Jane Doe vs. Wal-Mart Stores, Inc. – Nearly No Good Deed Goes Unpunished

If you’re hugely successful in expanding your business into foreign
countries and deal with manufacturers and suppliers beware you don’t
exploit cheap labor.

While it might be “the in thing to do,” expanding a business into
foreign countries and hiring manufacturers and suppliers right on the
spot, you need to watch that you do not exploit local labor. If you do,
and insist they follow “your” notions of minimum labor standards,
working conditions and health benefits; chances are you might wind up
as a party to a nasty lawsuit later, just the very thing that happened
to retail giant Wal-Mart, Inc.

Now you may think it odd that U.S. lawyers are representing
plaintiffs in foreign exotic countries, however it appears to be a
growing legal trend. They are doing this because the foreigners can sue
U.S. companies in the United States. Perhaps this is the wave of the
future; the legal industry relying more on imports over domestic
sources to stay in business.

Just the Facts Ma’am!

The plaintiffs are workers of foreign companies that sell goods to
Wal-Mart Stores, Inc. They collectively brought claims against the
retail giant based on working conditions in each of their employer’s
factories. The basis of the claims was that a code of conduct included
in Wal-Mart’s supply contracts with these foreign companies stated that
the suppliers had to meet basic labor standards.

The standards insisted foreign suppliers adhere to local laws and
local industry standards relating to working conditions like
discrimination, child labor, forced labor, hours and pay and something
called a right of inspection. The right of inspection clause stated:
“Wal-Mart or a third party designated by Wal-Mart will undertake
on-site inspection of production facilities, to implement and monitor
said standards. Any supplier which fails or refuses to comply with
these standards or does not allow inspection of production facilities
is subject to immediate cancellation of any and all outstanding orders,
refuse [sic] or return [sic] any shipment, and otherwise cease doing
business [sic] with Wal-Mart.”

Wal-Mart promotes itself to the public as a corporate entity that
improves the lives of its suppliers’ employees and won’t stand for any
violations of their standards. The plaintiffs argue that Wal-Mart
doesn’t properly monitor the suppliers and that standards are honored
more in the breach than in actuality. They further alleged inspectors
are coerced to produce positive reports for those not in compliance and
that the short deadlines and low prices of Wal-Mart’s contract
conditions forces suppliers to violate the standards to meet the
agreements.

And the Contentions Are

The plaintiffs offer four legal theories that attempt to establish
that Wal-Mart’s standards and California common law provides
obligations that may be enforced by foreign workers against Wal-Mart.
Those theories are that the plaintiffs are third-party beneficiaries of
the standards contained in Wal-Mart’s supply contracts; Wal-Mart is the
plaintiffs’ joint employer and they negligently breached a duty to
monitor the suppliers and protect plaintiffs from the suppliers’
working conditions and finally that Wal-Mart was unjustly enriched by
the plaintiffs’ mistreatment.

And the Court Said

Re: Third-party beneficiary contracts: the Court set out the oft
quoted rule that a person will be entitled to sue on a contract as “an
intended [third party] beneficiary if recognition of a right to
performance in the beneficiary is appropriate to effectuate the
intention of the parties.” Furthermore it is accepted that “contract
interpretation is a question of law that the court reviews de novo.”

The court felt that Wal-Mart’s supplier agreement didn’t obligate
them to inspect and a workplace’s standards violation has no
consequence if there were no inspection. Therefore, Wal-Mart didn’t
obligate itself with a duty owed to the supplier’s workers as 3rd party
beneficiaries of the supplier contracts between Wal-Mart and its
foreign based suppliers.

Re: Wal-Mart was the direct employer of the foreign based supplier’s
employees. The court stated that “in order to be a direct employer,
they must be determined to have the right to control and direct
people’s activities or the manner/method used to perform those
activities.” In addition any finding as to the right to control workers
requires a comprehensive and “immediate level of ‘day to day’ authority
over employment decisions.”

The agreement that Wal-Mart could monitor the work environment was
already determined not to create a duty to carry that out. Therefore,
this can’t rise to the level of control over method or manner necessary
since Wal-Mart didn’t assume the obligation.

Re: Wal-Mart is liable in tort to the workers for negligently
supervising the supplier’s facilities and their working conditions.

The court said that “Negligence requires a duty owed by defendant to
plaintiff which is alleged to have been breached.” And further that
“Wal-Mart did not owe the plaintiffs a common-law duty to monitor
Wal-Mart’s suppliers or to prevent the alleged intentional mistreatment
of the plaintiffs by the suppliers. Without such a duty, the
plaintiffs’ negligence theories do not state a claim.”

Re: Wal-Mart was unjustly enriched because it knowingly profited from their suppliers substandard labor practices.

The court’s response to this contention was that “A person who has
been unjustly enriched at the expense of another is required to make
restitution to the other.” California’s approach to unjust enrichment
is consistent with this general understanding. And in addition, “The
fact that one person benefits another is not, by itself, sufficient to
require restitution. The person receiving the benefit is required to
make restitution only if the circumstances are such that, as between
the two individuals, it is unjust [emphasis added] for the person to
retain it.”

The lack of any prior relationship between Wal-Mart and its
supplier’s employees precludes the application of the unjust enrichment
theory to recover. As you can see, this case was very nearly a case of
no good deed goes unpunished and is a warning shot fired at other
entrepreneurs and large corporations to watch their step when dealing
in foreign countries.…… at least that’s what this lawyer thinks.

Roni Balint writes for the Law Office of Alan M. Insul. The content
contained within this feature is not intended as legal advice and does
not constitute an attorney-client relationship. To learn more, contact Los Angeles business attorney and California corporate lawyer, Alan M. Insul by visiting Insullaw.com.