Enforceable Wage Agreement

What is an Enforceable Wage Agreement?

An Enforceable Wage Agreement (EWA) is a global, legally-binding agreement that will be negotiated and signed by trade union organizations and international brands and retailers in the garment and footwear industry. The purpose of an Enforceable Wage Agreement is to ensure that workers making products for those companies receive a living wage that is sufficient to meet the basic needs of the workers and their dependents. The Enforceable Wage Agreement will build on the experiences of the Accord on Fire and Building Safety in Bangladesh and the Fair Food Program in the United States¹.

¹The Fair Food Program is a legally binding agreement between the Coalition of Immokalee Workers and over ten major tomato buyers in the US agricultural sector, ensuring higher wages and worker rights trainings for workers. https://www.fairfoodprogram.org/

What about suppliers, do they also sign the EWA?

The EWA will be signed by brands and retailers, but it will have a clause obligating them to require, in their purchasing contract, that each supplier has to negotiate a separate agreement with the local union where one is active in the factory. See also ‘obligations of suppliers’.

Union Signatories and the Role of NGOs

How will union representatives that negotiate and sign the Agreement be selected, and what will be the role of international NGOs?

National union federations, as well as factory-level unions not affiliated with a federation will select representatives to be part of the negotiation process through a national bargaining group. This group nominates minimum 2 and maximum 3 trade union representatives to the Global Bargaining Council, which has to approve the agreement before it is signed. The direct negotiating and signing body is the Global Bargaining Committee, consisting of a group of nominated trade unions and NGOs from the Council. A list of all the national union federations and factory unions that select representatives will be annexed to the agreement.  These unions will also negotiate the separate agreements with the suppliers. If the supplier refuses, they can trigger the obligations under the EWA, which they are part of through the annex.

International NGOs will act a Witness Signatories to the Agreement. Both unions and labour rights NGOs will also play an active role in worker training and in monitoring compliance and filing complaints when employers fail to meet their obligations. Local labour rights NGOs can become involved only upon invitation of the local unions or if there are no formal unions in that country’s garment sector. 

Is the campaign usurping the right of workers to negotiate for a living wage?

No. The Agreement does not set the wage level; workers are free to negotiate higher wages. The Agreement will also have a provision to protect the right to organize and bargain collectively, and to protect union leaders and workers from retaliation when exercising these rights. As noted above, local unions and federations will also have a role in selecting representatives to negotiate the global EWA. 


Living Wage Standard

Has a specific Living Wage Benchmark been chosen?

No. In the last decade, several living wage benchmarks have been developed by scholars and researchers; unions in many countries have set concrete living wage demands, and a regional living wage formulation, the Asia Floor Wage, was developed by trade unions in Asia.  The living wage figures arrived at by these different initiatives are based on different criteria, ranging from poverty level caloric requirement to substantive caloric requirement of a family, and with variations in the costing of unpaid domestic care work required with women entering the workforce. Among these different initiatives, living wage estimates that are credible come to the same conclusion: the gap between a living wage and the minimum wage is on average a factor of 3. Instead of choosing any single benchmark, the campaign will focus on closing the gap, requiring signatory companies to contribute a 25% premium above the price they currently pay their suppliers, which will go directly workers. 

How does this relate to struggles to increase the statutory minimum wage?

The agreement is directly linked to local struggle for higher minimum wages. Currently brands thrive in the highly competitive international market in which different production countries battle for the lowest minimum wage to attract foreign investment. However, if local struggles lead to higher minimum wages the brands can bargain a lower premium as per the agreement.

Living Wage Contribution

How was the 25% Contribution calculated?

This Contribution was calculated based on two figures: 1) The average gap between minimum wage and living wage in production countries. Data suggests that this gap is between 3x-5x in most garment producing countries. We have chosen to use the low end of this spectrum for our calculations, and assume that minimum wage must be multiplied by three to reach a living wage level; and 2) The average percentage of the cost of a garment that goes towards labor. Research shows that labor represents approximately 5-12% of the cost of a garment. We have chosen to use the high end of this range, 12%, as the basis for our calculations. 

