China Law Blog

I did a few factory tours during my Fulbright in China this past year. One factory was Chinese/Japanese owned and did huge contracts with primarily American companies. I think that this is a way that American companies could absolve themselves of some responsibility - as they are simply putting in orders. They are not responsible for wages, hours worked or working conditions, etc. However, I do think that they should be held responsible - if not morally and ethically then by law.

One of the buyers came with us to the factory and while touring I asked him if his company had any standards or regulations that a factory must abide by and adhere to in order for them to do business with the factory. For instance, x company only does business with a factory that has regular working hours, minimum wage pay, safe working conditions, etc. He said that they just had to be an accredited factory and attempted to assure me by saying that in his time working with factories in China he had never seen anything that resembled a sweatshop or truly unsafe working conditions.

I was inclined to believe him. However, if he had seen these things, I wonder if he would have reported back to his company. And even if he did, would the company pull out its contract? My guess is no. Not to mention, exposing people to toxins is not something that would necessarily be visible.

I think that this subject is very important in the wake of the current toy debacle. The US media and population is holding China and Chinese factories accountable, but what about Mattel and the other toy companies? Shouldn't they be held responsible for not only exposing American children to toxins but also exposing thousands of Chinese factory workers who are primarily young women?

Should a worker hurt make the customer liable? Please, please tell me your joking. Should an Applebee's employee who slips on the kitchen floor file a class-action lawsuit against the restaurants customer base? Why not. If it weren't for the customers giving the company business, the restaurant wouldn't have been opened in the first place.

I hope that the software programmers at Apple Computer don't sue me when they get carpal tunnel syndrome. Shall I book a flight to Cupertino to see if their keyboards are ergonomic?

Such a lawsuit would be the textbook definition of "irony" as US companies went to China to avoid all of that meddlesome "labor rights" and "environmental regulation" communism.

Wouldn't surprise me if workers were encouraged to sue as well.

Jenn,

Are not both US companies and Chinese factories at least somewhat responsible (non-legally) for the toys?

Paul M.,

That you pose your questions as though my questions are beyond the pale of law shows you do not fully realize how far U.S. law stretches. I am not terribly well equipped to debate policy so I will leave that to others, but I do not think it crazy to think such lawsuits could be coming (or are they already here?) some day. You should read The Making of Bureaucratic Society (if you didn't already read it while at Grinnell).

nh,

It would not surprise me a bit if workers were not encouraged to sue. I noticed the other day that a prominent Chicago plaintiff's law firm very loudly touts its affiliation with the Lehman, Li and Xu firm in Beijing. I'm GUESSING Lehman sends Chinese tort plaintiffs to this Chicago firm and I'm also guessing there are other firms in China doing the same thing. What is to stop them from sending over a few workers' cases while they are at it.

Fair enough, but you haven't addressed the hypothetical: Shall we book a flight to Cupertino to see if the keyboards at Apple are ergonomic?

Sure, my experience in international litigation is limited to a few class periods covering jurisdiction in Federal Civil Procedure, and it does not seem as if there would be any jurisdictional impediments to a Chinese worker firing these law suits. If I was defending against a suit of this variety I probably could not stop the case at the 12b6 stage for lack of personal jurisdiction, and probably could not defeat in summary judgment for lack of subject matter jurisdiction, however that wouldn't stop me from filing both. If this went to trial I would turn to the public policy behind tort claims, specifically the building blocks of modern tort policy and products liability as formulated by judge Traynor and Justice Cardozo.

Torts are supposed to function as an insurance system financed by society at large through higher prices on goods, higher costs for services. Society is theoretically willing to bear these costs because the whole society is subject to the risks of these services and goods at the same time that society is enjoying these goods and services and the fruits of these goods and services. When manufacturing is outsourced to China, another society governed by different law, it is hard to say that Americans should be insuring members of the China society against risks that Americans are not subject to, especially when Americans are not bearing the fruit of the manufacturing occurring within the American society. The Chinese factory worker's attorney would of course reply that Americans are receiving the fruit of lower cost goods, but this is not in itself sufficient for the insurance system that tort law implies.

