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FINAL REPORT OF LABOR AUDIT, IN FACTORY CHI FUNG. S. A. DE C.V.

PROFESSIONAL TEAM

1. JUAN JOSE ZALDAÑA LINARES – ATTORNEY AND NOTARY

LEADER TEAM

2. MANUEL ALFREDO CORLETO AREVALO – AUDITOR

3. ROSA HAYDEE DELGADO – BUSINESS ADMINISTRATOR

4. ANA LINDA MICHELLE DE PORTILLO – ATTORNEY

5. STEFANNIE LUCRECIA CHACON - PSYCHOLOGIST

6. WALTER ALBERTO ZALDAÑA – CIVIL ENGINEER

AUDIT PERIOD

FEBRUARY 26 TO MARCH 18, 2010

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CONTENTS

INTRODUCTION

RESEARCH DESIGN

o INTEGRATION OF TEAM

o DESIGN METHODOLOGY AND TOOLS OF RESEARCH.

o PROGRAMMING FACTORY TOUR

RESULTS OF RESEARCH

o ANALYSIS OF INCOME AND OTHER RECORDS LABOR ISSUES

o ANALYSIS OF CONDITIONS OF SAFETY AND INDUSTRIAL HYGIENE

o ANALISYSIS OF INTERVIEW

CONCLUSIONS

o GENERAL CONCLUSIONS

o SPECIFIC CONCLUSIONS

RECOMMENDATIONS

o TO THE STATE OF EL SALVADOR

o TO THE MINISTRY OF LABOR AND WELFARE

o TO EMPLOYERS OF THE INDUSTRY MAQUILA

o TO THE PRESTIGE BRANDS INTERNATIONAL

ANNEXES

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COMPANY DATA

Name: CHIFUNG, S.A. DE C.V.

Tax identification number (NIT): 0514-290592-102-0

Social Security number (ISSS): 701921273

Adress: Km. 12.5 Carretera Troncal del Norte.

City: Apopa.

Deparment: San Salvador.

Country: El Salvador.

Phone: 22140-9000

Telefax: 2214-6056

Company adress: Km. 12.5 Carretera Troncal del Norte.

Activity Economic: Textil Industry (in accordance with payroll of

AFP) and Maquila (in accordance with payroll

of ISSS).

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INTRODUCTION

Every company, at certain moments of its existence, will be affected by some kind of

crisis. In those circumstances will be strengthened which is able to overcome it, the

rest will perish or be extremely difficult to survive.

In times of financial and economic crisis, businesses, particularly its owners and

managers must demonstrate their ability to overcome the difficult situation, of course

this means using lots of creativity and based on respect for human rights of workers

and labor legislation.

Latin American companies often are forced to develop their operations face many

hardships, some of them derived from economic decisions taken by successive

governments, which are bad adaptations of the experiences of other countries

wrongly applied to the environments of each country.

Being in crisis is a state that companies must be willing to take. Trying to survive the

crisis and find out what to do, is a forced decision to not affect the next time the

same way.

RESEARCH DESIGN

o INTEGRATION TEAM

The research team Chi Fung, joined as follows:

- Two lawyers (including the Team Leader)

- An Auditor

- A Business Administrator

- A Civil Engineer

- A Psychologist

Each in his specialty suggested strategies to follow to obtain information that would be

discussed later, which led us to perform actions, including review of payroll and

production records and physical observation of the production facilities the factory.

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o DESIGN OF METHODOLOGIES AND RESEARCH TOOLS

The Auditor and Business Administrator limited their research to verify the wage records

and inquire some unusual aspects considered in the process of payment and discounts

that they make to workers. Details of the administrative investigation are attached to this

report

Civil Engineer conducted an inspection of the plant in order to investigate aspects of

industrial hygiene and safety. The result of his work is also added in this report.

Lawyers and Psychologist concentrated their efforts on interviews with 80 workers and

former workers of the factory, 30 of them outside the premises. Everything related to the

results of the interviews are discussed in the conclusions.

o SCHEDULING VISITS

Factory visits were constant for some members of the team from 26th February to 12th

March 2010. After this date, the team worked in the city of Santa Ana, analyzing and

integrating information in this report. The Head of the team made some visits to the

factory to investigate some aspects with the management of it.

A final visit to the factory, took place on Wednesday March 17 date on which they

released a preliminary report of the audit.

