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Apple/Foxconn Report Highlights Legal and PR Liabilities
Note: This article has been updated.
Just ahead of the release of a Fair Labor Association report [PDF] on working conditions at Foxconn’s Chinese tech factories, Apple Inc. CEO Tim Cook made a goodwill trip to China last week. And any labor issue that can get the heir to Steve Jobs’s iThrone flying halfway across the world is something that should be getting the attention of all U.S. companies dealing with international supply chains.
Apple’s Cook toured one of the factories where the Washington-based FLA found serious violations of local overtime laws and took issue with the supplier’s health and safety practices. The official Chinese news agency Xinhua reported that Cook told Vice Premier Li Keqiang that Apple “will strengthen comprehensive cooperation with the Chinese side and conduct business in a law- abiding and honest manner.”
U.S. companies with manufacturing facilities abroad increasingly face the threat of employment litigation, and stories like the ones highlighting the Apple/Foxconn relationship can also create serious public relations issues. Plaintiffs employment lawyer Cliff Palefsky says the real concern for a company in Apple’s shoes is managing how its consumers view the allegations of poor treatment of workers.
“I think the ramifications are more related to public relations than legal exposure, says Palefsky, a partner with San Francisco’s McGuinn, Hillsman & Palefsky. “Not to minimize it,” he says, “because I think [the effects] could be profound as consumers and unions become more aware of the abuses and publicize them.”
He says Apple’s cooperation with the FLA during the Foxconn inspection is indicative of the motivating power of preservation of corporate reputation. Apple opened its suppliers’ facilities to inspections by the FLA after human-rights organizations complained about working conditions.
Palefsky says countries such as China still lag far behind America in terms of worker expectations. The global public “taking notice and making noise” is likely to have more of an effect on corporate practices than any actual legal pressures, he says.
He warns companies against making statements to its consumers, however, that cannot be supported factually.
Pointing to Kasky v. Nike, Inc., Palefsky says Nike could be held responsible for unfair business practices because of representations made regarding the nature of the treatment of their workers abroad. Although Nike was not held directly liable for its treatment of workers, the U.S. Supreme Court said that statements Nike made were commercial speech—and therefore subject to false advertising laws. The parties reached a settlement before a trial on the merits.
“If companies begin responding to these issues with broad public assurances that are not true,” says Palefsky, “they may very well be exposing themselves to some liability.”