Former Apple Employees Allege Company Complicit In China Suppliers' Labor Law Violation

China enacted a new labor law in 2014 to protect workers' rights, which set the threshold for temporary factory workers to not more than 10%. According to the Information (via the Verge), it directly impacted Apple Inc AAPL because its supplier factories in China were in violations of the temporary worker limit.

What Happened: Temporary workers in China receive lower wages and fewer benefits. It had become a common sight in China due to shrinking interest in factory jobs, according to the Information sources, as reported by the Verge.

After the law came into force, Apple surveyed 362 of its supplier factories in China and found nearly half violated the temporary worker limit. Eighty factories used more than 50% of temporary workers in their labor force, according to an Apple presentation reviewed by the Information.

The iPhone maker asked its suppliers to adhere to the temporary worker limit by March 2016, a grace period to comply with the law.

Three former members of Apple's "supplier responsibility team" allege that not much changed by the expiry of the grace period and Apple took no significant action against the suppliers violating the law "out of concerns it would create costs, drain resources and delay product launches."

Why It Matters: According to the Information, the problem continued in 2018 as a Quanta factory manufacturing Apple Watches hired 5,000 temporary workers, accounting for 27% of its labor force.

In 2019, Apple and its major supplier Foxconn Technology Co Ltd FXCOF admitted to using more temporary workers in China than allowed by law, as reported by Engadget.

Apple's strategy of avoiding leaks and maintaining product secrecy gives rise to the temporary workers' issue.

"We are making it difficult for our suppliers to comply with this law as 10% dispatch is simply not enough to cope with the spikes in labor demand we require during our ramps," Apple executives said in the company presentation, the Information noted, as per Apple Insider.

Apple said that it applies its supplier code of conduct policies equally across the supply chain.

Price Action: AAPL shares fell 2.09% to close at $121.78 on Wednesday.

Image Courtesy: Wikimedia