Multiplying 3 x 12 yields a figure of 36%, which is the total amount of the freight-on-board (“FOB”) price that should go towards labor. Assuming that 12% of the FOB price is already going towards labor, the FOB price would need to increase by an additional 24% in order to reach a total labor cost percentage of 36% The 24% figure was rounded up to 25% for campaigning purposes. 

How will the Living Wage Contribution be distributed to workers?

The Contribution will be distributed to workers as part of the regular payroll and the amount will appear as a separate line item on workers’ paystubs. Workers employed on a part-time basis will receive a prorated share based on the portion of hours worked. The Contribution will be on top of wages, benefits, and other compensation that workers already receive. Suppliers will be strictly prohibited from reducing wages, benefits and other compensation, and will not be permitted to reclassify workers in order to reduce their compensation and benefits.  However, because most factories are producing for multiple customers at once, and because not all brands will sign the agreement at the same time, the LW contribution does not mean that workers in participating factories will receive a living wage immediately.

When will workers receive a Living Wage?

Workers in participating factories won’t receive a living wage immediately after the first brand signs the agreement. The wage level of workers is still dependent on the percentage of brands sourcing from the factory signing the EWA. If all brands sourcing from a factory sign this agreement then the living wage contribution from each brand will add up to living wage.



What are the obligations of signatory brands and retailers?

A signatory brands or retailer will be required to:

  • Pay to every factory from which it sources garments a premium equal to 25% of the FOB price paid by the brand for those garments. This premium, known as the Living Wage Contribution (“the Contribution”) will be in addition to and on top of the regular price paid by the brand to the factory for the order.  The pass-through to workers will be monitored by signatories, who can set up an independent third-party organization established specifically for this purpose. Brands will be required to pay a fee to this organization, which will be used by the organization to carry out its activities as required by the agreement;
  • Ensure that it does not reduce the overall average FOB price for the garment orders it places from factories in any given country;
  • Require each of its supplier factories to comply with the supplier obligations outlined above, including distribution of the Living Wage Contribution to all workers, and respect for freedom of association.
What are the obligations of suppliers?

Under this agreement, suppliers will be required to:

  • Distribute the Living Wage Contribution to the workforce as part of the payroll immediately following payment of the Contribution by the brand to the supplier. Where there is a union active in the factory, the employer will negotiate a separate agreement with the union on how the Contribution will be distributed among the workers. Where there is no union active in the factory, the Contribution will be distributed evenly to all eligible workers. Eligible workers include production floor workers, quality control, packing, maintenance, line leaders, and supervisors who were employed by the factory during the month that the order was completed. Managers will not be eligible to receive the premium. Workers employed on a part-time basis will receive a prorated amount based on the fraction of full-time hours worked.

Monitoring and Enforcement

  • The agreement will be monitored by signatories, who can set up an independent third-party organization established specifically for this purpose. Workers will have access to a 24-hour complaint mechanism to report violations. Suppliers will be obligated to cooperate fully with the Independent third party Organization’s investigation of complaints as well as the findings and decisions regarding the complaint investigation, and implement the corresponding corrective action plan and other remedies ordered by the Monitor.
  • Refrain from reducing the wages, benefits or other compensation paid to workers.
  • Ensure that workers are trained about their rights under the program, including payment of the Contribution, the right to freedom of association, and the right to file a complaint  if they believe that their rights under the program have been violated.  These trainings will be carried out by unions and/or NGOs and workers will be compensated by the supplier for time spent in the training. Where there is a union in the factory, the organization or organizations carrying out the training will be mutually agreed upon by the employer and the union.
  • Refrain from retaliating in any way against any worker that uses or attempts to use the complaint mechanism or that provides testimony. 
How are the obligations of suppliers enforced?

