Apple Supplier Foxconn Fails Hours Law Amid Improvement

Foxconn Technology Group doesn’t comply with Chinese labor law by allowing some factory workers to exceed limits on hours even as the Apple Inc. assembler met 99 percent of conditions set out by a monitoring group.

Restrictions on overtime were broken because labor shortages and employee turnover forced remaining staff to work longer hours to meet production targets, the Fair Labor Association said in a report yesterday. The group inspected assembly lines at the maker of iPhones and iPads for 15 months after releasing its initial audit in March 2012.

Apple joined the FLA last year, leading to inspections at three of Foxconn’s factories in a bid to improve conditions and identify remedial items after a spate of suicides in 2010. Foxconn founder Terry Gou raised salaries, hired counselors and increased social activities for the company’s 1 million workers in moves that may flow through to other technology companies.

“Because of Foxconn’s weight in the labor market, anything they do tends to have a market-setting aspect to it,” Auret van Heerden, president of the Washington-based labor group, said in a phone interview. “The government’s limit of 49 hours a week was always a very ambitious goal. They made phenomenal progress in getting to an average of about 52, 53 hours a week.”

Photographer: Qilai Shen/Bloomberg

Employees work on the assembly line at Hon Hai Group's Foxconn plant in Shenzhen. Close

Employees work on the assembly line at Hon Hai Group's Foxconn plant in Shenzhen.

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Photographer: Qilai Shen/Bloomberg

Employees work on the assembly line at Hon Hai Group's Foxconn plant in Shenzhen.

Foxconn flagship Hon Hai Precision Industry Co. (2317) fell 0.3 percent to NT$78.30 as of 9:40 a.m. in Taipei. The stock has declined 3.1 percent this year, compared with an 8.7 percent gain in the benchmark Taiex index.

Code of Conduct

During the first audit last year, the FLA found at least 50 breaches of Chinese regulations and the code of conduct Apple signed when it joined the organization. At the time, Taipei-based Foxconn failed to meet mandated work-hour limits, had inconsistent health and safety policies, and issued unfair overtime pay.

In its final verification report, completed last month, Foxconn was found to comply with 356 of 360 action items, or about 99 percent, with the four remaining issues all related to work hours, the FLA said. While progress has been made, three factories aren’t complying with Chinese labor law, it said.

“The results of that report demonstrate substantial overall progress by our company in carrying out the 15-month remedial program in many areas,” Foxconn said in an e-mailed statement. “We recognize that there is more to be done, and that we must continue to sustain this progress.”

Apple Chief Executive Officer Tim Cook has made improving conditions within its supply chain a priority and says the Cupertino, California-based company will suspend business with those that violate its code of conduct.

Overtime Hours

While all workers building iPads and iMacs at the company’s Longhua plant in Shenzhen worked less than the maximum 60 hours a week, about 68 percent exceeded the monthly cap of 36 overtime hours, the FLA wrote.

At the Guanlan facility in Shenzhen, where Foxconn assembles iPhones, about a third of workers surpassed the 60-hour weekly limit as Apple prepared to release new products, it said. More than half exceeded the monthly overtime mandate.

At a third factory in the western city of Chengdu, the company met the 60-hour work limit while surpassing the monthly overtime cap, according to the report.

Apple said working hours have come down because of its attention to the issue, and the company will continue providing monthly reports on compliance.

“We are proud of the progress we have made together with the FLA and Foxconn,” Apple said in an e-mailed statement. “We are committed to reducing excessive overtime even further.”

Recommended Remedies

The recommended remedies include closer monitoring of work hours on a weekly basis, revising policies and procedures, and better forecasting and production planning.

“Although the current starting wage is 20 percent above the legal minimum wage, workers do not feel it is high enough to meet basic needs and provide discretionary income,” FLA said in the report. “As a result workers rely on overtime hours.”

Improvements at Foxconn have led to attention shifting to fellow Apple suppliers Pegatron Corp. (4938) and Samsung Electronics Co., (005930) the Suwon, South Korea-based company that also is the iPhone maker’s biggest competitor.

Apple sent an independent medical team from China and the U.S. to a factory operated by Pegatron last month after the death of employees. The team found no evidence of any link to working conditions, the company said.

“We have a team working with Pegatron at their facility to ensure that conditions meet our high standards,” Apple said via e-mail.

Worker Died

Pegatron also supplies Sony Corp. (6758) and Dell Inc.

A 15-year-old Pegatron worker died of pneumonia on Oct. 9 at a Shanghai hospital, about five weeks after taking a pre-employment physical examination that indicated he was in good health, China Labor Watch wrote, without saying whether the test included a lung examination or checked for signs of pneumonia.

The minimum age for employment or work is 15 years of age, according to Apple’s supplier code of conduct.

CLW said earlier this month a Samsung supplier isn’t paying some overtime to employees at a mobile-phone factory in southern China, citing an undercover investigation at the plant. Samsung, Asia’s largest technology company and the world’s biggest maker of mobile phones, said it will send a team to investigate the allegations and take necessary measures.

The FLA plans to introduce the measures implemented at Foxconn, Apple’s biggest supplier, to other companies contracted by the maker of iPhones, Van Heerden said.

“This the just the end of the beginning,” he said. Foxconn was a “test-bed” for the remedial action to be taken at other Apple suppliers, which could include Samsung and Pegatron, according to Van Heerden.

To contact the reporters on this story: Stanley James in Hong Kong at sjames8@bloomberg.net; Tim Culpan in Taipei at tculpan1@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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