself is legal, as is the ability to charge a limited fee for it. But in their audits, Patagonia found that labor brokers were charging workers astronomical sums for the service—as much as $7,000, well over the legal limit. In addition, many workers are charged a monthly fee just to hold onto their jobs, a practice which is also considered legal. Often, between the illegally high initial fees and monthly fees, many employees find themselves in so much debt that they are unable to repay brokers with the meager $630-a-month salaries (the required minimum wage) that factories pay.

Though Patagonia would not share the official audit documentation with me, the company and Verité, an NGO that is working with companies and the U.S. State Department to tackle these issues, did provide me with the details of their findings and its plans to rectify the situation in the supply chain.

Though it may seem shocking that a company so publicly committed to fair labor practices could have such violations in its production chain, the news is less surprising when taking into account how the apparel industry operates: with unwieldy, complicated supply chains that reach around the globe. And, considering this, the findings of Patagonia’s audits take on a different cast, a sign not of corporate hypocrisy, but of the near impossibility of treating workers well at every step in the production process, even when a company is genuine in its desire to do so.

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Taiwan, where several of Patagonia’s second-tier mills are located, and where auditors found several instances of human trafficking, is a popular destination for workers—which is one of the main risk factors for labor violations, according to a report from Verité and the Department of State. The location, combined with a  supply chain composed of so many small links, makes the situation ripe for worker exploitation—especially in the shops of producers, such as the companies that provide fabric and component parts for apparel companies, who are removed from the direct control and oversight of an actual brand.

That may be why Patagonia’s COO Doug Freeman sounds somewhat unfazed when I ask if the findings surprised him. “We weren’t naïve going into [the audit],” he tells me.

Another possible reason: the company’s own history. Patagonia had some labor issues before, but last time it was with its first-tier suppliers—the factories that actually manufacture the products that end up on store shelves.

Since 2007, Patagonia has been ramping up their investigations, working with Verité to weed out wage issues, overtime abuses, and health and safety violations among these suppliers, with whom they have a direct relationship. The company has whittled down the number of first-tier suppliers it works with to 75, from around 108, according to the company’s COO. That has helped Patagonia exert more control over how these shops treat their workers. Patagonia spokespeople say the effort has been successful, which is why, in 2011, they turned their attention to a deeper level of the production chain—the mills and suppliers who work with the raw materials that make the textiles and parts that later make their way to the first-tier suppliers to become the fleeces, pants, and other apparel the company is known for.

At Patagonia the second level of production (where they found the most recent set of labor violations) contains about 175 mills and other facilities across the globe. That number is big enough that tracking each facet of production is a herculean task, meaning there are plenty of opportunities for labor violations to go unnoticed.

Most if not all global apparel manufacturers exploit workers abroad, not only at companies that produce cheap or low-quality goods. And evidence of forced labor doesn’t mean that a company is being willfully negligent. Patagonia’s admission stands out in that it comes from a brand considered a leader in the movement for ethical production, demonstrating the enormity, and the difficulty, of the task of protecting workers in massive, fractured supply chains.

“Labor trafficking is a huge problem globally. There really isn’t any industry that is immune to this problem,” says Agatha Tan, a senior adviser on labor trafficking at the Polaris Project.The status quo throughout the industry, both in internal audits and for many groups that monitor labor conditions for these brands, largely requires that companies only look at and remedy labor trafficking issues at their first-tier suppliers. In attempting to monitor and improve the treatment of its second-tier-factory workers, Patagonia is going far beyond that standard. Even the Fair Labor Association (FLA), which conducts spot audits of factories abroad and helps companies improve their corporate-responsibility programs, only requires that affiliated brands audit, monitor, and report on their first-tier suppliers—a level at which issues of human trafficking are easier to spot and respond to.

But that’s not where the bulk of problems exist. Labor violations are more rampant at the mills and parts manufacturers, which are often subcontracted to provide the materials for the first-tier factories.

That means that traditional factory audits by both brands and NGOs often miss instances of trafficking deeper down the supply chain. Auditors often don’t even have the proper language skills to communicate with the multi-national population of workers that make up the workforce, says Dan Viederman, CEO of Verité. And even if language weren’t an issue, employees are understandably hesitant to blow the whistle to auditors. “Workers are strongly incentivized to not draw attention to themselves, not raise red flags that might cause them to be punished, particularly by being sent home,” he says.

Trafficking persists due to the lack of accountability for entire supply chain. Claudia Coenjaerts, president of the FLA, acknowledges that the absence of investigations deeper into the mills and factories that make up the full network of suppliers isn’t great. “We need to develop an affirmed responsibility from companies to take action beyond tier one. We need to go to where the problem is,” she says. “Our purview doesn’t reach that far.”

