Reference ID: 06SANSALVADOR1013

Created: 2006-04-20 13:55      

Released: 2011-08-30 01:44    

Classification: UNCLASSIFIED//FOR OFFICIAL USE ONLY        

Origin: Embassy San Salvador

           


VZCZCXYZ0007

PP RUEHWEB


DE RUEHSN #1013/01 1101355

ZNR UUUUU ZZH

P 201355Z APR 06

FM AMEMBASSY SAN SALVADOR

TO RUEHC/SECSTATE WASHDC PRIORITY 2000

INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE PRIORITY

RUEHC/DEPT OF LABOR WASHINGTON DC PRIORITY


UNCLAS SAN SALVADOR 001013

 

SIPDIS

 

SENSITIVE

SIPDIS

 

STATE/DRL FOR GABRIELLA RIGG

 

E.O. 12958: N/A

TAGS: ELAB ES ETRD PGOV

SUBJECT: EL SALVADOR:  HERMOSA MANUFACTURING CASE REMAINS

IN GRIDLOCK

 

 

¶1.  This is an action request; see para. 7.

 

¶2. (SBU) SUMMARY:   Hermosa Manufacturing Co., a Salvadoran

owned and operated apparel manufacturer, ceased operations in

May 2005, leaving more than 250 workers jobless and

liabilities of USD 825,000 in outstanding wages, severance

payments, and unpaid benefits.  Hermosa was a sewing

subcontractor to an Adidas-Salomon supplier from 2000 until

mid-2002.  Although the factory,s remaining assets appear to

be sufficient to satisfy both the workers, claims and bank

liens, there has been no progress in resolving the issue,

despite the good faith efforts of Adidas-Salomon in assisting

workers in seeking a solution with the Salvadoran

Presidential Commissioner for Governance.   More Salvadoran

inter-agency coordination to solve labor problems is

necessary because these problems may undermine the investment

environment in El Salvador, particularly within the context

of CAFTA-DR.   END SUMMARY.

 

¶3. (SBU) Owner and General Manager Salvador Montalvo opened

Hermosa Manufacturing Co. in 1992, located in a bonded

warehouse (DPA) in Apopa, North of San Salvador.  At its

peak, Hermosa employed some 600 workers, and assembled 12,000

clothing items per day. It worked as a subcontractor to other

Salvadoran companies working for prestigious brands such as

Adidas, Nike and Puma.  Citing problems relating to

contractual matters such as quality and delivery times,

Adidas withdrew from its contractual relationship with

Hermosa in the middle of 2002.  The factory shut down

operations in May 2005, citing lack of raw material; 254

workers have yet to be paid USD 825,000 in back wages,

severance payments, and other benefits.  Banco Cuscatlan and

Banco de America Central hold liens of approximately USD 1

million, but the factory,s remaining assets of approximately

USD 2 million appear sufficient to satisfy both workers,

claims and bank liabilities.  However, neither the Ministry

of Labor (MOL) nor the Solicitor,s Office (PGR) enforced

Article 38, Section four of the Constitution, which specifies

that workers' compensation takes precedence over competing

claims, liens and liabilities.  In meetings with

Adidas-Salomon and worker representatives, owner/manager

Montalvo communicated his desire to resolve the matter, but

failed to follow through with good-faith efforts to pay

workers.   On many occasions, Montalvo,s attorney Oscar

Armando Mena appeared reluctant to look for possible

solutions, but did ask the Ministry of Labor to release

Montalvo from the travel restrictions placed on him due to

non-payment of social benefits to workers.