The American courts are THE place to conduct tort litigation because of such factors as our liberal discovery and generous awards of punitive damages. There have been prior posts saying that Chinese law could use tort reform. Perhaps tort reform in China could be spurred by the need for protecting these workers and making more than one society bear the insurance cost for these injuries.

I worked for six years as a product manager for one of the largest importers of retail goods from China. The major importers don't care about customer returns or complaints, or worker's complaints for that matter. A good overseas representative with ties to the government is better than a mafia hit-man to make trouble "go away."

While one would think this is a good legal pursuit, the monopolistic consolidation of sourcing of retail goods for the US makes your customer base much smaller than it might appear. (private label branding of goods masks the sole sourcing of goods overseas) Perversely, the larger the organization, the less they need protection. The margin is so high on import, the occasional tariff correction or recall doesn't hit the bottom line as much as the salary of a lawyer on retainer.

Unlike the outcry from South Africa's oppressed, calling for divestment to enact social change, the Chinese have a tyranny weighing down upon them. The Chinese system of keep workers in line will squash most of these torte claims with a boot heel before they even make it outside the factory walls. Business already knows this and they don't need your service.

In essence, the US is still bigoted when it comes to the Chinese. They make everything we buy, including name brands that people still assume are domestic. Why is no one concerned about the worker who packed the thousands of lead contaminated lunch boxes into shipping containers for import? Because we are all complicit in the mortgaging of our manufacturing infrastructure in exchange for the low cost goods bought with oppression and tyranny from China.

Soft labor laws enforced through consumer boycotts of branding are the only counter measure to the exploitation and greed of the robber-baron's of US retail import. Companies are more concerned with PR gaffs than fleeting imported poisons.

I always deleted all the pictures taken by executives on their factory visits. They were oblivious to workers grinding metal without protection I'd want in a high-school shop class. Now, that's a good topic for a legal seminar.

Nike had major PR problems in the late 90s over sweatshop labor, and conditions of workers so public opinion can have an effect, perhaps stronger than law. I think the fair-trade coffee and other initatives are similar solutions along these lines.
If the US Companies were held liable, how feasible would it be to control these safety issues while keeping the price low.

The other issue is the lack of control on subcontracting. In China there are a significant number of people that don't like to say the word "No". Thus Big factories often have many customers with huge orders. If the factory only made this product usually it is possible to finish the order , but usually they subcontract part or most of the order to other factories which deliver the products to the contracting factory the day before the final inspection.

These other factories can be in other provinces but are often right next to the big factory and whose sole production comes from the extra work the main contracting factory can not finish. Inspections rarely even know about these subcontractors let alone inspect them. As the subcontracting paint lend to the quality problems, so this would have a greater impact.
There are certain standards Walmart and others have for factories, with inspections, but China is big place, subcontracting is rife. However, even if Western companies where held There are even factories who won't mind printing made in x european country to export around tarriffs or quotas according to the companies request.
If this was true Nike would have been taken to court in the 90s. It has turned itself around, as will other companies.

In addition foreign owned factories in China have independent Unions that are allowed to organize. Since they are usually paid more than competitors conflict doesn't happen much but a year ago something happenned with Walmart I remember. I guess walmart is stingy with its workers in every country it is in.

1. Chinese outsourcers or their employees whose US and EU clients do not have a China presence and want to file a lawsuit will probably have diplomatic backing from Beijing.

2. Those same outsourcers whose US and EU clients have a China presence will feel real pain and pressure to "compensate" the workers and their extremely concerned management with significant settlements and in-person apologies from senior executives.

Dan, you should recommend your customers work on their flexibility so they can properly kowtow.

Remember a couple years back, there is a article in economist.com titled "Lawyer, Inc." in the corporate annual report style talking about entrepreneurial spirit in the current legal profession (industry?).

With that trend, the questions are not if but when will lawyers fill class action lawsuit against US MNC on the behaviors of poor workers in the third world countries.

Look forward to your blogs report from the meeting.

Dan,

Your angle on the post is an interesting one, and while I did pay attention in my B Law class, I never thought that the law could extend that far.

But to be honest, it doesn't matter if it can because it is not a US or Chinese court that will resolve this problem. It is the court of opinion that will, and the Nike case is a great example of this.

