Purdue reviews allegations involving closed Honduran factories that produced material for two Nike contractors

December 2, 2009 Jeanne Norberg

WEST LAFAYETTE, Ind. - Purdue officials announced Wednesday (Dec. 2) that they are reviewing allegations that two factories, which supplied products to Nike contractors, did not pay severance to workers after closing factories in Honduras, in violation of Honduran law.

The university also will consider whether the contractors should take over responsibility for the severance pay.

"We take these licensing matters seriously and work to ascertain all the facts before making any determinations, in fairness to all parties," said James Almond, senior vice president for business services.

This Central American country has been in the throes of widespread political unrest, including a military coup in June and the just-completed presidential election. Industry there also has been seriously impacted by the global recession causing hardship for the Honduran workers.

"While all of these cases are difficult to unravel with certainty, the complaint involving Nike is more complex than most," Almond said. "What is clear is the Honduran factories have closed and only some of the severance has been paid by those companies."

A watchdog group, the Worker Rights Consortium, contends that because there are no other potential sources of funds besides the plants' customers, Nike should make every effort to get the contractors to pay the workers, Almond said. Both contractors contend they do not have a legal liability nor financial ability to pay. There also is a dispute as to whether and how much collegiate-licensed product the two factories produced.

"The WRC has recommended Nike use all of its influence to compel the contractors to pay money owed by the closed factories," Almond said. "The WRC acknowledges that while it is debatable whether university licensing codes of conduct obligate a licensee like Nike to pay workers through its own resources, they contend the licensee must do whatever it reasonably can to compel contractors to do so."

In this case, while Nike and the WRC agree the matter has been discussed with the contractors, no progress has been made in getting them to pay. The Purdue Organization for Labor Equality contends Purdue should terminate its licensing contract with Nike unless the remaining dollars are paid.

The business relationships also are complex. Nike's contractors, Liberty and HB Sports/New Holland, subcontracted work to the two factories that closed in January. Nike says its records indicate that Liberty's last Nike products were completed by the end of 2007 and HB Sports' were completed in December 2008. (Nike statement). Nike also states that these subcontractors did not manufacture collegiate-licensed apparel for Nike except for a one-time order in 2007, although Nike acknowledges that collegiate license tags were found in one of the plants. Nike says the tags had been "erroneously used on blank product," not on collegiate-licensed apparel. Nike also says that one of its independent licensees doing business with one of the subcontractors incorrectly listed itself as a collegiate supplier.

"From Nike's point of view, the company worked in good faith with its primary contractors, giving them significant advance notice that it would terminate its relationship with them," Almond said. "At the time of the closing, the factories were producing brands unrelated to Nike. Information provided by the Worker Rights Consortium contradicts some of Nike's findings, so we are seeking more information from Nike."

The Worker Rights Consortium and the Fair Labor Association - the two watchdog groups of which Purdue is a member - also are not in agreement. The WRC has reported that Nike is in violation of university labor standards. FLA, on the other hand, has taken no position. The Purdue Organization for Labor Equality has accused the FLA of a conflict of interest.

"Purdue appreciates the WRC and student Purdue Organization for Labor Equality for bringing these allegations to our attention," Almond said. "We expect to make our decision by the end of the year."

Purdue grants licenses to manufacturers of logo-bearing merchandise under a standard licensing agreement that requires licensees to pay the university royalty based on the wholesale price of the goods. Purdue's projected total revenue is just under $1 million this fiscal year. All revenue beyond administrative costs is divided between athletic scholarships and the general scholarship fund.

Contact: Jeanne Norberg, Purdue spokesperson, 765-494-2084; jnorberg@purdue.edu