Goodyear Faces Labour Practices Lawsuit in Malaysia
According to a recent Reuters report, Goodyear’s Malaysia tyre plant owes workers approximately US$1.21mn in unpaid wages. Six current and former foreign officials at Malaysia’s labour department came forward to protest unlawful overtime and threats made to foreign workers at the Kuala Lumpur factory. ‘The company had different rules for different sets of workers’, said Sharan Kumar Rai, one of the Goodyear employees who filed the lawsuit.
In Malaysia, the government caps overtime at 104 hours per month. In the Goodyear lawsuit, about 150 worker payslips showed that its workers from Nepal, Myanmar, and India worked up to 229 hours per month—more than double the legal amount. To comply with the recent court ruling, Goodyear must pay back the withheld wages and adhere to local union agreements.
Goodyear’s ESG Woes
In 2020, the Malaysian labour department fined Goodyear for similar human rights’ abuses: overworking and underpaying migrant employees. The company operates 46 manufacturing hubs across 21 countries, employing approximately 61,000 full- and part-time workers, and remains one of the world’s largest tyre manufacturers. Yet, it doesn’t seem to realise the danger of unfair labour practices.
The recent allegations started when 185 workers filed three noncompliance labour complaints in Malaysia’s industrial court—two in 2019 and once in 2020. In an extreme case, one Goodyear worker said that the company illegally withheld his passport for eight years. The workers’ lawyer, Chandra Segaran Rajandraan, decried such practices as discrimination: ‘[The migrant employees] are put in a situation where they are being denied their full rights’.
Currently, Goodyear is fighting the verdicts at the high court; government lawyers are expected to hand down the appeal decision on July 26th. Although local unions protect Malaysian workers, Goodyear argued that foreign workers aren't privy to these collective agreements. But as investors, consumers, and regulators pay increased attention to ESG metrics, the company could struggle to maintain its hardline position.
Human Rights Visibility Takes on Utmost Importance
As its legal proceedings unfold, Goodyear has re-emphasised its commitment to ESG-compliant labour practices. ‘We take seriously any allegations of improper behaviour relating to our associates, operations, and supply chain’, a representative said in a statement to Reuters. On its corporate website, the company states that its Human Rights policy is incorporated into its Business Conduct Manual, Zero Tolerance Policy, Natural Rubber Procurement Policy, and its Supplier Code of Conduct. In addition, its purchasing associates are provided annual training on human rights.
In truth, Goodyear’s conflicting labour practices and corporate policies are representative of a global procurement problem: inaccurate visibility and reporting of human rights abuses. Companies are often unaware—or reluctant to examine—what practices their local suppliers follow. When it comes to a choice between ESG compliance and company profits, many executives still choose the latter.
But the tide is changing fast. ‘In recent years, stakeholders have shown an increased interest in learning more about our efforts regarding human rights’, Goodyear stated. In 2021, the company intends to launch a Human Rights Subcommittee to reduce risk in its supply chain, especially in the areas of child labour, forced labour, workplace health and safety, working hours and wages, freedom of association, and collective bargaining.
By 2030, Goodyear aims to tackle SDG Goal 10, Reduced Inequalities, which will ‘empower and promote the social, economic, and political inclusion of all, irrespective of age, sex, disability, race, ethnicity, origin, religion, or economic status’. To stand by its corporate goals, however, the company must take concrete actions—starting with its labour practices in Malaysia.
Germany Adopts Revolutionary Supply Chain Human Rights Laws
While the title states that Germany’s newly adopted that targets human rights abuse across global supply chains is “revolutionary” ─ which it is ─, it certainly shouldn’t be. But nonetheless, today, on June 11th, 2021, the German Parliament has ushered in a long-awaited shift to mandatory company compliance rules. After months of negotiation, the German lawmakers finally pushed it over the finish line within the final days of the current legislative period. The bill will see German multinational corporations held legally responsible for any human rights or environmental abuses found across their global supply chains.
“The German government has taken a critical step to ensure that companies operate responsibly,” said Juliane Kippenberg, associate director, children's rights division, at Human Rights Watch. “Respect for human rights in global supply chains is not something that should be optional.”
This news comes at a time when global corporations are already being pushed towards environmental, social and governance (ESG) compliance, with a massive drive to reduce Scope 1, 2, and 3 carbon emissions from their supply chain operations and a concerted effort to avoid suppliers and manufacturers that do not meet the standards that industry-leading companies are now expected to meet.
Who will the new law affect?
With Germany’s new legislation, organisations that fail to meet the rules and regulations could be forced to pay fines potentially equivalent to 2% of their annual global turnover. However, it isn’t applicable to all.
According to Reuters, under the act, companies above a certain size will be forced to establish set due diligence procedures that prevent the abuses; from 2023, only companies with more than 3,000 employees in Germany will be affected. From 2024, the rules will expand to companies with more than 1,000 employees.
Statistics from within the country suggest that the first stage of this regulation rollout will affect 900 companies, while the second stage will put 4,800 companies under the spotlight. The bill will also enable the government to temporarily exclude from public tenders companies that receive fines in excess of €175,000.
“Incalculable risks arise for companies,” said Joachim Lang, general manager at the Federation of German Industry. A word of warning from a respected leader, at a time when industry lobby groups and wholesale businesses fear that the new law increases bureaucracy and suggest that price rises may be inbound.
The Take of German Giants
After looking at the incoming legislation, Daimler AG, known more commonly as the automotive giant Mercedes-Benz, a company which, should there happen to be any ESG-compliance issues along its multinational supply chain, would pay a hefty fee, is welcoming of the push for change but hesitant about certain aspects of the bill.
“Daimler's position is: The respect for human rights is a central aspect of our sustainable business strategy. We, therefore, welcome the progress made on the Supply Chain Act. Although the regulations are very ambitious, the proposed legislation has a sound approach overall. It is based on internationally recognised human rights and on international agreements. And it gives companies more legal certainty in an area that has so far only been partially regulated.
Supply chains are not "chains" but rather exceedingly complex networks: Daimler alone has over 60,000 direct suppliers - and many more sub-suppliers. For this reason, we also consider the proposed risk-based gradual model to be sensible. The responsibility of the companies lies primarily in their own business area and with their direct suppliers. Companies must then take action in the deeper supply chain if there are concrete indications of human rights violations. Daimler AG already does that today.
Even though we support the proposed legislation in principle, we consider some aspects to be critical, e.g. the planned fines of up to 2% of the average annual turnover. Instead of threats of sanctions, we consider concrete measures, which companies must take in the event of deficits, to be more expedient. In addition, certain wordings are still vague and leave room for interpretation. Terms such as, e.g. "fair standard of living" should be phrased precisely in order to create legal certainty. Furthermore, documentation and reporting requirements should not lead to unnecessary bureaucracy and should be harmonised with existing rules. On the one hand, this does not help the people on the ground, and on the other hand, it puts a burden on the companies – and the implementation can pose substantial challenges for smaller companies in particular.”
This law is arguably one of the most important developments in the supply chain space so far this year. But it must be remembered that changes do not and will not happen at the push of a button and that democratic principles should be applied to the discussion prior to enshrining legislation into tablature. Environmental and human rights advocacy is a hike, not a brisk walk around the park ─ so, for German companies, it’s time to get their boots on the ground and start assessing their global, interconnected supply chain operations. And, hopefully, they’ll set a stellar example for the rest of us.