RESULTS OF RESEARCH

o PRELIMINARY COMMENTS

The factory management provided all the requested documentation, but on the second

day of investigation, the factory manager said to the team leader that any activity that

involved tour the factory premises in all areas, had to be accompanied by some person

executive staff member of the factory, therefore it meant that would not be allowed free

movement of the research team

Importantly, the executives did not like the fact cards provide the team leader to the

workers. Moreover, the interviews only could be conducted only during periods of

recess, for that reason the first day we interviewed the first group in the dining room,

which gave conditions to supervisors and managers to stay nearby, using the pretext of

ensure order

The following interviews were conducted in a room of the factory managers provided for

the team was installed to work. Other interviews were conducted outside the factory

premises in two nearby malls.

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o ANALYSIS OF INCOME AND OTHER RECORDS LABOR ISSUES

A. Consideration of evidence: the view were taken for analysis of pre

production schedules developed and pay slips, signed by employees as

payment of their salaries, in addition, personnel records, payroll and AFP

ISSS (pension fund managers), and reports of marking entrances and

exits of personnel.

B. Period: The wage schedules examined, correspond to the period 2006 to

2010 the production area.

C. Minimum wage: All workers of different production units of the department

assigned to them, both in the pre made templates as pay slips, the

minimum wage, according to the following table:

Period Current minimum wage (daily)

January 2006 =August 2006 5.04

September 2006 = Julio 2007 5.24

July 2007 = June 2008 5.40

June 2008 = December 2008 5.57

January 2009 = February 2010 5.79

D) Determination of value per hour in relation to the minimum wage:

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ANALYSIS OF WAGES

SALARY ANALYSIS OF PRODUCTION WORKERS (Expressed in U.S. $)

VALUE VALUE SALARY

No. NOMINAL VALUE HOURS SALARY PER HOUR

DAILY HOURS

VALUE

PER SALARY FOR ORD. X REAL EXTRA

YEAR MONTH SALARY DAILY

HOUR

WAGE 14 DAYS WEEK WEEK

PER

HOUR DAYTIME NIGTHTIME

2006

Jan.-

Ago. $5.04 8 $0.63000 $70.56 $35.28 44 $0.8018 $1.26 $1.575

2006

Sep.-

Dec. $5.24 8 $0.65500 $73.36 $36.68 44 $0.8336 $1.31 $1.640

2007

Jan.-

nov. $5.24 8 $0.65500 $73.36 $36.68 44 $0.8336 $1.31 $1.640

2007

Nov.-

Dec. $5.40 8 $0.67500 $75.60 $37.80 44 $0.8590 $1.35 $1.690

2008

Jan.-

Jun. $5.40 8 $0.67500 $75.60 $37.80 44 $0.8590 $1.35 $1.690

2008

Jun.-

Dec. $5.57 8 $0.69600 $77.98 $38.99 44 $0.8861 $1.39 $1.740

2009

Jan.-

Dec. $5.79 8 $0.72375 $81.06 $40.53 44 $0.9211 $1.45 $1.810

2010

Ene.-

Feb. $5.79 8 $0.72375 $81.06 $40.53 44 $0.9211 $1.45 $1.810

Notes: All the production staff earn the same salary

The calculation does not include legal benefits like end year bonuses, vacation, allowances,

bonuses and others benefits.

E) Review of personnel records: We performed tests of the production

personnel records, and verified compliance with legal and formal

requirements of the recruitment. Within these records are the following

documents:

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PERSONNEL FILE (sample)

General Tab of Human Resources division

Employment contract.

Employment Application

Date monitoring of compensation

Sheet commitments (work by choice)

Sheet update personal data

Solvency of the National Civil Police

Compensation constancy

Waiver sheet at the conclusion of a year of work to justify the compensation (official

paper of the Ministry of Labor and Social Welfare).

Sheet prior work record and recommendation.

Record of the employee medical consultation

Proof of medical consultation for their children.

Proof of absence on grounds of involvement in the school for their children.

Proof of Disability ISSS.

Written reprimand for missing work without permission

Record to appear as a juror

Summary NIKE code of conduct, signed by the worker

General policies of the company, signed by the worker.

Note: The personnel records contain relevant information worker

F) Wage verification: crosses were made prior information between forms and

payment vouchers, no differences were found between vouchers

The pay slips are printed signatures of the workers. We determined a pay slip

unsigned for a worker, during the period of January 29, 2009 to February 11,

2009.

