Cornell University is to end its eight-year contract with sporting goods giant Adidas over what it describes as a "gap" in the approach to worker rights following the non-payment of severance to workers at a former Indonesian supplier factory.

Cornell says the move, which will come into effect from 1 October, makes it the first US university in history to terminate an agreement with the German company over labour rights issues.

Its decision comes nearly a year and a half after PT Kizone shut down unexpectedly in April 2011, leaving 2,800 workers without severance pay. A court in Indonesia ruled workers were entitled to a total of US$3.4m in severance, and while other buyers have put forward $1.6m there is still $1.8m outstanding.

For its part, Adidas says it has fully honoured its contractual obligations at the plant, and "will not accept nor assume the financial duties of the former PT Kizone owner and pay severance to the workers, as some labour groups and business partners have asked us to do."

Instead, it says it has provided food aid for the workers, and helped some find new jobs with Adidas Group suppliers. It also says the sale of the former factory's assets is intended to settle debts and help fulfil severance obligations - although this has been delayed following a challenge by the main creditor bank.

"We believe that severance is a basic worker's right," Cornell president David Skorton wrote in the university's termination letter to Adidas.

Students at the University of Wisconsin-Madison have also been campaigning for an end to its $11m sponsorship agreement with Adidas.