Apple’s Unkept Promises: Investigation of Three Pegatron Group Factories Supplying to Apple

Monday, July 29, 2013
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Executive Summary

Pegatron’s competitive advantage

Apple is preparing to release a cheap iPhone. Just how does a prosperous company like Apple produce a discounted version of its phones?

At this moment, in Shanghai, China, workers in Apple’s supplier factory Pegatron are monotonously working long overtime hours to turn out a scaled-back, less expensive version of the iPhone. Six days a week, the workers making these phones have to work almost 11-hour shifts, 20 minutes of which is unpaid, and the remainder of which is paid at a rate of $1.50 an hour ($268 per month) before overtime. This is less than half the average local monthly income of $764 and far below the basic living wage necessary to live in Shanghai, one of costliest cities in China. So these workers rely on long overtime hours. If a worker does not finish three months at Pegatron, the dispatch company that got the worker hired will deduct a large portion of his wages.

After a grueling day’s work, what a worker has to look forward to is a 12-person dorm room, lining up for a quick cold shower in one of the two dozen showers shared by hundreds of workers.

At Pegatron, over 10,000 underage and student workers (interns), from 16 to 20 years of age, work in crowded production rooms, doing the same work as formal, adult workers. But some students are paid lower wages because schools deduct fees for the internship, while other students will not have their wages paid to them on time.

At Pegatron, a pregnant woman interviewed was working equally long overtime hours, despite Chinese laws protecting the health of pregnant women by mandating an eight-hour workday. After four months of intense work, she decided to leave and give up her maternity benefits rather than jeopardize the health and well-being of herself and her unborn child.

In addition, Pegatron has violations related to discriminatory hiring, harassment and abuse, fire safety, and more.

So what is the competitive advantage that Pegatron has utilized to win Apple’s order of the cheap iPhone? Extensive labor violations and suppressed wages that cheat workers of a living wage, a healthy working environment, and a voice. As Apple launches its cheaper iPhones, it continues to profit while cheapening the value of the workers in its supply chain.

The labor violations of Apple’s supplier: Pegatron Group

Pegatron Shanghai is a subsidiary of the Pegatron Group. In 2013, Apple has increased its order to Pegatron factories, and as will be explained below, these factories all utilize the labor violation “advantage”.

From March to July 2013, China Labor Watch (CLW) sent investigators into three Pegatron Group factories to carry out undercover investigations and conduct nearly 200 interviews with workers outside the factories. The factories included Pegatron Shanghai (producing the iPhone), Riteng (a Pegatron subsidiary in Shanghai producing Apple computers), and AVY (a Pegatron subsidiary in Suzhou producing iPad parts). Together, these three Pegatron factories have more than 70,000 employees.

CLW’s investigations revealed at least 86 labor rights violations, including 36 legal violations and 50 ethical violations. The violations fall into 15 categories: dispatch labor abuse, hiring discrimination, women’s rights violations, underage labor, contract violations, insufficient worker training, excessive working hours, insufficient wages, poor working conditions, poor living conditions, difficulty in taking leave, labor health and safety concerns, ineffective grievance channels, abuse by management, and environmental pollution.

In short, the Pegatron factories are violating a great number of international and Chinese laws and standards as well as the standards of Apple’s own social responsibility code of conduct.

In May 2013, Apple heralded that its suppliers had achieved 99 percent compliance with Apple’s 60-hour workweek rule, this despite that fact that 60 hours is a direct violation of China’s 49-hour statutory limit. This “accomplishment” is further discredited by the fact that average weekly working hours in the three factories examined are approximately 66 hours, 67 hours, and 69 hours, respectively. For instance, in Pegatron Shanghai, our investigation uncovered that workers were forced to sign forms indicating that their overtime hours were less than the actual levels. During the period of this investigation, CLW carried out undercover probes of five other Apple suppliers in China (corresponding reports to be released at a later date), and all but one factory violated the Apple’s purported 60-hour accomplishment.

Indeed, a number of Apple’s social responsibility promises are being broken, including those related to worker safety, protecting the environment, and more. None of the Pegatron factories investigated here, for example, provide sufficient safety training to workers. At Riteng and AVY, waste water is disposed of directly into the sewage system, polluting the local water source.

Conditions at these factories are so poor that most workers refuse to continue working for long. In a period of two weeks, 30 of 110 new recruits at AVY left, presumably unwilling to accept the work intensity, low pay, living conditions, and harsh management style characterizing the facility.

Apple continues to source from Pegatron factories despite serious labor rights violations. That Apple has made promises on the conduct of its suppliers means that Apple is complicit in the persistence of violations at these factories.

Apple has zero tolerance for lapses in the quality of its products. If a quality issue arises, Apple will do everything it can to have it corrected immediately. But a lower level of urgency apparently applies in responding to labor rights abuses. Despite its professed high standards for the treatment of Apple workers, serious labor violations have persisted year after year. Apple must prioritize its efforts into halting the abuse of the workers making Apple products.

In order to clarify the depths of this problem, in the next section, we compare the violations uncovered by CLW in the Pegatron factories with 17 promises that Apple has made about its supplier code of conduct.

