Nike Versus Sweatshop Critic: Back to California

Nike, the world's largest shoe manufacturer, could become the world's leader in improving labor standards across the globe. If US courts decide that it must, that is. The US Supreme court decided on June 26 to allow a California state court to proceed with a trial in which US-based Nike is charged with lying to the public about labor conditions in its factories overseas. A California man has charged that Nike's denial of contracting to 'sweatshops' is a blatant disregard of the state's truth in advertising law. Rather than address the accusations as posed, Nike wanted the Supreme Court to rule that its right to freedom of speech was at stake. In refusing to review the case and sending it back to a lower court, the Court has paved the way for Nike and its critics to demonstrate whether or not sweatshop conditions prevail in the company's contracted factories. The results of the California trial could substantially influence labor standards, corporate transparency, and accountability in the 51 countries in which Nike does business. Once established as a precedent, new labor standards could also be applied to other US-based multinational corporations and also non-US businesses wanting to sell to the US market. – YaleGlobal

Nike Versus Sweatshop Critic: Back to California

The US Supreme Court decision opens the door to a lawsuit relating to globalization
S.L. Bachman
Friday, June 27, 2003
Indonesian workers protest against lay-offs by Nike in 2002: Demand for social responsibility.

San Francisco: The next chapter in the international sweatshop wars will be fought in a California courtroom, thanks to the dismissal by the US Supreme Court of a legal case brought by Nike Inc. against one of its critics.


This legal turnabout now puts Nike, the world's largest producer of athletic shoes, and critic Marc Kasky back where they left off five years ago, when the activist sued the company for allegedly lying when it claimed in a public relations campaign that its hundreds of contractors around the world did not operate sweatshops.


Even now that the case has been kicked back into a lower court, the outcome of the legal battle will have international implications for the anti-sweatshop movement, for multinational corporations that contract with foreign low-wage manufacturers, and for thousands of contracting manufacturers - especially in Asia.

If the suit goes forward - and there is still some chance that it will be slowed or halted by another constitutional challenge or other legal defense stratagem - it will set international precedents. Three are:


• Nike's contractors may have to open their business practices to unwelcome public scrutiny. Unless the court suppresses evidence in the trial, evidence about the labor practices of Nike contractors will be made public. If that includes evidence that contractors normally keep secret, many contractors may face a painful choice: allow their labor practices to be examined in public, or stop contracting with Nike in order to keep their business practices from public view. Through its contracts with manufacturers around the world, Nike employs about 500,000 workers in 51 countries.



• Companies will have to be more careful about claims made not only in advertising, but also in public relations such as letters to the editor and all other public statements that could be considered advertising.


• Companies with labor practices or workplace conditions matching Kasky's definition of "sweatshop" will face a new round of international scrutiny - which may lead to pressure for contracting and contractor companies both to institute new workplace rules and spend more money on labor, safety, and other workplace improvements.



The Supreme Court action leaves open the question of commercial free speech. The commercial code states that companies may not make false claims in their advertising.


Kasky's suit against Nike, however, concerned a public relations campaign of letters and other public communications. The line between advertising and public relations has become increasingly blurred, and so it is no easy problem to determine whether Nike's statements were or were not protected under the US Constitution.

Nike had appealed to the Supreme Court that these public communications are not advertising, which would be governed by the strictures of the commercial code, but are corporate "speech" and so are protected by the free speech provision of the First Amendment of the US Constitution. The First Amendment says that “Congress shall make no law…abridging the freedom of speech, or of the press." Over many years, that provision has been interpreted to allow all kinds of political speech, but to not allow "commercial speech" that makes false claims.


Nike had asked the Supreme Court to declare unconstitutional the California law under which Kasky brought his original lawsuit. The California consumer protection law allows individuals, to sue companies for false advertising. Had the Court agreed with Nike's argument, the California consumer safety law would have been declared unconstitutional, and the legal battle would have ended immediately


Barring any further constitutional appeal by Nike, Kasky can now move ahead in trying to prove that Nike lied in its public affairs campaign. "We now have the opportunity to go to trial to determine if Nike's comments were true or not," Kasky told The Associated Press on the day the Supreme Court refused to review the case.



Kasky's suit challenged Nike: You put your facts on the table, and I'll put my facts on the table. Then the court will decide whether the conditions in your contracting companies amount to sweatshop conditions. But the "facts" themselves have been in dispute.


What is a "sweatshop" after all? Should third world factories, where people are evidently happy for factory jobs making products for export and often are paid more than workers in an economy's domestic sector, have the same worker safety and pay standards as in US or European workplaces? Don't lower safety and pay standards serve developing countries by making them more competitive, and thus more able to work their way out of poverty? Are anti-sweatshop protests merely a smokescreen for protectionism?


The answers to these questions have been debated in editorials, opinion articles, parliaments, street demonstrations and many other forums around the world.

The World Trade Organization's provisions strongly discourage nations from excluding imports of goods because of the way those goods have been produced. Disputes land in the WTO's dispute resolution process, which operates by consensus.

Rarely, however, have these questions been tested in a national court of law, whose decisions could have international consequences. Because US law underlies the commercial activity of US-based corporations around the world, decisions reached in US courts will shape millions of international transactions. Even corporations that are based elsewhere will have to follow US law if they hope to sell their products and services in the United States.


If California courts rule that Nike did lie in its public relations campaign, Nike could be required to pay damages.


Nike appears unfazed, though. "We believe that all consumers and other stakeholders should be able to make their own assessment of a company's performance based on robust, credible and relevant information," Maria Eitel, a Nike executive was quoted in news reports as saying. Eitel is Nike's vice president and senior adviser, corporate responsibility. "Equally important, we also believe that all stakeholders should have the benefit of common performance criteria through company reports to make such assessments."


The Supreme Court could review the case again, after California courts finish their work. Although Nike and its critic have been tossed out of the nation's highest court, they have not exited the national - or the international - spotlight for long.

S. L. Bachman is a visiting scholar at the Markkula Center for Applied Ethics at Santa Clara University.

© Copyright 2003 Yale Center for the Study of Globalization