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The payroll processing system, payment vouchers and report marking

entrances and exits of personnel, are effected by magnetic means, are

attached to illustrate the tables numbers: 1, 9, 10, 11, 12 Y13

G) Assist Control: The entrance and Outs of staff, are held on magnetic media,

by sliding the card to the employee by the device, generating the report for

processing payroll and other personnel actions.

H) Discounts: We examined the labor quotas provided by the workers to the

regime of ISSS and AFP, and checked the calculations regarding payrolls.

it was verified the payment to ISSS and AFP, noting that during the period

under review have been paid within these forms correctly, see Table No. 5

In the analysis of the forms of salary we determined under "Other deductions"

and by its importance, we made more thorough examination, was conducted to

verify the contents. We found in some cases lack of compliance with the legal

rules relating to deductions from wages.

The following are three examples of payment discount tickets:

i) slips from January 29, 2009 to February 11, 2009

Worker Name: Worker 1

Income $ 81.06

Discounts 81.05

Value received 0.01

Details of discounts:

ISSS 2.43

AFP 5.07

Agricultural Bank Loan 22.64

Metropolitan Credit Loan Fund 14.13

The Know Bookstore 17.56

Medicine 4.59

Medicine 4.63

Savings Plan 10.00

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Pay Ballot February 12, 2009 to February 25, 2009

Worker Name: Worker 1

Income 81.06

Discounts 81.05

Value received 0.01

Details of discounts:

ISSS 2.43

AFP 5.07

Agricultural Bank Loan 22.64

Metropolitan Credit Loan Fund 14.13

The Know Bookstore 12.98

Medicine 13.80

Savings Plan 10.00

Pay Ballot February 12, 2009 to February 25, 2009

Worker Name: Worker 2

Income 74.55

Discounts 73.88

Value received 0.67

Details of discounts:

ISSS 2.23

AFP 4.66

Workers Bank Loan 19.31

Loan Savings Plan 13.59

Loan Savings Plan 11.55

Savings Plan Loan 2.50

The Know Bookstore 15.04

Savings Plan 5.00

More details of discounts, in frames numbers: 4, 14, 15 and 16

The slips were cases of discounts and other working tools such as:

Payslip of January 29, 2009 to February 11, 2009:

Worker 3: A measuring tape.

Worker 4: A card.

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I) Staff turnover: Staff turnover is illustrated in Table No. 2.

REVIEW OF SEVERANCE, BONUS, VACATION, PAYMENT ISSS, AFP, overtime and other

employee benefits.

A) Consideration of proof: We checked sheets bonuses, vacation allowances, ISSS, AFP,

salary and wage slips.

B) Period: 2006, 2007, 2008, 2009, January and February 2010.

C) Bonus: The bonuses are paid on separate sheets of any fee and are signed directly by

the worker.

Calculations were reviewed and checked some cases taking into account their age and

legal payment date, there were no inconsistencies.

D) Holidays and compensation: The policy established by the company is to compensate

staff, at the end of each year working on their date of admission, while recognizing the

annual leave. We checked the calculations and applications in the dates.

See tables numbers: 3, 17 and 18.

E) Payment of payroll of the ISSS an AFP: He is considered the employer contribution

ISSS, INSAFORP and AFP. The payments were made in the relevant period. Workers

are not discovered these benefits.

F) Overtime: We passed information between markings reports entrances and exits, the

payroll wage and salary receipts, there were no errors of calculation and application.

Importantly, as described by some workers interviewed, they often have been laboring

after normal working hours and checking out one or two hours of 5 pm, but those extra

hours are not reflected in the report, consequently they are not paid. They argue that

remain after normal working hours, to "advance work"

Regarding overtime that reflected in the payroll and vouchers, there is a supporting

document signed by the worker, where they establishing the number of overtime worked

and the voluntary for do it.

To illustrate the tables are numbers: 6, 7 and 8 show the summary of overtime day and

night, and the number of personnel assigned by the department.

G) They argue that remain after normal working hours, to "carry out their work"

Regarding overtime reflected in the vouchers, there are supporting document signed by

the employee, which establishes the number of overtime worked and voluntarism

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expressed.

For illustration shows the tables numbers: 6, 7 and 8 show the summary of overtime day

and night, and the number of personnel assigned by the department.

