While issues concerning Adidas’ treatment of workers in its Cambodian supply chain have been simmering for years, they have recently reignited with workers’ rights activists including Sithyneth Ry, a Cambodian union leader representing 500 unpaid workers allegedly attending the company’s Annual General Meeting.

Ry planned to call out Adidas on its failure to address in the past, and in the foreseeable future, the problem of “wage theft and severance theft” in its supply chain at the meeting.

The controversy centres around the Hulu Garment factory in Cambodia which had been producing for Adidas until the Covid-19 pandemic disrupted operation in 2020.

During that time, hundreds of workers at the factory were sent home as work was temporarily suspended. However, when they returned in April, after the suspension period, the workers claimed they were misled into resigning without being paid the severance they were legally entitled to – a total of $1m.

“Workers were left jobless and without the severance in the middle of a pandemic,” explained Ry. “They had been getting by on low wages for years and had no buffers to fall back on. This sudden unemployment without compensation meant they could no longer support their family, had to take out loans or sell their possessions.”

“We reject the allegations,” says Adidas

A spokesperson for Adidas confirmed that a hearing by the Independent Arbitration Council and a follow-up review from the Fair Labor Association in 2020 of Adidas’ investigations were “unable to find any legal non-compliance.”

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The spokesperson told Just Style that the agreement between the manufacturer, Hulu Garment, and one of its licensees ended as contractually agreed in August 2020. During the last year of the relationship, the licensing partner accounted for 5% of the supplier’s total production.

“All orders were processed and paid in full,” said the spokesperson.

GlobalData retail analyst Neil Saunders said in the short-term he does not expect Adidas to act on resolving the issues Ry will bring forward at the meeting as he feels the brand is more “focused on keeping the lid on costs.”

He believes that, despite Adidas having a “whole basket of issues” including pay rates, the treatment of workers and wage theft, this particular situation is exacerbated by the fact that the German retailer has refused to sign the Pay Your Workers – Respect Labour Rights agreement.

This agreement ensures workers are not left penniless during supply chain disruptions in the wake of the climate crisis.

In 2023, the unions pleaded with Adidas CEO Bjørn Gulden to consider compensating workers for lost wages and severance after the company decided to allocate a significant portion of Yeezy profits to organisations combating discrimination and racism following antisemitic remarks made by Kanye West.

Mauro Meggiolaro, coordinator of Shareholders for Change, a European network of institutional investors dedicated to shareholder engagement accused Adidas of prioritising shareholders at all costs even if it has no money to “remunerate” them while the “much-needed money to pay fair wages and severances to workers is apparently always missing!”

Why are Cambodian activists targeting Adidas’ annual meeting?

Saunders explained that the attendance of Cambodian union leaders and activists will help them bring some of Adidas’s issues to the “fore” and it is a potential “embarrassment” to the sportswear giant.

Wage theft has not been the only allegation made against Adidas by its Cambodian garment workers. In 2014 the brand had to investigate an incident of over 200 fainting at a garment factory in the region.

In June 2022, the Clean Clothes Campaign revealed union leaders were arrested following a strike at an Adidas shoe factory allegedly due to poor working conditions.

More than 1,00 workers presented a list of 35 demands which included payment of delayed wages and overtime and tackling what was described as concerning access to food vendors to address hunger and exhaustion experienced by the workers during their shifts.

At the time an Adidas spokesperson said the brand was taking the claims made “very seriously” and was committed to upholding freedom of association in its supplier factories.

In October 2022, Adidas became the subject of a week of civil action and protests globally over the company’s “refusal” to take responsibility for workers’ rights in its supply chain.

Despite a Cambodian supplier for Adidas reinstating and paying workers a remediation amount of $47,076 after their alleged “unlawful” dismissal in 2020, workers were said to be concerned about the legitimacy of a newly formed factory-level labour rights committee.

An Adidas spokesperson did not comment on the issues related to the committee at the time but pointed out again that its investigations and those of the labour authority did not conclude that the dismissals were unlawful.

The spokesperson added: “Nevertheless, to address the claims being made by the union, Adidas asked for an independent arbitrator to help mediate this case and ultimately a negotiated settlement was achieved, with the reinstatement of the affected workers, with back pay.”

Saunders understands that shareholders are likely to support Adidas, but bringing attention to these issues may affect wider perceptions of Adidas.

This raises the question of whether Adidas’ image was affected by Ry’s alleged attendance and the potential unveiling of its Cambodian supply chain.

What are the best possible solutions that can come out of this?

In the long term, Saunders mentioned that Adidas will be forced to take action in resolving these issues with European legislation around supply chains coming around.

The union said major companies like Adidas are required to take appropriate preventive and remedial measures to reduce the risks of human rights violations in their supply chain under the German Supply Chain Due Diligence Act.

To prepare for expected supply chain disruptions and related worker rights violations, a structural approach is necessary. This they said can be provided by the binding Pay Your Workers – Respect Labour Rights agreement.

However, despite repeated calls from labour rights groups to do so, the union said Adidas has refused to sign the agreement.

Given consumers do not always act according to their conscience, Saunders is keen to add that he believes the impact on the brand’s sales will be “minimal.”

Evidence of this is the recent social controversy in which UK politicians Rishi Sunak and Keir Starmer were spotted sporting the brand’s Samba trainers causing an online uproar but did little to affect Adidas’ sales as the shoes helped drive profit in the company’s first quarter (Q1) results.

 “But this does not do much for the image of Adidas,” warned Saunders.