Apparel brands pressured to address severance 'wage theft' in factories: reports

A US designer and manufacturer is facing mounting pressure to address the controversy facing a now-shuttered factory in El Salvador, which has reportedly failed to pay its workers millions in wages, benefits, and terminal compensation.

Outerstuff is the primary buyer of El Salvador factory Style Avenue, which has manufactured apparel that was co-branded with Disney, the National Basketball Association, and the National Football League, until the plant's closure in May 2023.

A review from the Worker Rights Consortium (WRC) in December 2023 revealed that the factory failed to pay its 244 workers approximately $1.8 million in wages, benefits, and terminal compensation.

The same review also said Outerstuff had a responsibility under the university licensing standards to "ensure that the factory complied with Salvadoran law, including the payment to workers of their legally due compensation at the time their employment ended."

Outerstuff initially denied responsibility over the claim, even arguing that Style Avenue was no longer its supplier when it shuttered in May 2023.

In a statement to The Guardian, however, Outerstuff said it is working on a plan to pay nearly $1 million to the workers of the shuttered factory.

"At this time, despite our strong feeling that we have met all licence requirements, Outerstuff is nonetheless working on a structured plan that will provide nearly $1m in finances to the workers as soon as possible," the company told The Guardian in a statement.

It also maintained that it takes worker rights "very seriously," and is managing a structured and global compliance programme that requires a code of conduct for all its suppliers.

Wage theft in the global fashion industry

Outerstuff and Style Avenue's case is just one of the major severance "wage theft" issues in the global fashion industry, The Guardian reported, citing the WRC.

According to the consortium, over £4bn in wages have been withheld from millions of garment workers for western clothing brands in the past 15 years.

Scott Nova, executive director at the WRC, said denied severance is a the "hidden crime" in the industry, where many employers are left with "devastating consequences."

Nova said apparel brands have known about the issue for years but have done nothing to stop it.

"Their voluntary labour standards have allowed them to ignore the problem with impunity," Nova said as quoted by The Guardian.

Governments across the world have been carrying out measures to prevent wage theft across organisations. In Australia, the recently passed Closing Loopholes Bill is expected to criminalise intentional wage underpayments before 2025.