H) Other benefits:

i) Savings system: The company coordinates a system of savings, cooperative type (not

legalized) in which workers contribute biweekly contributions to the pool. Of these

funds are low rate loans made to those workers participating in the system, with an

interest rate of 10% per year, these loans are discounted to the payroll of salary,

contributions to term.

ii) According to the company manager, at the end of each year the savings are reimbursed

to employees.

iii) Food: There is no direct subsidy to the power of workers during the working day but the

people who provide food to workers, the company provides local, free water and

electricity, in order to the value of food more affordable.

iv) Business Clinic: There is within the premises of the company, a corporate clinic provides

first aid services.

v) Medicines: There are agreements between the company and pharmacies to provide

medicine to workers; These medicines are paid by the employee contributions to

term and are discounted in return.

vi) School Supplies: There are agreements between the company and library, to provide

school supplies for children of workers. The value will pay the employee for

contributions to term and are discounted in return.

vii) Bonus: There are subsidies in small amounts, awarded for meeting certain goals or

others.

VERIFICATION OF WORKERS IN THE PRODUCTION LINE OF THE COMPANY.

Production lines: The Company currently has twelve production lines in the engine department.

The production lines are not a constant number, because these are assigned according to the

styles and processes of each model made.

The line ranges vary between 30 and 50 workers, but sometimes they are small cells.

Departments or units of production: The production is organized in several departments, as

illustrated by the table number 7.

SAMPLING PRODUCTION GOALS, CALCULATION AND APPLICATION

A) Consideration of proof: We tested several styles of replica NFL regarding time allocated by

machine / man, and the corresponding production goals, as well as variance

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Reports produced PARTEX units.

B) Period: We analyzed the years 2006, 2007 and 2008, because according to the statement by

the manager, the company produces PARTEX since May 2008.

C) Production Goals: The goals of production is calculated based on the "RATE", ie the

measurement of time of each style is produced. This time study, the goal is determined daily

operation, see Tables Nos. 19, 20 and 21.

We analyzed three styles replica NFL and calculated values of direct labor (only the department

of machinery), as shown in the table numbers: 22, 23 and 24.

D) Efficiency Goals: The goals of efficiency could not be verified, because these are deleted

from the system and do not keep records.

E) produced NFL PARTEX Replies: We analyzed the production of replicas NFL in terms of

units entered, produced and exported, as well as production periods according to box number:

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F) Application of payment: The wage system adopted by the company is "a day" would require

further examination to determine the unit cost for each of the styles produced.

ASSESSMENT AND VERIFICATION OF RECORDS OF WAGES FOR THE THIRD AND

FOURTH QUARTER OF 2009.

A) Verification of records: We examined payroll records for the relevant period to 02 of July

2009, until December 30, 2009, the summary of the period are presented in Table

numbers: 6 and 7

B) Evaluation: The records are in order, and its calculation and application, the important

thing to note is the amount of overtime work during the period. Monitor box number 6.

GENERAL CONSIDERATIONS ON THE ADMINISTRATION OF THE COMPANY.

Administrative records reviewed in this review and for the period under study, such as payroll of

wages, employment benefits, attendance controls, personnel records, labor contracts and

others, are in proper order, and the administration gave them all facilities for review.

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MAJOR FINDINGS:

The most significant findings identified during the audit conducted at the company

administrative Chi Fung, S. A. C. V., in the period 2006 = 2010, can be summarized in

the following aspects:

A) Overtime: Regarding overtime, we find a serious contradiction between the

statements made by some workers and the system of clock´s marking that the company

has, since when they are working to "Advancing the Production", these hours are not

reflected in the marking report that provides the basis for payroll the overtime.

But having reviewed the documents and found no irregularities, we have some

comments that raise doubts that the system of payment of overtime is efficient,

according to the following versions:

i. Version of the Workers: The interviewees stated that they are

laboring after regular working hours "work ahead for the next day"

and / or to meet the production target required by the company,

marking the exit after completing the overtime. Workers, mark only

one time their departure, which means that these extra hours of

work performed should appear in the report of overtime, which does

not happen.

ii. Company´s Manager Version: The manager of the company,

indicates they do the selection of the people they need to work

overtime, those workers sign a document which they express

willingness to do so. The staff that is authorized to work overtime,

check off his exit at the end of overtime. Expresses also, that they

will pay overtime only for staff that they are selected and that the

overtime is approved using a process that enables to the time´s

clock software, to recognize the overtime to staff who have been

authorized to it. In the case of a staff who is working to catch up on

work and / or achieve production targets, they are not allowed to

collect overtime because they do not stay as requested by the

company but on their own initiative.