Where Nike and your average trader differ though (and this will be a major hurdle) is that Nike had people on the ground already who were looking at this.

What is it gonna take before the first companies get clobbered? Not much, and without getting into specifics, I am pretty sure the wheels are already turning in the heads of some as a business service.

I am with Paul here as to the ridiculousness of applying US tort law to overseas situations. Aside from the dubious legality, it also smacks of imperialist arrogance and interference in the affairs of another country. Maybe I have seen too much of the excesses of US tort lawyers starting with my training in global insurance liability claims in the late 70's where "ambulance chasers" would hunt for illiterate peasants in Cambodia and India and other places to offer them a trip to West Texas to sue American Companies for extremely large amounts of money most of which if successful, went to the tort lawyers contingency fees. Tort is often used in the US as a get rich scheme without work as it is, and extending it to countries with different living standards where a standard US award would support an extended family for the rest of their lives is just opening up a pandora's box of potential fraud and get rich quick schemes.

The British system is so much more honest than the US system with its mega million punitive damages and out of sight compensatory damages awarded by juries of ignorant housewives from Idaho!! (and folks like John Edwards living in multi million dollar homes and funding presidential campaigns as a result)

Employers should be sued if possible in the country where the tort occurred, but please please do not support opening this Pandora's box of get rich quick schemes by taking up the plight of the poor Chinese workers and their right to sue the buyers in the United States. The only group that loses out from all this is the American Consumer who has no lobby in Washington DC.

And to Mr. William Lewis above, an excellent question about extending this insurance to Chinese society, but then there seems to be an underlying assumption that the US system of tort is fair and embraced by the American consumer. Did the consumer ever give his consent to this indirect tort based insurance system that makes the cost of goods cost so much more than they should? People bitch about the cost of health care in the US, but one major reason for its high cost is the cost of medical malpractice insurance which is so high now, that many doctors have thrown in the towel and stopped providing services. Extending this "father knows best" arrogant paternalism to China's workers is yet another extension of a government bureaucratic mentality that bankrupts all societies.

Finally, Paul's point about suing the buyer rather than the manufacturer also has a lot of merit in it, though I am sure Apple's keyboards are Made in China!!

off my soapbox....

btw, I am solidly of the belief that America's tort law system desperately needs reform, but and highly doubtful that the US Congress (90% of whom have law degrees) would have the guts to stand up to the trial lawyers association and handicap the goose that lays so many golden eggs for their former classmates.

Chinese workers could certainly try to sue American companies. I doubt however that it would be in their financial benefit to do so. Contrary to people's perceptions most tort lawsuits are settled out of court through private negotiations between lawyers, and the costs of pursuing a case in the United States is far more than the amount that the worker is likely to receive. People watch too much Perry Mason and assume that is the way the legal system works.

One should point out that the same sort of process happens in China. When a worker gets injured there is usually a quiet negotiation after which money gets paid. Things are quiet unless the worker doesn't get what he wants at which time, things get loud.

One other thing that I've seen (both in China and the US) is that workers in dangerous conditions aren't stupid and usually get paid rather large amounts of money in advance for being willing to subject themselves to those conditions. I'm pretty sure if you look at workers in these sorts of dangerous factories, you'll find that their salary is quite a bit higher than someone working assembling keyboards.

Something to keep in mind is that plantiff's lawyers are a creative bunch and if it were profitable for them to make a business representing Chinese workers in lawsuits against American companies, someone would have done so already.

Terry, I'm with you on the tort trial attorneys, and I don't think that the consumer gave his consent to the insurance aspects of the system. I'm sure that, despite the true seriousness of the burns, many Americans wished they had spilled a McDonald's coffee upon their lap. But, I also share your cynical (or realistic) view of Congress' relationship with the TLA. And to hear TLA heavyweights, such as Nader, discuss what they do, they seem to consider themselves the last bulwark between our safety and corporate dominance of our personal lives. Torts are a good tool with which to seek justice, but they are still problematic as far as the greed and the settlement and the excessive payments, go

A no-fault liability system would be attractive, but it can lead to such unfortunate consequences as business making cost-benefit analyses with our lives because punitive damages would have little place in no-fault liability.

