California Legal Team Takes Aim at Nike

A group of high-profile plaintiffs’ lawyers, who won a major suit against tobacco company R.J. Reynolds last year, has now turned its resources against Nike Inc.--accusing the company of misleading and deceiving California consumers about wages and working conditions in its overseas factories.

“Nike has failed to tell Californians the truth about [its] business practices, and that is illegal,” said San Francisco attorney Alan M. Caplan. The lawyers brought suit under the state’s Business and Professions Code, the same statute used by Caplan and other attorneys in a lawsuit that targeted Reynolds’ Joe Camel advertising campaign.

The state law prohibits deceptive or misleading advertising.

In the earlier case, the lawyers won a $10-million settlement with Reynolds, which agreed to end the Joe Camel campaign. The company also agreed to release thousands of internal documents.

This time around, members of the legal team admit that, should they prevail, they do not have the capacity, since it is a state case, to obtain a judgment forcing Nike to change its operating practices in places such as Vietnam.

But the suit, which could prove embarrassing to the Beaverton, Ore.-based company, seeks to compel Nike to change its advertising practices, undertake a court-approved public information campaign to correct alleged misstatements and pay back four years of profits. The money would go to the state treasury.

Caplan’s co-counsel Patrick J. Coughlin of San Diego noted that although Nike has come under increasing scrutiny in recent years for alleged sweatshop abuses in Asian factories, this marks the first time that the sporting goods titan has faced legal action over the matter.

Among the evidence cited in the suit is a 1997 internal audit of the company done by Ernst & Young, the accounting firm, which describes widespread health and safety violations at a Nike shoe factory in Vietnam. The violations included the exposure of workers--mostly women aged 18 to 24--to high levels of toluene, a carcinogen and recognized reproductive hazard.

Nike issued a formal statement saying the company “takes our manufacturing responsibilities seriously” and that it has previously addressed all of the specific problems raised in the suit.

“We have always been concerned about the health, safety and wage levels of our workers and have consistently taken steps to help create the very best workplaces,” Nike said.

The suit raises no new claims, the company statement argues, and “upon initial review, the action as filed appears to be more of a press release dressed up like a lawsuit.”

But outside experts said the case may not be so easily dismissed.

“This suit is consistent with a generalized trend toward attempts to impose corporate liability for human rights violations even when those violations occur abroad,” said Ralph G. Steinhardt, a professor who directs the international legal studies program at George Washington University Law School.

“One of the ways companies are competing with one another in the marketplace is through the appearance of wearing the ‘white hat,’ and they can expect to be challenged if they make claims that turn out to be false,” he said.

The vast majority of Nike’s products are manufactured by subcontractors, employing 300,000 workers in China, Vietnam and Indonesia.

The suit notes that since March 1993, Nike has assumed legal responsibility for requiring subcontractors to comply with laws on minimum wages, overtime, health and safety laws and environmental regulations.

In particular, the suit contends that Nike made false claims in statements saying:

* Workers who make Nike products are not subjected to corporal punishment.

* Nike products are made in accord with applicable government laws regulating wages and hours.

* Nike pays production workers on average twice the minimum wage in Southeast Asian countries.

* Workers who make Nike products receive free meals and health care.

In addition to citing toluene exposure, the Ernst & Young report noted that among the 9,000 workers at the plant in Vietnam, more than half of those exposed to hazardous chemicals did not wear protective gloves or masks. The employees did not have an adequate understanding of the chemical dangers, the report stated.

Moreover, the study said that the plant’s laborers, typically worked 10.5 hours a day, six days a week, while making a little more than $10 a week.

“The cost of correcting all the problems in this lawsuit would be a fraction” of the $600 million Nike spends yearly on celebrity endorsements, said Marc Kasky, an environmental activist who is the named plaintiff in the case.