Novel Legal Challenge to Wal-Mart Appears To Be Faltering on Coast

By JOSH GERSTEIN, Staff Reporter of the Sun
December 12, 2006

SANTA ANA, Calif. — A bid to use the American legal system to hold Wal-Mart accountable for alleged abuses at its suppliers' factories overseas is faltering after a federal judge indicated he is inclined to dismiss the case.

Judge Andrew Guilford issued a tentative ruling yesterday that would dismiss a wide-ranging lawsuit filed against the retail giant last year on behalf of workers at factories in Bangladesh, China, Indonesia, Nicaragua, and Swaziland. The suit alleges that the facilities failed to pay minimum wage, forced overtime work on unwilling employees, and blocked workers from organizing unions.

During arguments in his Orange County, Calif., courtroom, Judge Guilford said the employees may have legitimate grievances with their employers but that Wal-Mart was not legally responsible for any breaches.

"It's a question of who they can sue," the judge said. "The employee can sue the supplier."

An attorney for the workers, Terry Collingsworth, argued that the foreign workers had no realistic prospect of suing in their own countries. "They don't have adequate access to courts there," he said. "This is their sole place to try to be heard."

The lawsuit claims that Wal-Mart is responsible for the alleged labor abuses because, beginning in 1992, it implemented and publicized rules for factories that produce goods sold at its stores. The "standards for suppliers" document sets maximum work hours at foreign factories, permits legal labor organizing, and calls for healthy work conditions. The retailer also requires that its labor standards be posted on factory floors in the workers' local language. The posters encourage employees who know of violations to contact Wal-Mart headquarters.

Mr. Collingsworth said his clients were entitled to sue Wal-Mart because its actions caused human rights groups to ease up pressure on foreign sweatshops. "Wal-Mart said, ‘We're cleaning up the factories,'" he told the judge. "Wal-Mart effectively waved off the ambulance."

While Judge Guilford signaled that he was likely to rule in favor of Wal-Mart, he also suggested that publicizing a specific code of conduct was inviting litigation by workers who contend the guidelines are not being followed. "Isn't the ‘standards-for-suppliers' document the typical kind of document that gets employers into trouble in labor disputes?" he asked.

An attorney for Wal-Mart, Robert Hendricks, replied that the only beneficiary of the policy, at least as far as American courts are concerned, is the Arkansas-based company.

"The language of the document creates certain rights for Wal-Mart," Mr. Hendricks said. "It does not create certain rights and obligations on behalf of Wal-Mart."

The text of Judge Guilford's tentative ruling was provided to lawyers in the case but was not made public immediately. During the hearing, Mr. Hendricks quoted the judge as having written that claims in the suit were "reality-bending."

Several employees of California supermarkets are also plaintiffs in the case. The suit contends that their wages were unfairly depressed because of business their employers lost to Wal-Mart due to the retail giant's alleged deceptions.

Mr. Hendricks said it made no sense to hold Wal-Mart responsible for the pay decisions of other employers."It's a complete non-sequitur," he said. "This is not a notion of original sin where Wal-Mart is somehow responsible for every deed that someone wants to attribute to it. … What Wal-Mart's responsible for is its conduct."

A Wal-Mart executive who attended yesterday's hearing, Elizabeth Keck, said she was guardedly optimistic about the suit. "We think it's heading in the right direction," she told The New York Sun.

The case is being followed closely by business interests, including the U.S. Chamber of Commerce, which filed an Amicus brief on behalf of Wal-Mart. "If this case did go forward, its applicability would be much broader than just Wal-Mart," Ms. Keck said. "It would have pretty big ramifications."

Ms. Keck acknowledged that not all Wal-Mart suppliers have abided by the retail chain's standards at all times. "Anyone involved in this area finds issues, and we're very up front about that," she said.

Asked if the "standards for suppliers" amount to a promise to American consumers, Ms. Keck did not answer directly. "We think it's something that's perfectly appropriate. We don't think we're making false promises here," she said.

Ms. Keck said the workers' complaints should have been pursued in the jurisdictions where the factories are located. "All those countries have good legal statutes in place," she said. "It's just a matter of execution."

Mr. Collingsworth said in an interview that it was laughable to suggest that the workers would be protected by the Chinese legal system, for instance. "In China, you don't take your employer to court. Bad things happen to you if you do," he said.

Under federal law, American courts are permitted to hear some claims stemming from forced labor or slavery overseas, but Judge Guilford expressed doubt about applying those statutes to claims involving excessive work hours or unjustified firing. "Wouldn't that just open up federal courts to an incredible array of lawsuits from around the world?" he asked.

Mr. Collingsworth, who runs a union-backed legal center in Washington, the International Labor Rights Fund, said an appeal is likely if the judge dismisses the class-action suit. The case against Wal-Mart is modeled on litigation the labor group brought against an oil firm, Unocal, on behalf of Burmese villagers who said they were forced by the military to work on construction of a pipeline for the company. Unocal agreed to settle the case in 2004 before the legal issues were resolved definitively.

The Wal-Mart case also raises the issue of how much First Amendment protection should be accorded to a company when it makes statements about its own conduct. In 2002, the California's highest court ruled, 4–3, that Nike could be subjected to a false advertising suit over its claims to have eliminated sweatshop labor in its supply chain. The Supreme Court agreed to take the case but then rejected it, leaving the First Amendment question open nationally, though it is settled in California.

Another attorney for workers in the Wal-Mart case, Anne Richardson, said business groups hope the Wal-Mart suit will become a vehicle to win more protection for corporate speech.

"Just because an issue is of public interest doesn't immunize them," she said. "I think they're trying to redo Nike."

Novel Legal Challenge to Wal-Mart Appears To Be Faltering on Coast

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