Apple said Monday that it had placed a key assembler of its iPhones on probation after the Taiwanese company was found to have concealed violations of labor rules for students employed at its factories in China.
For years, Apple has worked, and at times struggled, to uphold labor standards across its vast electronics supply chain in China. Apple said it had made the decision because the Taiwanese company, Pegatron, had violated its code of conduct by allowing student laborers to work night shifts and overtime and do work unrelated to their fields of study, and had then falsified documents to cover it up.
"The individuals at Pegatron responsible for the violations went to extraordinary lengths to evade our oversight mechanisms," Apple said in a statement.
Pegatron, a major assembler of the iPhone that has factories across China, has been accused of a number of labor and environmental abuses over the years. Apple said it would not give the contractor any new business until it took corrective measures, and it noted that a Pegatron executive in charge of the student employment program had already been fired.
To meet deadlines, factories in China sometimes recruit labor from local technical schools. Strict guidelines are supposed to limit how long and when such employees can work, but in practice, rules are often ignored and other abuses are common. In some cases, students have said they were forced to do monotonous assembly work rather than the more technical tasks they were studying.
The rebuke, rare for such a high-profile supplier, underscored a challenge facing Apple as it seeks to address abuses in its supply chain, which sprawls across hundreds of factories across China and increasingly the world. While Apple can make or break the smaller companies that make the innards of its iPhones and put them together, few have the scale to assemble large numbers of phones quickly, leaving Apple reliant on assemblers such as Pegatron and its larger Taiwanese rival, Foxconn.
APPLE SUPPLIERS
Apple occasionally drops suppliers or puts them on probation. In its 2019 supplier responsibility report, the company said it had removed 20 manufacturing facilities from its supply chain because of violations over the years. In general, however, it said it works with suppliers for 90 days to ensure corrective actions are taken.
In a statement, a Pegatron spokeswoman said that upon discovering the violations, the company immediately removed the student workers from production lines and worked to "make appropriate arrangements for them to return to their homes or schools with proper compensation alongside all necessary support and care."
She added that the company was undertaking an audit to ensure its labor standards were upheld.
The probation, which will not affect production of the iPhone, comes at a busy time for Apple suppliers, who regularly add staff members and increase worker hours to meet huge orders before the product's annual holiday release schedule. While workers once sought out the relatively well-paid shift jobs at the city-size factories that produce the iPhone, new employment opportunities closer to home, such as jobs in food and package delivery, have made it harder to attract short-term workers during times of high labor demand.
In the past, worker shortages have led companies like Pegatron and Foxconn to break rules to ensure they have enough staffers. Foxconn has used child labor, while Pegatron relied on ruthless agents who hold workers' salaries and sometimes their identification cards, preventing them from leaving the factories. Wider concern about the harsh conditions in Apple's supply chain spread in 2010, when a series of suicides at Foxconn's plants prompted Apple to institute further checks and oversight.
OPENING FOR RIVAL
The suspension for Pegatron, while probably temporary, could further open the door for Luxshare, a smaller Chinese manufacturer that has been working to expand its role in the Apple supply chain. This year, Luxshare bought an iPhone production factory in China from the Taiwanese company Wistron, which was widely seen as an attempt to elbow into the business dominated by Foxconn and Pegatron.
"Pegatron's current iPhone business should not be affected. However, it is likely that Pegatron will lose some orders for the Apple's new handsets next year to Luxshare, which is poised to become a new iPhone assembler in 2021," GF Securities analyst Jeff Pu said.
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Pegatron said the violations took place at its Shanghai and Kunshan campuses in eastern China and that students working night shifts, overtime, and in positions unrelated to their majors were "not in compliance with local rules and regulations." It said it's taken "quick action" to strengthen its procedures and will add adherence to the code of conduct to metrics used to evaluate senior management.
Apple is in the middle of producing four new iPhone models with 5G, and it has been working with Pegatron to expand iPhone assembly outside China. Those efforts are unlikely to be affected by this suspension, which was first reported by local outlet The Paper, as it only covers new business.
Information for this article was contributed by Paul Mozur of The New York Times and by Debby Wu and Mark Gurman of Bloomberg News.