Nike S Responses to Sweatshop Charges: Protected Or Unprotected Speech?

Nike’s Responses to Sweatshop Charges: Protected or Unprotected Speech?

Imagine that every day you go to work you are exposed to toxic chemicals without having any protective clothing or safety training and that the workplace has poor ventilation and fire safety. Suppose that you are subjected to physical and verbal abuse at the hands of your employer and that there is a lack of drinking water in the workplace. Suppose further that you are paid only a couple of dollars per day and forced to work excessive overtime hours. Would these be satisfactory working conditions—for anyone, anywhere in the world?

These are the types of conditions found in businesses commonly known as sweatshops. A sweatshop is typically characterized by poor working conditions, including health and safety hazards; extreme exploitation, including the absence of a living wage or benefits; and arbitrary discipline, such as physical and psychological abuse.

According to CorpWatch, sweatshops exist throughout the world and in a variety of manufacturing industries, including apparel, shoes, toys, and electronics. Nearly 70% of immigrant garment workers in Los Angeles receive less than the legal minimum wage. Women workers in some Central American countries are often forced to undergo pregnancy testing or take contraception. Workers in many Asian countries are exposed to dangerous chemicals while making shoes.

Sweatshop Accusations and Nike’s Responses Nike began encountering criticism in the early 1990s for the sweatshop conditions that existed in its contractors’ factories. Nike responded by becoming one of the first American companies to establish and publish a code of conduct for the contract manufacturers in its supply chain. According to Nike officials, the company’s Code of Conduct was an initial step in a conscious strategy to improve working conditions at its contract factories. Drafted in 1991, the Code of Conduct was distributed to the contract factories in 1992 and was intended to guide decisions in those production facilities.

In June 1996, Bob Herbert, a columnist for the New York Times, wrote two articles accusing Nike of exploiting workers in Asian sweatshops. Herbert charged that laborers earning $2.20 per day in Indonesia or $30 per month in Vietnam were manufacturing Nike’s athletic shoes. Herbert contrasted these miniscule wages with “the $20 million a year Nike was then paying basketball legend Michael Jordan to promote its products and to [Nike CEO Phil] Knight’s own $1.6 million salary and bonus for fiscal 1995.” Knight responded with a letter to the editor, which the New York Times promptly published. Knight maintained that “Nike has paid, on average, double the minimum wage as defined in countries where its products are produced under contract. History shows that the best way out of poverty for such countries is through exports of light manufactured goods that provide the base for more skilled production.”

In January 1997, the accounting firm Ernst & Young, hired by Nike, conducted a labor and environmental audit of several Nike contract factories in Vietnam. Ernst & Young uncovered sweatshop conditions in numerous factories. Nike did not publicly disclose the audit report. Nike also hired Andrew Young, the former U.N. ambassador, to evaluate 12 factories that made its athletic footwear, most in Asia. Young, who had access to the secret Ernst & Young document, issued a favorable report in June 1997, and Nike issued press releases about his findings. Nike also “wrote letters to colleges faced with anti-sweatshop activists who were urging the schools to boycott Nike products. The company emphasized its code of conduct requiring contractors to adhere to decent labor standards.”

A worker at Tae Kwang Vina Industrial Co. (TKV), one of the factories covered in the secret Ernst & Young audit report, leaked the document to Dara O’Rourke, a consultant with the United Nations Industrial Development Organization in Vietnam and a research associate with Transnational Resource and Action Center (TRAC). In November 1997, TRAC—now known as CorpWatch—released the leaked Nike document. O’Rourke’s independent assessment of the factory and photos from inside it made front-page news in the New York Times. TRAC asserted that its “release of the Ernst & Young report significantly increased the pressure on Nike to improve conditions in its overseas factories.” TRAC also cited an editorial in the Multinational Monitor, which argued that “for a whole year, Nike denied that its contractors in Asia abused and mistreated workers. The company said that the information was being sent out by fringe activists on the Internet. . . . With the leak of an Ernst & Young report, the fringe became mainstream.”