It’s difficult to reconcile the lack of oversight for the smaller links of the supply chain with the knowledge that that’s where so many workers face exploitation. But acting on that knowledge will require immense resources and commitment: Supply chains are massive and far-flung; relationships among brands, factories, and employees are often informal; and corporate social-responsibility programs tend to be relatively unestablished and toothless. Experts agree that these factors together mean that many companies aren’t prepared or proactive when it comes to rooting out forced labor at all levels. According to Viederman, CEO of Verité, there are few, if any, brands that have taken up the mantle of eradicating trafficking, at any level, without first being prodded by potentially embarrassing—and illegal—findings.

For many brands and suppliers, it’s often a question of cost. Many brands are, after all, operating in foreign countries in order to save money. The process of direct hiring—forgoing the labor brokers—would likely take longer and cost more, especially since the staff doing the hiring would need to be able to speak multiple languages, according to the plant manager at Kingwhale, one of Patagonia’s Taiwanese supply factories that produces fabric. Increased expenses may be a deal-breaker for brands in such a competitive industry, even though razor-thin margins increase the likelihood of poor working conditions, says Scott Nova, executive director of Workers Rights Consortium, a group that monitors and investigates labor conditions in factories around the world. Many brands, he says, “produce in a manner that essentially guarantees abusive conditions.”

“All of these suppliers are desperately trying to find ways to cut costs. The only thing they have substantial control over is labor,” says Nova.

For its part, Patagonia is actively trying to improve conditions throughout its supply chain. Over the past four years, it’s beefed up its social responsibility office and enlisted Verité to help it with additional audits. It’s increased its investment in corporate social–responsibility efforts by about nine fold over the past five years, and has been working on initiatives internally as well as trying to broaden awareness and cooperation about problems across the industry. Patagonia has come up with a new set of employment standards for migrant workers aimed at combatting trafficking and educating suppliers and brokers on acceptable hiring, recruiting, and labor practices. The company is asking suppliers to reimburse workers for any fees above the legal limit that they were charged in order to get their jobs, and to pick up more of the financial burden of hiring and recruitment. Patagonia estimates that up to 5,000 workers will receive refunds. For all workers hired after June 1, 2015, it’s asking suppliers to do away with fees altogether. The change won’t be immediate, Freeman says, but Patagonia is committed to staying the course, even though it will likely mean trimming its list of second-tier suppliers.

To be certain, multiple motives are at work in Patagonia’s effort to tackle the issue of human trafficking. Saving face and combatting potential embarrassment, especially in light of the company’s branding as a leader in social responsibility is not to be discounted. Nor is the impact of the White House’s push in recent years to hold firms accountable for trafficking within their chains. It’s also worth mentioning that Patagonia is not a publicly traded company. Though the brand, of course, has sales to worry about, it doesn’t have shareholders to answer to, and doesn’t need to fear a suddenly plummeting stock price amid a flurry of bad press. That said, when I spoke with experts on the issue of forced labor, Patagonia’s name continually came up as one of the few brands that seeks to take the high road by choice rather than necessity.

Unfortunately, that illustrates the rarity of Patagonia’s level of concern, and the company’s efforts are unlikely to spur other brands, even those that share the same troubled mills, to action. There’s reason for this cynicism. In 2013, Patagonia invited a group of their peers to join them in a discussion about issues of forced labor in the supply chain—out of about 40 invitees, only seven companies sent a delegate, according to Nguyen.

I asked representatives at Patagonia about the possibility of streamlining their production, maybe even bringing some of these factory jobs back to the U.S. But they say that, in some instances, it’s not possible to find the same type of skilled labor domestically. Plus they feel that they have a responsibility to work with the suppliers, mills, and laborers in Taiwan to improve conditions while maintaining job opportunities.

Nova, of the Worker Rights Consortium, says that real change will require ending the practice of short-term contracts and radically altering the way brands compensate both suppliers and workers, rather than just tackling isolated problems factory by factory.

According to Tan, of the Polaris Project, it’s a long road but there already have been some promising advances. Some companies are extending their commitments to suppliers, allowing brands to ask more of them. This also gives suppliers a sense of security, assuring them that the higher costs of implementing more responsible, ethical, labor practices would be shared over the long term, and that compliance to a company’s enhanced code of conduct would allow them to reap financial rewards in the form of future orders.

Coenjaerts, of the FLA, is hopeful that changes can be made, even in the face of skeptics. “It’s been possible to drive companies to change from an environmental perspective, it must be possible to drive companies to change the way they do business from a labor and social compliance perspective.” But suppliers can’t do it alone—and neither can the brands that employ them. “Tier one is basically a factory floor, but tier two, tier three, tier four? You have small workplaces, homeworkers. There is a need for government action,” she says.

When I ask Freeman if he’s concerned about losing customers, he tells me he’s not. Patagonia is banking that their efforts at transparency will pay off when it comes to consumers’ responses to the disturbing findings, even if the initial response isn’t wholly positive. “We think people will be disappointed, we think people will likely ask why we didn’t do something sooner. We’re going to be really honest about those things,” he says. “We’re going to dive very deeply into this issue and we’re going to break trails for the rest of the industry.”