ICTI CARE Process: Working Hours Policy Amendment

Preface

In 2010, the ICTI CARE Process published the first Continuous Improvement Process (ICP) policy for wages and working hours along with guidelines and an implementation plan. Since then we have observed many internal and external factors impacting the toy manufacturers' compliance behavior. We aim for full compliance with a 66 hour work week, yet recognize that the current industrial reality and demands of seasonality, like labor shortage and urbanization won't allow every single factory to meet the requirement in working hours and yet stay profitable and pay their workers in a correct and timely fashion.

Going forward the ICP will make improvements through root cause analysis and capacity building programs along with strengthening monitoring process and integrity control; this amendment reflects ICP's efforts to arrive at a more sustainable certification scheme effective April 1st 2012.

The amended criteria and standards for Class A, B, Conditional and Probation take the above into account and result in a more reliable and transparent compliance status. The reduced progress audit and surveillance audit frequency does allow factories to improve themselves with a more realistic pace to achieve a sustainable system and solution. Factories meeting compliance requirements continuously will be rewarded with a longer-termed certification while severe backsliding behavior will cause termination from the ICTI CARE Process.

The ICP is developing factory oriented training programs focusing on capacity building and management training. Factories need to meet working hour requirement by specific deadlines (generally within 12 months), at the same time correctly compensation workers and providing due benefits.

Seal Categories and Compliance Requirement

Class "A": Factories:

Work a minimum of 40 weeks at less than or equal to 66 hours/week; and "Seasonal OT" with maximum of 12 weeks greater
     than 66 hours/week but less than or equal to 72 hours/week (which can be applied consecutively).

One day of rest every week (not every seven days).

One progress audit is required within 6 months from the Seal of Compliance date in general to verify the seal sustainability.

A progress audit will require 1 or 2 man-days (2 man-days for factories with greater than 300 workers).

Depends on any non-compliance in working hours or major discrepancies detected from the progress audit, the
    original seal status will be changed for the remainder of the seal period.

Progress audits will be conducted by a different audit.

Incentive Scheme: After two consecutive Class "A" seal qualifications, a third Class "A" seal cycle and onward ones will be automatically extended from 12 to 18 months. No progress audit will be required during the 18 months, while up to 10% QC audits on a random basis will be assigned by the Operations. The payment will be charged according to the policy of QC audit charge.

Class "B": Factories:

Work less than or equal to 72 working hours/week on a normal basis.

Maximum of three occasions1, to work more than 72 hours/week.

One day rest each week to workers (not every seven days).

One progress audit is required within 6 months from the Seal of Compliance date in general to verify the seal sustainability.

A progress audit will review at least 3 months of pay-roll, attendance and other relevant records from the last audit
    date.

Each progress audit will require 1 or 2 man-days (2 man-days for factories with more than 300 workers).

Should the progress audit show the factory qualifies for a higher class of seal, the seal status will be changed
    accordingly for the remaining seal period and a new seal will be issued. A discounted Seal of Compliance Fee will
    become payable.

Should the progress audit reveal non-compliance in working hours or major discrepancies, the seal status will be
    changed accordingly depending on the reason for the non-conformity. The seal status will be changed for the
    remaining seal period, except for probation cases; a discounted Seal of Compliance Fee will become payable except
    for the probation cases.

Progress audits conducted by different audit firm.

Factory in Class 'B' can remain in this category for up to 12 months; factories who cannot meet requirement for achieving "A"
     class after ONE year, ratified capacity and competence building factory training programs by ICFAL will be requested to prove
     factories have a promising system to follow and improve to reduce excessive working hours and achieve the target.

Class "Conditional": Factories:

Work more than 72 hours/week.

One day rest each week to workers (not every seven days).

One progress audit is required within 6 months from the Seal of Compliance date in general to verify the seal sustainability.

A progress audit will review at least 3 months of pay-roll, attendance and other relevant records from the last audit
    date.

Progress audits conducted by different audit firm from the one that conducted the annual audit.

Within first 6 months working hours reduction of 50% of the gap between the actual working hours and the 72 hours/week. After
    12 months, working hours have to be reduced to Class "B" requirements.

Factories in Class 'C' can remain in this category up to 12 months. Factories that cannot meet requirement of reducing 50%
    of the gap after 6 months, or factories cannot meet the Class 'B' requirement within 12 months, ratified capacity and competence
    building factory training programs by ICFAL will be required to prove factories have a promising system to follow and improve to
    reduce excessive working hours and achieve the target.

"BACKSLIDING"

Significant backsliding is discouraged. It is defined as any regression in working hours by a factory for two consecutive years and/or a downgrading of two or more seal classes.

Significant backsliding will cause Probation automatically. Factories failing to show improvement within two years thereafter will be terminated from the program for at least 6 months before being permitted for re-application. Factories not accepting probation will be terminated.

Definition of occasion: This is applicable to any group of workers (more than two) working overtime exceeding 72 working hours/week.

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