Enter Marc Kasky In April 1998, Marc Kasky, a community activist living in San Francisco, sued Nike, alleging that Nike CEO Knight’s letter to the editor violated California’s consumer protection laws against deceptive advertising and unfair business practices. Kasky’s suit also “alleged that Nike officials had made false or misleading claims on at least eight other occasions in the course of responding to criticisms of its Asian labor practices: in five press releases, two personal letters to critics, and one form letter sent to scores of athletic directors at colleges and universities.”

Nike maintained that its campaign was designed to explain working conditions at factories of their overseas contractors. Nike further maintained “that its statements concerned labor practices, not products, and therefore should be considered protected political speech.” Kasky countered that Nike’s campaign was indeed commercial speech—it was intended to protect the company’s image and sell more sneakers. This set the stage for a legal battle over commercial speech and its First Amendment protection.

Commercial Speech In 1942, the U.S. Supreme Court ruled that business-related speech, in contrast to ordinary speech, did not enjoy First Amendment protection. At that time, commercial speech was narrowly construed as speech that does “no more than propose a commercial transaction.” By 1976, the U.S. Supreme Court altered its position somewhat, indicating that some forms of commercial speech should receive First Amendment protection. “The increased protection for commercial speech was intended not to serve the interests of faceless businesses but to ensure the public’s right to receive information from commercial sources.” Courts began to recognize that commercial speech could include claims about the social responsibility of manufacturers.

Over the years the boundaries between commercial speech and ordinary speech (sometimes referred to as political speech) became extremely murky as different courts and regulatory agencies—usually the Federal Trade Commission (FTC)—dealt with specific cases. Some advertising claims that seemed very similar to public discourse were treated as regulated commercial speech. “To make matters even more confusing, courts also acknowledged that commercial speech was not necessarily limited to paid advertisements, nor, conversely, did messages in paid advertisements necessarily amount to paid commercial speech.”

A company can be sued if someone thinks its commercial speech is false or misleading, and the consumer protection laws don’t require that malice be intended. Moreover, under California’s extremely broad consumer protection laws, anyone can sue on behalf of the general public. Consequently, a person who brings suit in California need not have experienced any harm or damages from a company’s alleged false or misleading commercial speech, which was the case with Marc Kasky.

The Legal Battle over Nike’s Speech Kasky v. Nike alleged that Nike’s commercial speech contained false and misleading statements. Nike argued that the various communications in question were not commercial speech, but rather protected political speech. Nike requested that the trial court dismiss the suit. The California Superior Court sided with Nike, with the dismissal being subsequently affirmed by the California Court of Appeal. Kasky appealed to the California Supreme Court, and on May 2, 2002, the lower court decision was reversed by a 4-3 vote. In ruling against Nike, the California Supreme Court stated, “[B]ecause a company’s public statements about its operations might persuade consumers to buy its products, those statements must be treated as run-of-the-mill commercial speech, thereby warranting severely limited constitutional protection.” The California Supreme Court ruling also “indicated that such speech could be restricted even when those statements appear in news stories, op-eds, press releases, or on Web sites published anywhere in the world, just as long as the statements reach residents of California.”

Nike appealed the California Supreme Court ruling to the U.S. Supreme Court. Nike asked the U.S. Supreme Court to declare unconstitutional the California law under which Kasky brought his original lawsuit. The issue before the Supreme Court was whether Nike could be held liable for its misrepresentations under false advertising laws or whether its various public documents and letters to the press and others were constitutionally protected speech. Nike argued that responsible corporate communication “benefits consumers by ensuring that they receive information that is both complete and accurate.” In its legal brief, Nike maintained that the California court ruling was having a “chilling effect” on its activities. Nike said the prospect of being sued in California made it too risky for the company to release its annual corporate responsibility report, participate in the Dow Jones Sustainability Index, participate in media interviews, or accept invitations to speak at business and academics forums.