The obligations of suppliers are enforced through a market-based enforcement mechanism. If  a supplier has failed to cooperate with an investigation, has not implemented the necessary corrective actions stemming from an investigation, or has otherwise failed to meet its obligations under the program, signatory brands will be required to terminate all business relationships with the supplier and any other facility owned and operated by the same owners. Signatory brands will also be required to refrain from placing any new orders at the factory or any other facility owned and operated by the same owners unless or until it has been determined that the factory has implemented the necessary corrective action. 

How are the obligations of signatory brands and retailers enforced?

The obligations of signatory brands and retailers are enforced through legally binding arbitration. If any signatory to the agreement believes that a brand or retailer has violated the terms of the agreement, that signatory may move for arbitration  The decision of the arbitrator, including any award issued, is binding and will be enforceable in a court of law on the signatory brands and suppliers. 

How is implementation of the agreement monitored?

Implementation of the agreement is monitored by an independent, third-party organization created specifically by the signatories for the purpose of monitoring compliance with the agreement. The Organization will be responsible for verifying payment of the Living Wage Contribution by the signatory brand(s) to the factories, and by the factories to workers; operating the complaint mechanism; investigating complaints of violations; issuing findings and requiring corrective action for violations; administering the program; and reporting publicly on implementation.  The Organization will have the capacity to conduct investigations and respond to complaints in any country in which a supplier of the signatory brand(s) is located. 

How can workers file a complaint if their rights under the program are violated?

The Organization will operate a 24-hour complaint mechanism through which workers may file complaints and/or reports of violations of the agreement. The Monitor will conduct an investigation into all credible complaints. The training that workers receive about the program will include information about how to access the complaint mechanism.  Retaliation against any worker who accesses the complaint mechanism or participates in an investigation will be strictly prohibited. 

How will workers know about the program?

Workers will be trained about the program by the unions and NGOs that are signatories to the agreement. Trainings will provide information about the Contribution and how it will be passed through to workers, the program’s freedom of association requirement, the role of signatory unions and NGOs, and how to access the complaint mechanism.  Trainings will take place on factory premises during normal working hours and the supplier will compensate workers for this time. 

How will the program be funded?

Every signatory brand and retailer will be required to pay an annual fee , which will be used for the establishment and operation of the program. This will include, but is not limited to, complaint investigations, operating the complaint mechanism, supporting the unions and NGOs in providing training to workers about the program, publishing reports about the program’s activities, and other operational expenses. 

What happens if the legal minimum wage in a particular country increases, and the gap between minimum wage and living wage decreases?

Any increase in a national minimum wage for the sector will act as an incentive to the brands and retailers to continue or increase sourcing from the country, since they will be able to pay a lower premium to achieve a living wage. The standard contribution that a brand is required to pay is 25% of the FOB price currently paid. Deviations from this 25% are possible if the gap between LW and statutory MW is smaller than 200% or where a brand can prove that it pays FOB prices high enough to cover labor cost at living wage level and the brand can actually demonstrate that this leads to higher wages of workers. Only where local labor signatories agree to deviation from the standard 25% can a lower percentage be paid.

Will this agreement increase the price of clothing?

Signatory brands will be required to pay a higher price to their suppliers, but they do not have to pass this cost along to consumers. Brands could decide to absorb this increase, which will be relatively small, instead of raising prices. If brands do decide to raise prices, these increases will usually be minimal, because labour is such a small part of the retail cost of a garment.

It is undeniable that this agreement will have long term redistribution effects, and, in combination with other factors, a restructuring impact on the garment industry, which is harder to predict. Our network will be working to make this a positive change for production and consumer countries, both socially, environmentally and economically, reflecting our mission to fairly redistribute wealth and power across the supply chain. It is clear that a deep change in the global fashion industry business model is needed as soon as possible. Now more than ever, cheap clothes and excessive consumerism go hand in hand with cheap labour and worker deprivation.