Inconsistencies.

• Employees who are authorized to work overtime have a report

from those hours and of course we could verify the payment in the

payroll of salary and payment vouchers. This does not happen with

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the workers that "advance work" or are working to achieve

production targets.

• The regular departure time is at 5 pm. Monday to Thursday and

on Friday it works until 4 pm, but when somebody works overtime,

the report show the entrance simultaneously at 5 pm. The exit of

overtime varies from one employee to another.

iii. version of the owner. The time clock is programmed, using

software so that all staff checks their entry at 7 am and leaving at 5

pm. or 4 pm, the ordinary working day, depending on the day.

Inconsistencies

• Reports of markings indicate that the clock isn´t programmed for a

specific period of time, because personal entries appear before 7

am and after 8 pm. Clearly the clock programming can be altered

according with the convenience of the company.

General Conclusion

The control system and payment of overtime is controlled by the

company, so that software can be programmed so that through a

process, some workers are paid overtime and not others.

B) Discounts on worksheets: not respected legal discount rates in payroll, going beyond the

20% and in some cases to workers, is deducted up to 99.9% of their salary. Table no. 15

presents one case of discounts, in which the worker (a): Jessica Beatriz Chamul, received a

penny (0.01), for thirteen (13) catorcenas of 2009, and received wages for all By 2009, the

numbers of: 04/100 twenty-three Three hundred dollars (323.04).

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Also, the analysis of the relationship of discounts on revenue in the second half of 2009, shows

high overall percentages, according to this table

Year 2009 Total Total Relation

Period Salaries deductions Disc. / wages

02-07/15-07 47,891.28 11,930.72 24%

16/07/29-07 52,217.57 9,692.40 18%

30-07/29-07 46,445.78 11,249.48 24%

13-08/26-08 51,648.41 11,818.62 22%

27-08/09-09 47,161.43 10,953.79 23%

10-09/23-09 49,970.59 11,940.48 23%

24-09/07-10 47,375.68 10,906.77 23%

08-10/21-10 52,493.88 12,023.34 22%

22-10/04-11 50,850.85 12,900.17 22%

19-11/02-12 58,149.61 9,375.40 16%

03-12/16-12 62,178.49 7,571.74 12%

17-12/30-12 57,911.00 3,895.72 6%

C) Savings System: There is no government watchdog agency assigned to oversee the savings

plan.

D) Output PARTEX: According to records provided by the company, production PARTEX NFL

replica, completed in the month of May 2008.

E) Unit Production Cost: To determine the unit production cost of the replicas NFL requires a

more extensive review that includes the unit cost of each department involved in the process

and other indirect costs, but the data daily goal has been to approximate a value of unit cost of

direct labor department machines, ranging between $ 0.31 and $0.33 (U.S. cents) per piece.

Also on "28 workers who produce 2.300 t-shirts a day" is distorted, in studies of time and setting

daily goals, that to produce a replica "PATRIOTS" it takes 43 machine / man per day, to

produce an estimated average 500 to 600 pieces per day.

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ANALYSIS OF CONDITIONS OF SAFETY AND INDUSTRIAL HYGIENE

PHOTO DOCUMENTATION

In a visit to the factory premises CHIFUNG SA DE CV, is located in the Municipality of

Apopa, Department of San Salvador on Monday 1th March, two thousand ten, from ten

hours and fifteen minutes in the morning, photographic information was collected.

The photographs show an alarming lack of industrial safety in the production plant of the

Chi Fung factory, which affects health and increases risks.

On the way, on a wall located near the entrance to the human resources office, found a

statement by ADIDAS GROUP aimed at workers which reads as follows:

In analyzing the content of these paragraphs, we conclude that the staff of factory

management FUNG CHI has omitted the previous regulatory compliance. Below is the

“You may remember seeing on the walls of this factory, posters explaining the basic rules of work safety an occupational health and environmental protection to be followed by factories….These panels have been removed because we expect our, partners protect your rights with trade policies and measures…”

“…we hope that the management of the factory complies with all laws and regulations and to offer fair treatment to employees and value their contribution to the factory and our company…it will help management to further improvements in its workplace and offer the necessary training to perform their work safely.

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photographic detail of electrical hazards, which can be sources of heating cables,

electric arcs, sparks, etc.

The picture shows that there is training new staff, and the lack of protection for

the connectors that are less than 1 foot from their heads.

Connector in poor condition.