Our tort system is one of those things that I really don't like, but I'm fine living with it because the alternatives just aren't as attractive. And as long as we have to suffer with our tort system, we might as level the playing field and avoid supporting the extended family of a victim for the rest of their lives.

A supplier should take responsibility for its own actions. If the supplier wants to fault its customer, it should prove duress, or coersion.

Very few customers in China are in a position to force their suppliers to behave in a certain way.

Notwithstanding the problems of jurisdiction and forum non conveniens, even if Chinese individual (not corporate) plaintiffs overcome such obstacles, their damages will be assessed at the level of their earnings expectations, etc., under domestic Chinese standards. Likely the "P.R." aspect of serious cases would overshadow actual damages. Alternatively, if there is an EXXON VALDEZ-type oil spill, or massive poisoning a la Union Carbide's 1984 Bhopal tragedy, then look for a really expensive problem. A big problem for the plaintiffs would be discovery - U.S. "B" visas for going to the USA to testify at deposition will be next to impossible to obtain, and Chinese law allegedly makes it illegal for Chinese to testify in China in foreign litigation. Dan, what does your legal research reveal in this respect?

Platek: Likely the "P.R." aspect of serious cases would overshadow actual damages.

The trouble here is "PR fatigue." The first case that someone brings in US courts might create some media interest, but the three hundredth case won't. One aspect to human behavior is that people very quickly get numb to things, and very quickly attitudes are going to be "yes, we know you were horribly maimed in a Chinese sweatshop, so what?"

Image businesses are very vulnerable to bad press, and in those cases the obvious thing is to skip the lawsuit and go straight to the press. However, there are a lot of businesses which aren't image businesses. Petrochemicals, for example.

The other problem is that you don't want to create perverse incentives. The logical thing for a company to do if they know they are going to be sued for knowing about bad work conditions is not to know about them.

Twofish: re image businesses like petrochemicals not being so vulnerable to bad press, the EXXON VALDEZ didn't help Exxon at trial. $5 billion in punitives, down to $2.5b, now on appeal in USSC. Exxon may not have lost many sales at the pump, but the humans participating in the judicial system sure took note.
With respect to a company not wanting to know what is happening in its Chinese subsidiary, no chance of that being an escape hatch. With respect to its Chinese vendors, that's getting tougher, what with increased inspections, agents on the ground, etc. E-discovery may reveal more than the US defendant ever expected to exist.

Paul M,

Re that flight to Cupertino, it depends on the facts.

1. Will I as an employer be requiring all my employees use that keyboard?

2. Did I tell Apple exactly how to design and make that keyboard?

3. Most importantly, who will be paying my fees?

William Lewis,

Dude, if you are defending a manufacturer in a jury trial against a bunch of people with missing limbs, you had better have more in your quiver than "public policy."

I do like your Cardozian explanation of our torts system.

Imma Whistleblower,

But what is to stop these workers from suing in the US?

NanjingSimon,

You make some very good points. We typically advise our clients to put "no subcontracing" provisions in their OEM agreements.

nh,

Kowtowing is not a particularly good defense in US courts.

David Li,

I agree with you. My firm is working on a big class action lawsuit right now against Holland America, on behalf of foreign crew members. We are assisting Miami counsel on this case and I spoke with one of the Miami lawyers regarding these issues. He is a prominent personal injury lawyer in Miami.

He said imagine a case where a US company used to use a particular chemical in its manufacturing in the US, but stopped after it became clear that chemical was harming workers. Now imagine that same company is manufacturing in China and has instructed its OEM manufacturer there to use that particular chemical because it costs 3 cents less per $300 item. Imagine.

He said he thought such foreign worker cases (from Ecuador) had already been brought).

Allroads,

Jurisdiction against a US based company should not be all that tough. The tougher issue is likely to be venue.

Terry,

We can argue all we like about what the law should do, but I am in the position of having to advice companies based on what the law is and I am just not very sure of what it is when it comes to overseas worker lawsuits here.

Joseph Wang,

Remember though that the pain and suffering damages are likely to be rather high here and who says no such suits have been brought?

