How to Evaluate Labor Standards in Overseas Factories

Here at Ethix, we're huge proponents of local production whenever possible. For example, our cotton apparel is made using cotton grown in the USA, ginned in the USA, turned into textile in the USA, sewn into garments in the USA, and printed for you in the USA.

We also recognize that this isn't always possible or practical.

It's one thing if you can just switch contracts and start working with local producers. It's very much another if you're working with a product that isn't made in the USA at all. Sometimes, there is simply no alternative to overseas production.

If this applies to you, it means you confront one of the most difficult challenges in retail production: monitoring the working conditions and labor standards for your overseas facilities.

It needs to be done, but how do you do it? You have a few options, so let's talk about it and what you can do.

What to Look For in Labor Standards Overseas

First, let's talk a little about what you should be looking for when you evaluate the labor standards of a facility overseas. This applies to facilities you already work with, as well as those you're considering.

Understandably, not all overseas facilities are forthcoming with this information, and those that are might not always be entirely trustworthy. When we get to the methods you can use to evaluate overseas labor, we'll talk more about that.

What constitutes ethical labor? This is a harder question to answer than you might think. Even the #1 most ethical facility in a given country might still be far below the facilities in countries with higher standards and, critically, proactive enforcement.

What should you look for?

• Discrimination. Overseas factories should be free from discrimination in hiring, compensation, advancement, termination, and otherwise. This includes all kinds of discrimination, including on the basis of gender, race, religion, social class, sexual orientation, nationality, social group, ethnicity, or anything else.
• Abusive behavior. Facilities should treat their employees with dignity and respect, and no one working for the company should be subject to verbal, physical, or other forms of harassment or abuse.
• Forced labor. Facilities should be free from labor from prison, indentured servants, bonded labor, or other forms of forced or coerced labor.
• Child labor. Facilities should be free from the labor of children. The most commonly accepted definition is anyone under the age of 15 or anyone who has not reached the typical age of completion for compulsory education locally, whichever is higher.
• Rights to association and bargaining. While you aren't always likely to find facilities with unionized workforces, the companies should at least be free from the suppression of the right to associate and bargain collectively.
• Workplace safety. Facilities should be proactive and have high standards for health, safety, and environmental sustainability in their operations. This is a much larger category than it sounds on this list, but if we broke it down, we'd be here all day.
• Work hours. Facilities should have humane limits on the hours individual employees can work in a given period. Typically, this means no more than 48 hours of work in a given week, with at least one 24-hour consecutive period of rest each week. Exact standards can vary, of course.
• Fair compensation. Employees working for the facility must be given compensation sufficient to meet basic needs and provide some discretionary income. Again, specific standards can vary, and it can depend on the country and the mode of compensation.

These are the general categories and sorts of rights you should look for. Obviously, there are other aspects worth thinking about depending on the location and industry; human trafficking violations, unfair or unethical treatment, environmental damage, and more can all crop up to varying degrees.

So, how do you actually evaluate and judge a facility to see where they stand on these human rights and labor standards?

Construct a Risk Assessment

Before getting into your options for validation and due diligence, we should mention that it's beneficial to conduct a risk assessment.

A risk assessment is an analysis that figures out what areas of the above list of labor standards and rights are most likely to be violated. While you still want to check everything you can, some are less likely to be problems than others. A factory in Germany is more likely to pay good wages but might violate work hour or break laws; a factory in India might have more workers than they know what to do with but horribly unsafe working conditions.

Risk assessments can also go beyond labor standards. For example, they can encompass business risks to you, like the risk of substandard quality products, the reputational risk of using overseas manufacturing if a better alternative exists, or even the risk of disrupted supply lines due to geopolitical unrest and uncertainty.

Option 1: Ask the Facility

One option is to just ask the factory about their working conditions. This actually isn't an uncommon request for these factories, and they often have informational packets and potentially even video tours that can showcase their standards and their rules.

Often, if the factory has an accreditation or is a member of a labor organization, the information can be independently verified, as well.

Even if the factory isn't used to this kind of request, there's still a chance that they'll meet your standards. A lot depends on the country the factory is located in and the laws that surround both the location and the industry. Working with an overseas company in Australia or Europe is a lot different from working with one in India or China, after all.