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In the following photos we can look the lack of maintenance within the factory,

and how the workers do not realize the risk they are manipulating the wires and

in some cases they make the repair the wires..

plugs into disrepair

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The picture shows some exposed wires and placed in a haphazard manner. The

workers dispose all the connectors for do not interfere in their working place, not

realizing that can cause an accident.

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In both pictures we see that the connector wires are fastened with cords of fabric,

this can cause a fire.

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Electrical connectors near water containers, which represents a serious risk.

\

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It must protect the cables that are exposed above the high voltage board.

Bad wiring

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Using homemade equipment, they can produce heat by overuse.

There are several bottles of water near the connectors, the connectors also are not

adequate and are in poor condition.

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The workers ignored the preventive placards, we can look that only one worker

uses the mask, in an area where you need to use it.

During the tour, all fan were not working and the interior was too hot.

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Wires in poor condition.

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Lack of protection in electrical box on wall .

Flooring in poor condition, which can cause accidents.

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This ignition switch is located in the men's room, if someone plays with wet hands

this box without protection can cause electrical shock.

Apparently some smoke detectors are not working but could not be verified it

because employees don´t know about it.

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Many of the connectors that are around the lamps are damaged, and the workers

take the cables tying them with strings of cloth, taking the risk of fire or cause it to

break a lamp by the disorderly way in which are located electrical cables.

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INTERVIEW ANALYSIS

Most of the interviewers in the factory told us that they are afraid of loose their jobs if

they talk about the situation that is why they asked us to protect their identity, also they

required help in case they get fire.

CONCLUSIONS

When the investigation process was finished in Chi Fung, the result was many general

and specific conclusions which are related to key points of the workers’ complains.

o GENERAL CONCLUSIONS

According with the workers who were interviewed, the factory Chi Fung has

violated many Labor Rights such as: The right to meaningful work; to safe and

healthful conditions of work; to pay sufficient to endure a life of human dignity for

a worker and his or her family; to form and join labor organizations; and to

participate in the workplace decisions affecting their lives.

It was established that these workers are not provided them with adequate

technical assistance.

The Ministry of Labour and Social Welfare do not play an active role when the

right of the workers is being violated by their employer, either on other similar

cases in El Salvador. It is important to mention that the Ministry of Labour and

Social Welfare does not apply the labor laws and the international labor

agreements ratified by El Salvador.

The case of the Maquila Chi Fung exposes the violation of labor rights, as well as

the fragility of the economic model in the maquilas is looking for a solution to

unemployment.

The different Public Institutions have played a passive role at the time the

workers have been trying to defend their workplace human rights by delaying the

suits filed against the factory Chi Fung.

The maquiladora industry in El Salvador has been violating the right of the

employees by denying their right of association. Moreover, the right to organize is

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establishes in the Labor Code those Corporations are treating works all over the

country, the employees believe that if they attempts to create a Union they could

get fired. However, there is some kind of corruption among some Labor Union in

El Salvador.

Solidarity trade union but has been reflected in various ways both nationally and

internationally, has not been enough for the government of El Salvador publicly

acknowledge their responsibility for human rights violations that occur Labour

inside the maquilas, or shows signs of adjustment to its policy of creating jobs.

All this makes clear that in El Salvador, labor laws allow them to deliberately

violate labor rights.

o SPECIFICS CONCLUSION

1) FORCED WORK. NO PAY OVERTIME:

80% of workers stated that in overtime, including from 5:00 to 7:00 pm, they were

forced to work in order to meet production goals. That the two daily overtime

were not paid. 70% of workers (s) interviewed said they were not paid overtime

even though the forms appear.

The research team checked the records of overtime and found that the time clock

inputs and outputs of the working days, reports it the overtime worked by staff

that is authorized by the company. The time clock is linked to software that is

administered by the Human Resources Department; they introduce the

information about the personal that will work overtime, so the clock´s report

reflects those hours. It is a reality that people who work additional hours without

the approval of Human Resources, don´t receive salary and there are no reports

of these hours, simply because the clock does not recognize it.

Despite the risk involved, there are workers who are willing to testify under oath

before national and international legal bodies, which have long been forced to

work overtime without pay.

2) INCENTIVES:

Worker (s), (100% of respondents) declared that they were not given incentives

to meet the goals (production bonus).