Apple’s 17 promises vs. 17 realities

All Apple code of conduct standards mentioned below can be found on Apple’s Supplier Responsibility webpage.

1. Apple: We limit work weeks to 60 hours; we have 99 percent compliance on this standard.

At the three Pegatron factories that CLW investigated, weekly working hours for the majority of production workers were about 66, 67, and 69 hours, respectively. When orders were being rushed, these hours were even longer and workers seldom received a day off. China’s legal limit is 49 hours per week.

In these factories, pregnant women were made to work the same long hours as other workers, putting in 11-hour days for six days per week. Chinese law restricts employers from letting pregnant women work over eight hours per day.

This image displays the working hour records of our investigator at Pegatron during the period from June 26 to July 4. The columns, from right to left: the date of calculation, triple wage overtime hours (holiday), double wage overtime hours (weekend), and working day overtime hours. Within the seven-day period from June 28 to July 4, our investigator worked 23 hours of overtime. If we add in the three hours of unpaid overtime spent in daily meetings as well as the 40 normal hours of work, then our investigator worked 66 hours during this week, in violation of both the Chinese law and Apple’s code.

2. Apple: All overtime must be voluntary.

All three Pegatron factories require workers to do overtime, especially during busy seasons. At Riteng, workers are forced to do overtime through coercion; if a worker chooses one time not to accept scheduled overtime, the factory will not provide her an opportunity to do any overtime work for the entire month as punishment.

3. Apple: We don’t tolerate underage labor. Our code requires our suppliers to provide special treatment to juvenile workers.

In two factories, we discovered many workers under the age of 18 working the same long hours under the same conditions as adult workers. Underage workers often enter the factories as student “interns” required to work at the factories by vocational schools.

4. Apple: Many underage workers are recruited via third-party labor agents.

In each of the three Pegatron Group subsidiaries factories, there was a heavy reliance on third-party labor agents—i.e., dispatch labor companies—to hire workers. The majority of workers at these factories were hired through such labor agents. In Jiangsu Province, the location of AVY, local law limits the proportion of dispatch labor to 50 percent. An upcoming national law will limit dispatch labor at any given employer to 10 percent.

5. Apple: We require all of our suppliers to compensate workers for any illegal deductions and wage deficiencies.

Each of the three factories we investigated had unpaid overtime violations in which they did not compensate workers for daily 15- to 30-minute meetings, adding up to 7 to 14 hours of unpaid overtime per worker per month. If AVY workers resign within the first two weeks, it is so difficult to receive owed wages that they simply leave without receiving their rightfully owed compensation.

Our investigator, on the night shift at AVY, should have been off the clock at 8 AM, but at nearly 8:30, workers were still standing in a meeting being reprimanded by their supervisor.

6. At our direction, suppliers who used to screen for medical conditions or pregnancy have stopped discriminatory screenings. We also required them to establish clear policies and procedures to prevent recurrence.

The Pegatron factories had a list of discriminatory hiring practices, including refusing to hire people shorter than 4 foot 11 inches tall, pregnant women, those older than 35, people with tattoos, or people of the Hui, Tibetan, or Uighur ethnic groups. At AVY, male applicants were made to strip off their shirts for a tattoo check in public areas two separate times.

A Pegatron poster lists numerous “hiring standards”, including being taller than 150cm, no older than 35, of certain ethnic groups, and free of tattoos or colored hair.

7. Apple: Excessive recruitment fees and bonded labor are strictly prohibited.

Labor agencies hiring for the Pegatron factories required fees of up to 500 RMB ($80). Hiring fees are in violation of Article 14 of China’s Provisions on Employment Services and Employment Management.

At AVY, workers’ IDs were held by the labor agencies for three to 14 days, preventing workers from resigning and violating Chinese law. At Pegatron Shanghai, if a worker hired by a labor agency did not complete three months of work at the factory, he would have 600 RMB ($98) deducted by the labor agency.

8. Apple: We require suppliers to implement Apple-designed training programs to educate workers about local laws, their rights as workers, occupational health and safety, and Apple’s Supplier Code of Conduct.

Each Apple supplier factory we investigated failed to provide more than eight hours of training to workers, falling short of the 24 hours required by Article 15 of China’s Provisions on Safety Training of Production and Operation Entities. Moreover, training was not conducive to workers actually learning any of the relevant information; it simply consisted of rolling through perfunctory slideshow presentation, after which workers were told to copy answers to all questions on the training test.

9. Apple: We require suppliers’ supervisors and managers to be trained on effective management practices, including worker-management communication, antiharassment policies, and worker protections.

Pegatron supervisors harassed and abused workers by swearing at them and threatening collective punishment. If workers at AVY did not finish 600 iPad back covers during a single shift, they would be made to stay late without wages and accept scolding in front of others.

10. Apple: Our suppliers must follow strict standards when hiring students.

Large numbers of student workers at the factories that CLW investigated are used as cheap labor to make Apple products. Many students are required to work at the factories despite the production work being unrelated to their studies. For example, a Gansu student at Pegatron studying early education was required to work on the production line. Student workers were forced to pay fees to their teachers and their schools and were not always paid on time.