The biggest downsides here are:

• Your limited access to information. You can ask, and the factory can choose not to answer, or they could even lie about the answer. Without having some way of verifying the information you're given, you just have to take them at their word.
• Your limited ability to exert pressure. The worst you can do to the factory if they don't meet your standards is not award them the contract. Unfortunately, many of these factories are not lacking in contracts from companies with less of an ethical stance than yours, which means they tend to be more willing to shrug and let you go if you disagree. Only the largest brands are able to exert real pressure.

This is why as many companies as possible, large and small, need to be putting these labor standards in their contracts. If the factory only has the alternatives of complying or being starved of work, they'll comply, eventually.

Option 2: Send an Inspector

The best way to evaluate the labor standards of an overseas factory is to see it firsthand. While your business might not be able to send someone directly, there are still third-party consulting firms that will do that for you for a fee.

Whether you send your own agent or you hire someone, there's a lot to look for along the way.

• Validate the corporate ownership and structure of the factory.
• Review financial statements for the factory.
• Confirm legal frameworks and compliance standards.
• Check for litigation history or violation records.
• Check for certifications and other validation.
• Cross-reference information with others who are working with the same factory.
• Check the age and history of the company to validate its presence.
• Check the factory's position in the market and other clients if possible.

When it comes down to it, there's no real substitute for boots on the ground when it comes to these kinds of inspections. Documentation can be fraudulent, photos and videos can be misleading, and interviews can be staged. Only a visit in person, preferably by surprise, can see the real state of a factory overseas.

Is it better to send someone who is part of your company or hire a third party? Generally speaking, a third party works out more often. A third party is likely to be specialized in these kinds of inspections, and there's even the chance that they've already inspected the factory you're thinking of working with and can simply provide you with records and shortcut the entire process.

The downside, of course, is the added expense. But what could be more expensive than ending up working with a factory that was violating national or international labor laws? There are a lot of possible pitfalls, some of which are extremely expensive or could even jeopardize your entire business. A consulting fee doesn't seem that bad in context.

Option 3: Let Someone Else Do the Legwork

As the last – and frankly, easiest – option, why not let someone else do the hard part? You have a few options here.

The first is to look for foreign companies that have a foothold on American soil – literally. Companies that operate in the USA have to follow US laws and standards. Foothold America outlines all of this and helps foreign companies establish their facilities to operate within the laws.

The downside to this option is that those companies might operate within the law in their US-based facilities but not in their overseas facilities. But they may be more transparent about it, and you might have an easier time vetting them, so it can be a good place to start.

The second option is the membership and affiliate lists for the Fair Labor Association. FLA maintains a comprehensive list of labor standards, which can be found on their website. They also have two lists: full members and affiliates. Members meet rigorous standards and pass evaluations and audits to achieve their membership status. Affiliates are in the process or have committed to the standards but have not passed the full authorization yet.

This one has the downside of having relatively few companies joining the program, and most of the ones that are full members (158 out of 206 as of this writing) are based in the USA, so it's not really getting you a list of overseas factories to browse. The affiliate list is better, though.

There's also the International Labor Organization, which is another third-party association dedicated to setting standards and enforcing them around the world. Like the FLA, companies certified with the ILO adhere to high standards and are much more ethical to work with, though there will always be issues working overseas if you don't strictly need to.

The US Government also has compliance systems, including the Labor-Management Reporting and Disclosure Act, and performs audits to ensure compliance. The Department of Labor can be a good resource when you're looking to validate an overseas company.

Working With Overseas Factories

With all of this in mind, is it still worth it to work with overseas factories? Or is the risk of slipping standards, changing times, misinformation, and communications disconnects too much?

As we already mentioned, we generally recommend using domestic suppliers whenever possible. Unfortunately, it often isn't possible, so you have to do the best you can.

Our advice is to work clauses into your contracts that require ethical treatment and validate it in any way you can. That way, if anything comes to light down the road, the clause is already there to cancel the contract and switch your supplier.

You can also work with us. We do everything we can to make sure the manufacturers of the products we sell are as ethical, sustainable, and labor-friendly as possible. Whenever you browse a product in our store, you can be sure we've done everything we can to find the best supplier to meet our ethical demands. Don't worry; we thrive on transparency, and we keep receipts.

Frankly, with the ongoing uncertainty surrounding tariffs and international imports, there's no better time to source domestic products whenever possible. So, whether you're basing your business on these products or you just want to design and print some swag for your next corporate event, reach out; we'd love to hear from you. Additionally, if you have any questions, be sure to let us know! We'd be more than happy to answer them as best we can.