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3) HARASSMENT AND ABUSE BY SUPERVISORY STAFF

100% of those interviewed said that the staff of supervisors harassed and

humiliated, subjected to outrageous treatment. With an emphasis on those who

practice the leadership of this group. The same percentage mentioned above,

states that the person who serves as Chief of supervisors is designated as the

one that tramples on the dignity of workers. The workers claim that the chief of

supervisors forced them work overtime, which are not paid and with this

requirement is intended to force them to meet production goals.

100% said the factory owners do not harass or use the sound system to treat

them badly. Those executives do not attract attention as disrespectful and rarely

talk to them.

4) VACATION AND HOLYDAYS:

60% of workers (is) said they were forced to replace the vacation time. Whether

working overtime prior to or after the holiday period. They say that the same is

required in the days of rest established by law (mandatory). This could not be

confirmed in documents of the employer, such as time records, payroll and

production records before and after holiday periods and major holiday such as

Easter and Christmas in August.

5) RESTROOMS:

70% of respondents stated that the bathrooms of the factory are usually dirty and

in poor operating conditions. The research team confirmed this during a tour of

the factory and documented with photographs.

80% said they would only give them a roll of toilet paper a week, which is

insufficient for their physiological needs.

100% said that in the bathrooms there is no soap, only water.

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Extremely dirty inside women´s restrooms

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Extremely dirty inside women´s restrooms

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Extremely dirty inside men´s restrooms

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Dangerous box electrical inside the restrooms

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Dirty floor, all the time

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6) SURVEILLANCE CAMERAS:

80% confirmed the existence of security cameras on the premises, including the

entrances to the bathrooms.

7) INFLUENCE IN THE INTERVIEWS:

60% of respondents in the meeting room, said human resources personnel are

instructed to say in advance about the interview.

8) INTERVIEW WITH SUPERVISION STAFF:

Three supervisors were interviewed, including the head of that group. It is striking

that said they had been able to achieve higher production, but have never

received training in other important aspects like labor rights, human rights,

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human relations. They believe that to work, vacation and severance pay, an

incentive for workers and require them to recognize that production workers and

constantly threaten that they will lose their jobs. Supervisors have expressed that

as production targets and receive overtime pay to achieve them

9) DON´T EXIST SALARY PROTECTION:

It was confirmed that disrespects the maximum percentage reduction in salary

allowed by law, which is 20%. Management said the Ministry of Labour has not

made any comments.

10) SAVINGS PLAN:

With a savings plan, attract funds without authorization, or own regulatory.

Management stated that the Ministry of Labor has not expressed any opposition.

11) FORMS OF LABOUR RECRUITMENT:

100% of workers are employed for a definite term (annual), yet their activities are

of a permanent nature. The General Manager stated that they don´t have labor

liabilities, they compensated annually to the workers, in addition the Ministry of

Labor’s inspectors never have objected to this form and they said them that if

they change contracts indefinitely, can´t compensated annually to the workers.

In addition, 100% of respondents said that when they was hired first time, the

managers told they about the company's policies, but they didn´t know the code

of conduct of the brands for which Chi Fung produce and their records have

many of these documents that were signed, but they have done to keep their

jobs.

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12) SAFETY INDUSTRIAL:

By physical inspection of the plant facilities, it was found that there are serious

violations of safety and industrial hygiene, which are illustrated with photographs

and comments from them.

RECOMENDATIONS.

o GENERALS RECOMENDATIONS:

Recommendations for the Government of El Salvador

1- All maquila industry set in Salvadoran territory has to create an economic

fund, which will be sufficient to guarantee the employees’ benefices,

established at Article 447 of the Code of Commerce.

2- To verify compliance with the Law Primary, Secondary and International in

relation to compliance with labor rights.

3- The Government has to create a special commission to monitor

compliance and implementation of ILO conventions ratified by El Salvador.

Recommendations for Ministry of Labour and Social Welfare

a. The Ministry has to fulfill with the task of guaranteeing the defense of

workplace human rights.

b. The Ministry has to take an active and leading role in the defense of

workplace human rights through objective inspections to verify working

conditions.

c. The Ministry has to establish mechanisms for direct communication with

workers, in order to guarantee the opportunity to be heard.

d. The Ministry should develop ongoing training processes certified by

international bodies that ensure respect for workplace human rights,

aimed at employers and employer representatives, workers and union

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representatives, on rules and procedures that help to improve the work

culture, avoiding discrimination reasons of organization and free

association.

e. The Ministry must ensure that employers, employer representatives,

workers and workers representing unions, are accredited by specialized

agencies on workplace Human Rights.

f. The inspections of the Ministry of Labour and Social Welfare must be

reliable and really sources of objective information and the results must be

knowledge for the population.

g. The Ministry must not allow any negotiation between employer and worker

who goes against the inherent rights.

