Apple supplier audit finds major wage and overtime violations

@CNNMoneyTech March 29, 2012: 8:54 PM ET

NEW YORK (CNNMoney) -- A heavily anticipated report on working conditions at Apple supplier Foxconn documents dozens of major labor-rights violations, including excessive overtime, unpaid wages and salaries that aren't enough to cover basic living expenses.

More than 60% of the workers at three of Apple supplier Foxconn's factories in China say their wages fall short of their basic needs, according to a report released Thursday by auditors from the Fair Labor Association. The FLA is a watchdog group hired by Apple to audit its overseas suppliers.

The average monthly salaries at the plants range from 2,257 RMB in Chengdu -- around $358 in U.S. dollars -- to 2,872 RMB (USD $455) in Guanlan.

A team from the FLA, an independent labor-rights organization, arrived last month at the vast Foxconn plant in Shenzhen, China, known as Foxconn City, to conduct a voluntary audit commissioned by Apple (AAPL, Fortune 500). Thursday's report, which the FLA said is the first of many, covered three factories in Guanlan, Longhua and Chengdu.

The team surveyed 35,500 employees at those factories about their working and living conditions, including their compensation and working hours. The audit also included inspection of manufacturing areas, dormitories and other facilities.

The FLA's report says Foxconn has agreed to work with the group to remedy many of the violations it recorded. In one key move, Foxconn says it will achieve "full legal compliance" with Chinese work-hour laws by July 1, 2013. To do that, Foxconn will need to hire "tens of thousands" of extra workers to offset its current employees' workload, the FLA said.

In a written response to the FLA's audit, Apple said: "We appreciate the work the FLA has done to assess conditions at Foxconn and we fully support their recommendations. We think empowering workers and helping them understand their rights is essential."

The company added: "Our team has been working for years to educate workers, improve conditions and make Apple's supply chain a model for the industry, which is why we asked the FLA to conduct these audits. We share the FLA's goal of improving lives and raising the bar for manufacturing companies everywhere."

Apple CEO Tim Cook is traveling in China this week and visited an iPhone production line in Foxconn's Zhengzhou plant. Apple on Wednesday released photos of his visit, but did not provide any further details.

In a statement, Foxconn said the investigation "is part of our long-standing commitment to working together with our customers to ensure that our employees are treated fairly and their rights are fully protected."

Foxconn also said it is "committed to work with Apple to carry out the remediation program."

The FLA's audit comes in the wake of growing public concern about labor conditions in the overseas factories that many U.S. gadget makers rely on to make their devices. Apple is one of many companies that outsources its manufacturing, but as the industry's most popular and profitable company, it's under the most intense spotlight.

Foxconn, one of Apple's largest suppliers, has drawn harsh criticism from labor activists. A spate of suicides at the company's factories in 2010 garnered media coverage of bleak working conditions, including unsafe facilities and illegal overtime requirements. A story published in January by the New York Times documented the human toll of a Foxconn plant explosion that killed several workers.

Apple has conducted its own supplier audits since 2006, and the company releases some of its findings on its website. Its latest report, published in January, detailed nearly two dozen "core violations" of labor and human rights, including the use of underage workers. In more than 100 facilities, excessive work hours were "commonplace," according to Apple's report, and most of those plants failed to pay proper overtime wages.

Two facilities were deemed "repeat offenders," and Apple cut ties with one of them. Still, because Apple is one of America's most profitable businesses and has a cash stash of almost $100 billion, it's faced criticism for not doing more to repair what its own audits illustrate are rampant and often dangerous violations in its overseas manufacturing plants.

The FLA's audit sheds more light on those conditions. The Fair Labor Association is a non-profit organization that formed in 1999 in the wake of a series of sweatshop scandals involving Nike and other apparel makers. Nike (NKE, Fortune 500) became one of the founding members of FLA, which requires its members to meet a labor-standards code of conduct.

The FLA conducts independent audits of its members' facilities to monitor compliance, but it has also been criticized by labor activists for drawing much of its funding from the same companies for which it acts as a watchdog.

Apple joined FLA in February, becoming the first major technology company to do so. Apple has not commented on how much it contributes to the FLA, but in an interview with Nightline last month, FLA President Auret van Heerden said Apple is paying the group "well into the six figures" to conduct its audit of Foxconn, in addition to the $250,000 that Apple pays the FLA in dues.

In its 13-page audit report, FLA documents 50 issues related to its code of conduct and Chinese labor laws, including infractions in the following areas: health and safety, worker representation, as well as wages and working hours.

Working hours and salaries: Within the last 12 months, all three factories exceeded both Chinese legal limits on working hours and the FLA's own standard of 60 total hours per week, including both regular shifts and paid overtime.

Foxconn has agreed to bring itself into compliance with those laws within the next 16 months, the FLA said.

The FLA's report matches Apple's own audit results, which found that more than half of Foxconn's employees worked a schedule that broke legal limits. Most of the facilities Apple audited did not pay proper overtime wages as required by law.

The investigation also found that 14% of Foxconn's workers may not receive the compensation they're owed for unscheduled overtime, because that time was paid only in 30-minute increments. That is, 29 minutes of overtime work receives no pay and 58 minutes receives only 30 minutes' worth.

The FLA said Foxconn has agreed to pay workers fairly for all overtime hours, as well as for work-related meetings that take place outside of regular working hours. Also, Foxconn and Apple have agreed to compensate retroactively any worker owed for unpaid overtime. An audit is currently ongoing to determine the payments due.

Health and safety: More than 43% of the workers surveyed said they either experienced or witnessed some kind of work-related accident. Before the FLA audit, Foxconn recorded only accidents that resulted in a production stoppage.

Beginning immediately, Foxconn has agreed to require supervisors and workers to report all accidents that result in an injury.

Several specific safety problems at the work sites -- including blocked exits, faulty personal protective equipment and missing permits -- were corrected during the course of the investigation, the FLA said.

Worker representation: Foxconn's union is largely made up of representatives from company management. That "does not provide true worker representation," FLA dryly noted.

Foxconn has agreed to get in compliance with Chinese law and ensure that elections take place without management interference, according to the FLA.

The FLA is continuing its audits of Apple's supply chain. When complete, the assessment will cover facilities where more than 90% of Apple products are assembled. To top of page

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