Ninth Circuit appeals court holds Wal-Mart cannot be held liable for foreign suppliers' labor violations

Plaintiffs in this case, Jane Doe v. Wal-Mart, were employees of suppliers to Wal-Mart who work in foreign countries. Their lawsuit alleged that Wal-Mart should be liable for the suppliers’ labor code violations. The employees worked for companies who manufactured goods for Wal-Mart in countries such as China, Nicaragua, and Bangladesh.

Plaintiffs alleged a unique theory for establishing liability on Wal-Mart’s behalf. They argued that Wal-Mart’s code of conduct for its suppliers (called the “Standards for Suppliers”) established a duty for Wal-Mart to ensure that the suppliers were complying with the foreign countries’ labor laws. Plaintiffs also relied on the Standards’ provision that gave Wal-Mart a right to inspect the suppliers’ to ensure they were complying with the applicable laws.

Wal-Mart filed a motion to dismiss the case on the grounds that under the law Wal-Mart could not be found liable for these third-party suppliers’ foreign labor code violations. The Court agreed with Wal-Mart in holding that the Standard for Suppliers policies did not create an obligation for Wal-Mart to monitor the suppliers’ compliance with the law – it only gave Wal-Mart a right to inspect the suppliers and then cancel orders if violations existed.

The Court also held that the facts plead by Plaintiffs did not make Wal-Mart a joint employer with its suppliers. The Court explained that to be a joint employer, an employer must have “the right to control and direct the activities of the person rendering service, or the manner and method in which the work is performed.” The Court also explained that there needs to be a day-to-day level of control, which simply did not exist in this case.

While Wal-Mart prevailed in this case, it should be a clear warning to employers to be careful in how it enters into relationships with vendors and suppliers. Employers need to be careful about how much control it has over vendors’ employees. If the relationship if not documented properly, or there is day-to-day control over the outside companies’ employees, there may be a possibility that the contracting employer could be liable for the vendors’ labor code violations.

Oral argument of the case can be listened to here