Collective Bargaining and living wages

ACT was jointly created by global companies and trade unions out of the recognition that lasting improvement
of wages and working conditions can best be achieved through national collective bargaining at industry level supported by international purchasing practices.

International brands and retailers signed a Memorandum of Understanding with IndustriALL, the global trade union federation representing garment, textile and footwear workers, to ensure the payment of a living wage through their purchasing practices. Engaging in this process offers national manufacturers, trade unions and governments the opportunity to collaborate with global garment and retail brands that are committed to support efficient employment relations and substantial and continuous wage growth in the sector.


Employers’ organisations and trade unions both need to be mandated by their members to negotiate a collective bargaining agreement about wages and working conditions at industry level on their behalf. If there is more than one trade union or employers’ organisation, a joint bargaining council can ensure that all relevant organisations are represented in the process. These are the parties to the agreement.

Based on their knowledge of the economic situation of the industry and the needs of the workers, the parties can negotiate an agreement balancing the different interests and expectations. The parties can include in the negotiations any issue they want to be subject of an agreement. They are free to negotiate the terms of the new agreement, as long as the finally agreed terms are not lower than the standards set by national law. This also includes provisions about dispute resolution, mediation, arbitration as well as monitoring and enforcement of the agreement.

The parties can agree cost efficient, speedy and clear dispute resolution mechanisms according to their needs
and priorities. Governments can support the coordinated wage setting through extension mechanisms. By making the provisions negotiated by representative organisations of employers and workers legally binding for the entire industry, governments can promote an equitable, innovative and productive sector based on fair competition.

Several factors need to be in place to enable collective bargaining at industry level:

  •  A commitment by employers and trade unions – to negotiate in good faith.
  • An enabling regulatory framework set by the government.
  • Full respect of freedom of association.
  • Mutual respect and the recognition of the legitimate interests of each party.
  • The will to conclude and implement an agreement plus the commitment to no disputes over the content of the agreement once it is signed.

Win-win cooperation - Tailor-made solutions for flexibility and security

Business needs the opportunity to respond timely to economic changes while workers should not be living in a world of daily economic insecurity.  Collective bargaining at industry level – also often called sectoral collective bargaining – combines this dual need for flexibility and security.

Collective bargaining at industry level gives employers and workers the freedom to negotiate tailor-made solutions and ensures that commonly agreed standards become binding for everyone. It is better suited than detailed laws to offer efficient solutions specific to the nature of the industry.

Sectoral collective bargaining sets a level playing field where competitive advantages cannot be won through substandard working conditions. Workers in the sector are entitled to the wages and benefits negotiated in the collective bargaining agreement independently of their specific employer. Predictability and transparency of wage increases offers business the stability that is needed for longer term investment.

Collective bargaining at industry level allows a wage setting process in a competitive environment where productivity gains can be fairly shared between employers and workers. It also enables the bargaining parties to agree on a continuous process of upgrading the industry and improving wages and working conditions. Collective bargaining agreements can provide for agreed wage scales to be introduced that set the wage for specific job or skill categories that are common across the sector. A pay system based on wage scales helps to retain qualified and experienced staff and offers new recruits a career path.

Standards applicable throughout the industry reduce staff turnover rates as workers have fewer incentives to move from factory to factory in order to benefit from factory- based wage differentials. More stable workforces allow for investment in skills development and personal planning. When workers do move between factories, their skills and seniority can continue to be recognised.

Determining wages and working conditions at enterprise level is time consuming and potentially conflictual.

A living wage is the minimum income necessary for a worker to meet the basic needs of himself/herself and his/her family, including some discretionary income. This should be earned during legal working hour limits (i.e. without overtime). ACT definition of a living wage

Setting wages through a negotiation process at industry level takes this potential for conflict out of the workplace and allows for a professional and structured wage setting process. A negotiated solution helps to build the necessary trust between workers and employers to find joint solutions that address the specific needs of the industry.

Setting the same wage rate across the industry means that wages will reflect the average efficiency in the sector. Hence enterprises will have a strong incentive to increase productivity and lower unit labour costs.

Setting and raising the wage floor for the entire sector is a major productivity driver for the industry as a whole. Factors such as innovation, industrial upgrading and skills development instead of wage competition will become the key determinants of business success.

Negotiating solutions

It is essential for fair and sustainable outcomes that the actors at country level are in the driving seat to determine the wages and working conditions in the industry. At the same time, substantial and lasting improvements are impossible without changes in purchasing prices and practices of international buyers. That’s why the ACT approach brings together all relevant actors to achieve a sustainable and productive garment industry.