11. Apple: Workers have a right to be in an environment where they can voice their concerns freely — and where managers and supervisors act on those concerns.

None of the Pegatron factories in our investigations had effective grievance channels. Even when some sort of system was in place, relevant information was hurriedly passed by in new worker training. At AVY, when asked about the factory’s grievance channels, a team leader responded that there are no channels or mechanisms for workers to use. After cutting his finger on a work piece, our investigator asked his supervisor for leave so that he could get it treated, but the supervisor made the investigator wrap his finger in industrial-grade plastic tape and continue working.

12. Apple: To reduce the risk of hazards in the workplace, suppliers must provide proper protective gear, guardrails, safety harnesses, and other safety equipment, as well as comprehensive, up-to-date training for workers.

Workers making Apple products at the Pegatron factories did not receive the legal 24-hour minimum of training time. Training itself was superficial and rushed; trainers would simply let trainees copy down the answers to the training tests. This has led to a lack of knowledge among many workers about the harm that chemicals with which they come in contact can have on their health. For example, many workers at Pegatron were not wearing masks despite being in contact with harmful chemicals.

13. Apple: We are committed to worker well-being.

Pregnant women making Apple products at these factories cannot take maternity leave if they became pregnant out of wedlock or if they are having a second child outside of China’s family planning policies. This inability to take leave forces mothers to make a choice between their baby and their job.

Many workers making Apple products at these three factories must stand while working for 11-hour shifts. They live in crowded dorm rooms of 8 to 12 people with insufficient bathroom and shower facilities and often no warm water. For example, at AVY there are 10 showerheads for about 120 workers. In Riteng dorms, management and security guards will, without prior warning or permission from workers, enter dorm rooms and take pictures of the rooms.

Hourly wages for workers producing Apple products (between $1.30 and $1.50) are not high enough to meet basic needs. For example, in Shanghai, China’s most expensive city, where the average wage is $764, workers at Pegatron only earn $268 before overtime. This has made workers dependent on overtime to earn a living wage, so much so that overtime wages constitute more than half of a worker’s monthly wages.

14. Apple: It is critical that both suppliers and Apple employees are prepared to identify hazards.

In the factories we investigated, there were insufficient fire escape routes, insufficient or a lack of fire prevention training, and few workers had the opportunity to participate in fire drills. Additionally, both Riteng and AVY lacked first aid kits in their production facilities.

15. Apple: We do not tolerate environmental violations of any kind. We hold suppliers accountable to the environmental standards of our Supplier Code of Conduct — standards that are some of the strictest in our industry and many others.

At AVY and Riteng, our investigators discovered industrial wastewater being directly poured into the sewage system.

16. Apple: An Apple auditor leads every onsite audit, supported by local third-party auditors who are experts in their fields.

Audits often overlook labor violations because factories make preparations ahead of time. Pegatron, for example, forces workers to sign falsified attendance records which detail overtime hours at sometimes half the number of actual overtime hours worked.

17. Apple: While disciplinary pay deductions are legal in some countries, they are a violation of Apple’s Supplier Code of Conduct.

Chinese law prohibits employers from fining employees as punishment. The AVY plant, however, has a number of fines for certain worker behaviors, including but not limited to failing to tuck in one’s chair after eating, failing to eat at predetermined times, and absence from unpaid meetings.

Investigation Background

In the past few years, CLW has given considerable attention to labor abuse in the Chinese supply chain of the global electronics industry. In July 2011, CLW published an extensive investigation of 10 Chinese supplier factories that manufactured for multiple international brands. And in August 2011, CLW published an investigation on BYD, the largest Chinese private electronics manufacturer. In June 2012, CLW published an investigative report covering 10 Apple supplier factories in China. We followed up in August, September, and December with several reports on 11 factories producing for Samsung, Apple’s largest competitor.

Beginning in March this year, we carried out a new series of investigations on Apple suppliers. The three factories covered in this report, namely Pegatron Shanghai, Riteng (in Shanghai), and AVY (in Suzhou) are subsidiaries of Pegatron Group, a supplier to such electronics brand companies as Dell, Microsoft, and HP. In this report, these three factories will be collectively referred to as “the Pegatron factories”. Currently, Pegatron Shanghai is the second largest Apple supplier factory in China. It primarily manufactures the iPhone for Apple and is currently manufacturing the soon-to-be-released cheap iPhone.

Among the Pegatron factories, Pegatron Shanghai and Riteng are mainly tasked with producing cell phone and computer parts for Apple, while AVY produces iPad parts. AVY, according to its website, is also producing for Nokia, Panasonic, HP, Dell, Asus, Acer, and Sony. The investigator we sent to AVY happened to be assigned to a production facility that manufactures for Apple. Since we have not confirmed which other brands are currently being produced at AVY, this report only discusses the labor conditions of those facilities responsible for Apple production.

From March through July 2013, we sent several undercover investigators into the above mentioned factories under the pretext of being workers. These investigators, three of whom have more than two years of investigative experience at CLW, stayed in the factories for two to six weeks. In some factories we sent more than two investigators. In addition to the undercover probe, we sent other investigators outside the factories to gain and confirm information via 200 worker interviews.