 

----------------------------

CURRENT STATUS

----------------------------

 

¶4. (SBU) Although not legally liable in any way to its former

client Hermosa, according to Salvadoran law Adidas-Salomon

has had numerous meetings with the Minister and Vice Minister

of Labor, Minister of Economy, Montalvo,s attorney, and the

workers, attorney.  However, the involvement of the

Presidential Commissioner for Democratic Government was

necessary to set up a temporary settlement for former Hermosa

workers.  Gloria Salguero Gross, the Presidential

Commissioner for Democratic Government, arranged a meeting

with the Presidential Technical Advisor, the Presidential

Legal Advisor, the Minister and Vice Minister of Labor and

the Minister and Vice Minister of Economy on April 4th.  At

this meeting, the government stated that they could not pay

Hermosa workers for unpaid compensation using public funds,

but would continue to expedite several legal proceedings for

the Hermosa case.  Currently, the labor tribunal is

considering 73 workers, cases; approximately 30 cases have

been ruled in favor of the workers (Hermosa,s owner has

appealed 17 of those cases) but because of the lack of

enforcement of the above-mentioned constitutional provision,

there are not assets available to pay the compensation

awards.

 

¶5. (SBU) The Salvadoran Government agreed to offer former

Hermosa workers two types of medical coverage:  basic medial

coverage through the Ministry of Health (Unidades de Salud)

and additional coverage for serious medical illness through

the Salvadoran Institute of Social Security.  Coverage will

be available for one year or until re-employment.   The MOL

will send written notifications to former Hermosa workers

this week.  Additionally, to address the allegations of

blacklisting, the government has scheduled a job fair in a

central exhibition hall in San Salvador for May 12-13, and

will ensure that unemployed Hermosa workers are given

priority for interviews and employment opportunities during

 

this event.

 

¶6. (SBU) The Ministry of Labor asserted it is in the process

of hiring 69 new labor inspectors, effectively doubling the

labor inspectorate, and the government agreed to send the new

inspectors to external training in the Guidelines of Best

Employment Practices, as the Guatemalans did in late 2005.

 

¶7. (SBU) ACTION REQUEST:  Post requests that the Departments

of Labor and State representatives to the Central American

and Dominican Republic Labor Ministerial Conference to be

held in Guatemala City meet and discuss the Hermosa case with

Salvadoran Minister of Labor Roberto Espinal.  Espinal has

agreed to meet with DOL and State representatives at 8:00am

on April 21st.  Post suggests the following questions as

helpful to clarify a solution to this case.

 

-     We are particularly interested in knowing the

Salvadoran Government,s plan to enforce the constitutional

right of precedence (Article 38, Section 4 of the

Constitution) for payment of back wages and benefits to

workers in the Hermosa case.

-     If the Salvadoran Government is not going to enforce

the right of precedence, can it explain its reasons for not

doing so?

-     What is the current status of legal proceedings against

the owner Salvador Montalvo Machado?

-     We know the cases of 73 workers have been brought

before the Labor Tribunal, but there were more than 200

workers at Hermosa.   What is the status of the other workers

and their claims?

-     CAFTA-DR entered into force for El Salvador on March

1st, and Article 16.1 states that parties to the agreement

will reaffirm their obligations as members of the ILO, as

well as their own Constitutions.  How is El Salvador putting

this provision into practice?

 

¶8. (SBU) COMMENT:  Although the Salvadoran Constitution

codifies the protection of workers, there is a lack of

enforcement that undermines El Salvador,s credibility in

adequately protecting workers, rights.  With CAFTA-DR in

force as of March 1 for El Salvador, an unresolved Hermosa

case could establish a bad precedent for Salvadoran labor

authorities, and damage the investment climate.  The brands

involved have done a lot of good faith work to bring the case

to  conclusion without resorting to the courts, but to date

have failed.  This type of negotiation between buyers,

producers and workers can be extremely useful and under

CAFTA-DR several projects have been proposed to create

mechanisms for alternative dispute resolutions.  However, the

Salvadoran business community and the government need to work

together to address these kinds of problems before they reach

the status of the Hermosa case.

 

Please visit San Salvador's Classified Web Site at

http://www.state.sgov.gov/p/wha/sansalvador/i ndex.cfm

Butler