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