I'm thinking very few American plaintiff tort lawyers have thought of this because here worker tort cases are often not so good because they are so often preempted by workers compensation.

Paul M.,

Okay, but what about the situation where the customer tells the Chinese manufacturer exactly how to make something?

Todd Platek,

True re earnings, but what about pain and suffering damages?

My research tells me that I have to keep my mouth shut because I am still involved in the case in which we did the research.

TwoFish,

Nice points on PR fatigue and, in particular, regarding perverse incentives.

Todd Platek,

You make some good points, but I do not think we can discount PR fatigue or "perverse incentives" entirely.

Pain and suffering for foreign litigants injured in their native countries? We can compare research, off-line.

I wouldn't discount the PR fatigue/perverse incentives entirely, just analyze case-by-case. Depends on numerous factors, and less likely to affect small companies capable of closing up shop and reopening the next day under another name. For example, it would appear that after Mattel's top man flew to China to "apologize," Mattel would have a tough time arguing, afterward, that it never knew. Query the reasons he went. Nonetheless, looked like great PR to me; facing up to the alleged problem and looking it square in the eye. With China's rise not only as an export source, but as a domestic market, and with political implications and influence by Gov't officials on corporations, how many reputable U.S. and foreign companies will (1)claim, and (2) seriously argue at trial the ostrich defense based on "perverse incentives"? My guess is fewer than more.
You can argue you didn't know, but, due to liberal discovery, a diligent plaintiff's lawyer may poke enough holes in the ostrich defense to serve up some pretty embarrassing legal Swiss cheese.

Another reason that product liability insurance exists, so, dear corporations, buy plenty of it.

Yahoo is in the Capital Hill apologizing for the jail of the Chinese dissident. I guess this is moving us a step closer to see some class action suit on the behave of poor slaved workers Mattel's OEM have in China?

http://www.nytimes.com/2007/11/03/technology/03yahoo.html?_r=1&ref=business&oref=slogin

Or the people in the Walmart watch will fire the first shot? I guess this would be ambulance chasing with a moral angle?

http://walmartwatch.com/about

WL: Justice Cardozo and Judge Traynor, in the same breath. Gives me something to think about. Engines of change.

China province eyes libel suit on Mattel
http://www.breitbart.com/article.php?id=071106032720.8jq7hsi9&show_article=1

Nov 5 11:27 PM US/Eastern

A Chinese province is likely to join a planned libel suit against US giant Mattel, accusing the toy maker of harming the region's reputation, state press said Tuesday.

The government of Guangdong province is considering the suit after Mattel issued a safety recall on more than 21 million Chinese-made toys this summer, but later apologised saying 85 percent of the recall was due to its own design flaws, the China Daily said.

"The incident has stained the reputation of Chinese toy manufacturers and made a large number of toy factories in Guangdong lose a great deal of money," it quoted Chen Lipeng, director of the province's fair trade bureau, as saying.

"A simple apology cannot compensate for the losses."

After the highly publicised recalls, Mattel made a surprise apology to the Chinese government, saying safety concerns over the toys were due to its own design flaws and not Chinese production processes.

Chen declined to say when a lawsuit would be filed in a US court.

"The plan is still under discussion because a lot of preparatory work has to be done if we really need to file charges against Mattel," Chen said. "I do not know when a real suit can be filed."

Lida Plastic Toy Co, based in Guangdong's Foshan city, is supporting a lawsuit due to the large losses it incurred following the recall, while Chinese lawyers expect "billions of dollars" in compensation, the paper said.

"A lawsuit may help us reclaim part of our loss resulting from Mattel's actions. But it will be a long-term process," a Lida manager told the paper.

Copyright AFP 2007, AFP stories and photos shall not be published, broadcast, rewritten for broadcast or publication or redistributed directly or indirectly in any medium

CLB,

Yeah, the "Dude" totally suggests that public policy is a half-baked attempt at like trying to block the harshness of forcing US companies to be subjected to these suits. High falutin' arguments like public policy are something you chat with the judge about backstage and hope that a lengthy opinion in the Circuit Court will ignore the substantive arguments of your opponent, the defendant proximately maimed our client, and run with what would be the "terrible" consequences of allowing these suits to be brought. I think it is weak, but I also think it is all they've got if these go to trial (aside from the facts).