It is recommended that employers in the maquila in El Salvador:

1) The Corporations must comply with treaties and ILO conventions and national

legislation relating to compliance and enforcement of labor rights.

2) The Corporations must improve the infrastructure of the premises where the

activity occurs maquila (walls, sanitation, ventilation, lighting, drinking water, and

others).

3) Encouraging workers in the maquila with a special bonus duly authenticated and

documented by the productivity they have.

4) Corporations must contribute to projects that improve the quality of life / as

workers in the maquila industry.

5) Corporations must create within the company a social projection area to develop

projects that benefit the working community.

Recommendations for Transnational Companies

1) International Companies should require that the maquiladoras, contractors

and subcontractors, compliance with national and international legal

framework on workplace human rights.

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2) International Companies should ensure that all the maquiladora who have

signed contracts, they are solvents with payments of social benefits for their

workers.

3) International Companies should sing contracts only with maquiladoras which

have no history of violation of workplace human rights.

4) International Companies should establish along with the Fair Labor

Association, a permanent representation of an Ombudsman to monitor

compliance with the workplace Human Rights to check on all contractors and

subcontractors.

SPECIFICS RECOMENDATIONS:

Before we comment on:

Remediation or Repair Capacity.

The motivation to perform a job can come from several sources:

• One of the most common is the need to comply with a order. Usually it is a order

whose violation implies a punishment, a bad grade, a disqualification, a bad

evaluation. In these cases, the motivation to work is powered by a persecutory

mental state.

• A method that generates a commitment to link to short, medium and long term and,

therefore, disposed to creativity, is what comes of remediation or repair. This method

produces peace, for having known and having a difficult situation resolved. Is a

provision that comes from experience, with the advantage of creating the feeling of

having provided a service, committed and responsible for responding to the

company, employees, contractors, subcontractors, suppliers or others.

One of the factors of greatest relevance to the work undertaken since the restorative

approach is the kind of commitment is created by our commitments and with the

beneficiaries of such commitments.

In other words, people with attitude restorative are more willing than others to make

sacrifices to achieve the overall objectives, will indulge in the feeling of being useful

to the construction of a project that goes beyond their own interests, using the

values Group in making decisions of their own work and are in a constant search for

opportunities, solutions and alternatives that are functional to the group and the

company.

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Related to the findings, the following is recommended:

FORCED WORK. OVERTIME NOT PAYED.

Should not be allowed the practices extra work without it being paid. The work done by

staff using overtime hours must be paid, without looking for the excuse that some

workers work without the request of the company. The practice of canceling overtime

only to authorized workers, permits the exclusion of those who are forced to work

overtime to meet production targets

INCENTIVES:

The salaries must be paid, according with the Salvadorian law and the practice of the

international big brands.

HARASSMENT AND ABUSE BY SUPERVISORY STAFF

Staff should be trained in monitoring Human Rights Labor, Human Relations, technical

humanistic of oversight and all those others that could improve employee performance

without jeopardizing their rights.

VACATIONES AND HOLYDAYS:

Should not restrict the enjoyment of the right to leave and holidays established by law

RESTROOMS:

The surveillance cameras should be removed from places near to the restrooms and

should not be used as a pressure offensive to dignity of the worker.

INFLUENCE IN THE INTERVIEWS:

The Directors of the factory or their managers should not try to influence the responses

of the workers to pressuring them before the interviews, trying to influence the results of

audits.

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DO NOT EXIST SALARY PROTECTION:

A primary obligation of employers is to protect workers' wages and is not justified in any

way the illegal practice of discounts over the percentage allowed by law. Accordingly,

such discounts should not continue.

SAVING PLAN:

Although the factory administration says that participation in the savings plan is

voluntary, it does not have any legal basis. Therefore must be obtained legalization.

FORMS OF LABOUR RECRUITMENT:

The activities performed by workers are permanent, so it is not correct and should not

continue to practice to set up in the contracts that are for a definite term (annual), even

with the adjective "renewable. The practice of annual compensation does not justify this.

SAFETY INDUSTRIAL:

Must be overcome all the recommendations about safety industrial, identified and

signaled in this report.