Case story

  • Guatemala


Fair Labor Association - Complaint Regarding Estofel S.A.

Guatemala 2008

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Case status

Alleged labor violations, including failure to pay full severance benefits to workers consistent with the provisions of Guatemalan law. Preliminary information showed that about 1,000 workers were owed terminal compensation benefits as a result of the closure of two plants operated by Estofel, Plant 2 in October 2007 and Plant 1 in November 2007.


In May 2008, the Fair Labor Association (FLA) received Third Party Complaints from eight former workers at Estofel, S.A., a factory located in Guatemala City, Guatemala. The complainants raised allegations of labor violations, including failure to pay full severance benefits owed to workers at the plant, which had closed in November 2007. Shortly after the closure of Estofel’s factories, COVERCO (Commission for the Verification of Corporate Codes of Conduct), a Guatemalan labor rights organization, alerted the FLA to the situation; COVERCO also contacted FLA-affiliated company Phillips-Van Heusen (PVH), who had sourced directly from the factory until a few months before the closure. In turn, PVH pressed Estofel to make for full severance payments; they also pressed for the payment of full severance to Estofel workers with Singaporean company Ghim Li, a business partner of Estofel.

In March 2008, prior to the FLA's reciept of the third party complaint , University of Washington officials communicated to the FLA concerns about violations of workers’ rights and failure to pay severance at Estofel, based on information gathered by University of Washington students during field work conducted in Guatemala in February 2008. Also, at the end of April 2008, the Worker Rights Consortium (WRC)sent a memorandum to Estofel management regarding the lack of payment of full terminal compensation to workers as required by Guatemalan law. In the memorandum, the WRC indicated that its investigation had concluded that the factory had not paid the requisite payments under Guatemalan law and questioned the methodology used by the factory to calculate the severance.


The FLA and the WRC organized an ad-hoc multi-stakeholder group to manage the resolution of the case. The group consisted of representatives of the University of Washington, GFSI, Inc., Hanesbrands (licensor of the Champion brand to GFSI), Phillips-Van Heusen, Ghim Li (a Singaporean corporation that formerly owned Estofel), and the Collegiate Licensing Company (licensing agent for the University of Washington).

In June 2008, the FLA and the WRC jointly engaged COVERCO in order that they might obtain an independent estimate of the magnitude of benefits due to each of the workers affected by the closure. COVERCO’s primary task was to determine the amount of severance, consistent with Guatemalan law, due each of the workers dismissed by Estofel when the factory closed.

COVERCO started its field investigation on June 27, 2008, and a produced a final report on August 21, 2008. Based on information provided by the factory, COVERCO reported that Estofel had a total of 974 employees on October 15, 2007, around the time when the closure process started. COVERCO estimated that the 974 former Estofel workers were due total benefits in quetzales (Q) of Q 11,106,599 (about $1,375,175 at the current dollar-quetzal exchange rate3) while the factory had already paid benefits in the amount of Q 3,868,618 (about $478,997).

After a period of negotiation, Estofel ultimately agreed to a settlement that would exclude payment of indirect labor benefits. Estofel conditioned the payments on (1) workers who received the additional payments executing a desistimiento terminating legal claims against the factory; (2) those workers who had filed law suits dropping them; and (3) setting February 20, 2009 as the end of the period for making the payments. Thus, the labor benefits due to workers that Estofel agreed to pay amounted to Q 8,685,755 ($1,075,435); as Q 3,868,618 (about $498,997) had already been paid, the additional amount due to workers was Q 4,817,136 ($596,439).

The WRC and the FLA developed an outreach plan for distribution of funds to former Estofel workers. Given the time that had elapsed since the closure of the factory, there was recognition that the distribution of funds to Estofel workers would be challenging and laborious.

COVERCO was engaged to coordinate the worker outreach process. COVERCO worked closely with the ad hoc committee of Estofel workers, used its communication channels with workers, and placed a notice in two national newspapers urging Estofel employees to come forward to claim the additional payments. The distribution of payments began on December 4, 2008; additional payment sessions were held on December 5 and 12, 2008; January 19 and 23, 2009; and February 20 and 23, 2009. Drawing on a final report of the outreach process prepared by COVERCO shows that payments were distributed to 864 (approx 95%) of the 974 workers in the August 2008 report.


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Contributor(s): This article was modified by Admin (5), Nicolaclayre (3), and Kyle (1).