Nike’s appeal received support from many different organizations and entities. The United States Government, the American Civil Liberties Union, the U.S. Chamber of Commerce, organized labor, numerous media organizations, many European entities, and trade associations filed amicus curiae or “friend of the court” briefs after the U.S. Supreme Court decided to hear Nike’s appeal. An amicus brief filed by a group of 40 media organizations including CBS, CNN, the New York Times Company, and the Washington Post Company, argued that “[t]his chilling effect will deprive the public of access to important news stories and the clash of competing viewpoints that undergirds the First Amendment.”

Just as some interested parties filed amicus briefs on behalf of Nike, other interested parties filed amicus briefs supporting Kasky. As a member of the socially responsible investing (SRI) community, Domini Social Investments LLC filed an amicus brief with the U.S. Supreme Court in support of Marc Kasky. The brief argued that, “The SRI community depends upon the accurate flow of corporate social and environmental performance data. All investors depend on government regulators to ensure that information from corporations is provided on a timely and accurate basis. If any of this information is deemed to be ‘political speech,’ it will severely undercut these regulatory efforts. Nike’s definition of political speech—any commercial speech that also touches upon matters of public concern—is alarmingly broad, potentially affecting nearly every aspect of a corporation’s business, from treatment of stock options to compliance with environmental regulations.” The attorney for Domini also emphasized that “[i]t is important to note that this case has no bearing on Nike’s actual practices regarding its overseas contractors, or whether its statements were in fact false or misleading. It addresses only the constitutional question of whether companies like Nike can claim full First Amendment protection for public statements regarding their own business practices that also touch upon matters of public concern.”

ReclaimDemocracy.org and the National Voting Rights Institute jointly filed an amicus brief in support of Kasky. This brief asserted “[t]he claim that corporations possess a right to intentionally deceive the public has no basis in the U.S. Constitution. Incorporation is a privilege granted by the people’s representatives in state governments, and corporations must remain subordinate to our democratic institutions. The discredited judicial creations of ‘corporate personhood’ and corporate ‘political rights’ should be unequivocally rejected by the Court.”

On April 23, 2003, the U.S. Supreme Court heard oral arguments in the case of Nike v. Kasky. Nike’s lead counsel, Harvard Law Professor Laurence Tribe, urged the Supreme Court “to reaffirm the First Amendment right to free and open debate and to overturn an unprecedented California state court ruling that severely restricts the ability of business and other organizations to speak out on matters of public importance.” Tribe asserted that Nike was not selling anything when it defended itself against accusations about its overseas contractors running sweatshops. He further stated, “[i]t was a lively political debate that included letters to the editor and other public statements that were intended to set the record straight.” An attorney representing Kasky countered that, “Nike’s statements amounted to misleading efforts to sell its products. He said Nike’s defense included specific statements about work conditions and other labor issues, and were intended to reassure potential consumers.”

On June 26, 2003, the U.S. Supreme Court announced its 6-3 decision declining to rule on the First Amendment issue and sending the case back to California for trial. The next day Kasky told the Associated Press, “[w]e now have the opportunity to go to trial to determine if Nike’s comments were true or not.”

National and international reaction to the case’s return to California for trial suggested that resolution of the case in the court system could set three international precedents. First, Nike’s contractors might have to open their business practices to unwanted public scrutiny. Second, companies would need to exercise much greater caution about claims made not only in advertising, but also in public relations and all other public statements that might be construed as advertising. Third, companies with sweatshop practices or conditions would encounter additional public scrutiny.

On September 12, 2003, Nike and Marc Kasky jointly announced a settlement of the case brought by Kasky. “The two parties mutually agreed that investments designed to strengthen workplace monitoring and factory worker programs are more desirable than prolonged litigation.” Nike agreed to contribute $1.5 million over a three-year period to the Fair Labor Association (FLA) to help fund workplace-related programs. The $1.5 million figure was in addition to Nike’s other FLA expenditures on monitoring and related activities. Nike also agreed to maintain a $500,000 funding commitment over two years to the after-hours worker education program in its footwear facilities and to its Micro Enterprise program. The Micro Enterprise program provides small business loans to poor people in developing nations, especially in rural areas where the people do not have access to commercial banks.

No court ever addressed the truth or falsity of any statement made by Nike. Nike admitted no liability in the settlement.