The main tool to defend against these suits is going to arise from procedural grounds in the court systems on both sides of the Pacific,but some court must have jurisdiction and some forum must be convenient, righ? Also, from what Mr. Platek says, it sounds like there might be a substantial impediment to fact gathering, which is convenient.

Dan -

I do not believe that a customer can be held liable for the actions of an employer. Who would ever go into any business if he thought that he could get sued?

If anything the laws are slanted towards the customer. In fact you don't even have to be a customer. Think of a person who stops in the parking lot of a discount store and becomes the victim of a crime. You don't have to go into the store and buy something in order to hold the business liable.

I understand where you're going with the argument that telling a business what you want made could make you liable. Would that mean that as a customer I have less liability at McDonalds where food is pre-made than at Burger King where it's "have it your way"?

Every business is essentially "have it your way", and these businesses have an obligation to regulate their own environment. By the way, the Apple example may not have been clear enough. The customer there was not purchasing keyboards, but entire systems. I am a Mac user. I don't want to be sued by anyone who is unhappy with the work conditions and Apple.

Cheers on a very good discussion, and, by the way, none of this takes away from your original point - that those in business should look to protect themselves against legal liability...

As NH might say, "bad, bad world."

Would it be possible for Chinese citizens to bring a claim against these companies under the Alien Tort Claims Act for human rights violations? The facts of, John Doe I v. Unocal Corp., 395 F.3d 932 (9th Cir. 2002), are more serious than dangerous working conditions. Unocal was allegedly assisting and encouraging the Myanmar military to rape and murder villagers to get them to work on an oil pipeline. The 9th Circuit denied summary judgment for Unocal on charges of forced labor, murder and rape, and Unocal ended up settling. Maybe if there was a large enough class, or a particularly egregious violation of Chinese labor law in a US run factory it might be easier for a court to find a human rights violation?

There has been talk about holding Yahoo liable under the ACTA for aiding and abetting the Chinese government. Neil Conley, The Chinese Communist Party's New Comrade, 111 Penn St. L. Rev. 171.

I agree with the commenter "Jenn" that some of the commentary on this blog is very uninformed. For example, Jenn seems correct that Mattel or any other American customer would not be legally liable for the injuries that occur to the workers who make the products purchased by that customer. Rather, it is the manufacturer of those products and the employer of the injured employees who is liable and should be liable, especially because it was the manufacturer/employer's lawbreaking that proximately caused the injuries in question. Also, the customer has no "privity of contract" with the factory workers.

However, even if the customer were liable, the Chinese workers could not sue them in U.S. court for the simple reason, among others, that the workers have no visas to physically enter the U.S. for the purpose of attending the trial. No plaintiff can hide himself from opposing counsel or refuse to testify in his own lawsuit. How anyone could miss this simple fact and suggest that the Chinese workers could sue in a U.S. court of law is beyond me. So, instead, the only court in which the workers could sue anyone would have to be in China.

But, rather than sue the customer, the Chinese workers should sue the Chinese factory owners in a Chinese court of law for the injuries the former sustained due to the latter's lawbreaking -- that is, if China had a rule of law.

Having settled that issue, does anyone know about any lawsuits filed by Chinese plaintiffs in China against foreign states (such as a U.S. state)? I currently represent a Chinese citizen who wants to sue an American state-supported university for breach of contract in a Chinese court.

Jonathan,

With all due respect, you are way off base.

Jenn never said this blog was not very well informed, nor did she imply it.

Do you really think privity of contract is necessary for liability? Are you not aware of tort law?

Forget the visa issue. I have handled many cases for foreigners and that fact alone has, wtihout exception, allowed me to secure them a visa.

Your idea of suing in a Chinese court is brilliant, save for the fact that the damages in such cases are usually not enough to buy a Hyundai car.

Your idea about suing an American state in a Chinese court is a bit wacky. The lawsuit would not be against the American state, it would be against the Chinese entity (presumably owned by the American state) that owns/runs the university in China. If the American state was operating legally in China, it would have needed to have formed a Chinese entity and it is that entity that you should be thinking about suing.