Factory & Labor Compliance

We expect workers throughout our supply chain to experience safe, healthy and appropriate work environments as defined by our Code of Conduct. The code was first introduced in 1993 and is built on International Labor Organization standards and industry best practice.

Fair labor and factory compliance is complicated by a few factors, most significantly our sphere of control and influence. As a retailer we sell REI-brand gear and apparel alongside products representing a wide range of brands. Since we have limited visibility into the supply chain of other brands, we have worked to foster fair labor efforts industry wide. In 2006 we partnered with the Outdoor Industry Association (OIA) to develop and publish a fair labor toolkit to assist companies with sourcing while raising awareness of labor compliance issues throughout our industry. Since that time we continue to bring awareness to the issues and work with peers inside and outside of our industry.

REI Brand Factory Compliance

Currently, REI-brand products represent approximately 20 percent of REI sales. Because REI does not own any factories, we work with domestic and international partners who manufacture REI-brand gear and apparel. Operating globally means we must navigate varying laws, regulations and enforcement philosophies from country to country and even region to region within countries. From experience, we know we cannot depend solely on local labor laws and enforcement to ensure that our standards are met.

Our contract factories are considered to be partners in support of the REI brand and we strive to create and maintain supportive and open relationships with them. Many of these relationships are long-term with some partners having worked with REI for more than 20 years. Good relationships are our best tool for aligning factory performance and shared values.

Process for Sourcing Standards Compliance

Before we begin working with a new factory or vendor, it is our policy that they must be prequalified. To achieve prequalification a vendor must provide a self evaluation to demonstrate compliance with REI's policy for labor and workplace practices.

A factory can provide evidence of compliance by demonstrating certification with one of the global social accountability standards such as the Worldwide Responsible Apparel Production (WRAP) initiative, SA8000, or Fair Labor Association (FLA,) or by providing a recent audit from an independent audit firm. Without such evidence, we may schedule a full audit based on a matrix of issues we analyze.

Once established as a supplier, factories must maintain a program of compliance with our code of conduct and are subject to third-party audit on a three-year rotating cycle. Whenever audit reports show violations we require implementation of a corrective action plan and a re-audit.

In 2008, contract factories representing approximately 95 percent of the dollar value of REI brand products had undergone a third-party audit under the co-op's compliance program.

Audit Results

It is not uncommon for auditors to identity issues and opportunities in the course of their factory visits, interviews and audits. This is true whether the factory is in Asia, Europe or North America. The typical process is for these deficiencies to be identified, classified and reported. REI personnel then work with the factory to address the issues in a corrective action process. In the context of a constructive relationship, the corrective action process helps the factory improve performance and address issues large and small. A follow-up audit is done to demonstrate corrections or, on the contrary, identify systemic failure to meet the requirements.

In general we believe that working with engaged factories to correct issues is both better for employees and our business than abandoning the relationship; however, our ultimate recourse is to move our business to more responsive factories. As with any relationship, this process requires time, investment, mutual respect and trust.

For three years REI has reported the compiled results of our annual audits. The following charts show the breakdown, type and detail of all audit results for 2008, which accounts for 20 factories.

Example Violations Found Per Code Provision

In order to better explain the types of infractions represented in these charts, following are examples of the actual violations included in the category and reported by our auditors. Every violation registered in an audit report is the subject of some type of corrective action process.

Compliance with Applicable Laws

Major

• Willful violation of the law

Minor

• Not implementing up-to-date laws
• Contracts not provided or out-of-date

Health and Safety

Major

• None found

Minor

• Insufficient emergency procedures
• Insufficient fire drills
• Blocked aisles
• Missing or inadequate first-aid
• Evacuation routes not marked or well-lit
• Injury logs not maintained
• Sewing needle and other guards not in use
• Personal Protective Equipment not issued or used (examples might include eye or ear protection)

Wages and Benefits

Major

• Non-payment of applicable wages
• Not providing legally required benefits
• Manipulation of payroll records

Minor

• No system to track hours worked
• Work done off-the-clock
• Missing time records
• Incorrect overtime computations
• Minor record keeping violations
• No pay slips for workers
• Payment of wages delayed

Hours of Work

Major

• Required and routine seven day workweek
• Denial of legally required holiday and vacation leave
• Not compensating employees at the premium wage rate for all overtime hours
• Not providing one day off in seven on a regular basis

Minor

• Abuse of peak hours' provisions

Environmental Commitment

Major

• None found

Minor

• Inappropriate storing/ handling of chemicals
• Missing material safety data sheets
• Lack of secondary storage areas

Child Labor

Major

• None found (this would include the discovery of underage persons working in the factory)

Minor

• >16- to 18-year-olds denied access to health care check ups as stated by local law
• Insufficient hiring procedures to ensure compliance
• Incomplete or missing age documentation records verifying the age of all employees

Disciplinary Practices

Major

• None found

Minor

• Fines as a disciplinary practice
• Non-existence of progressive disciplinary system

Subcontracting

Major

• None found

Minor

• Use of subcontractor not approved by the company

Compliance & Record Keeping

Major

• Willfully inaccurate record keeping

Minor

• Inaccurate record keeping
• Not posting legally required notices
• Incomplete/missing personnel policies

Prison or Forced Labor

Major

• None found (this would include imprisoned persons working in the factory)

Minor

• Monetary deposits required on starting job

Discrimination

Major

• None found

Minor

• Failure to provide gender separated bathrooms. (An example would be a garment factory not providing a separate men's room on the production floor where the vast majority of workers are women)

Challenges

REI has been engaged in the auditing process for more than a decade as it has provided the best tool to understand if suppliers consistently provide appropriate work environments. Through our active involvement in auditing we realize the limitations of the current model and see the audit and compliance process reaching a plateau in effectiveness. While some areas have improved (health and safety practices), others continue to be a challenge (wage and hour violations).

NGOs and other experts are reporting that factories in some areas are responding to auditing with mechanisms to hide their actual behavior rather than implement changes. In response, leading companies are considering augmenting the audit process by engaging suppliers in better realizing the benefits of cultivating positive work environments.

While we believe this concept holds great potential, it represents a significant shift in approach that will take time and collaboration throughout the supply chain to achieve.

Looking Ahead

We will continue our audit process as our best means for understanding on-the-ground conditions in our contract factories. At the same time we will be considering mechanisms such as the Fair Factory Clearinghouse as a way to better share information while helping factories better respond to the large number of audit requests (a condition some have called "audit fatigue"). We will be working with selected factories to pilot next steps such as an approach referred to "Vendor owned Compliance." These ideas are unproven but in theory offer a way to engage factories in achieving better outcomes for both their business and their employees.