Doe v. Wal-Mart: Must Common Law be Reformed to Protect Workers?

Outsourcing, with or without offshoring, through extended supply chains of goods and services has come to be a common way to organize a business. Using contract law to divide and subdivide what was once a single enterprise (or start one from scratch) into separate legal entities is ever more useful to businesses as they try to cut their costs to become ever more competitive. If vertical integration was once the norm – e.g., Ford’s River Rouge plant where iron ore, coal, sand, rubber came in one end and Ford cars came out the other – the norm is now to have flat and horizontal relation-based groups of legally independent entities that can stretch around the world. The business entities farthest from the core of the enterprise frequently are almost ephemeral in to their organization, ownership and even life span. These frequently operate at the fringe of the formal economy and often in the informal economy where they escape coverage by the domestic labor and employment laws of the place where the work is performed. “Middlemen” operated as a bridge between the core enterprise and the far end of the supply chain where the productive work is actually performed.

The common law generally favors this type of private ordering in part because it looks at so many issues through a lens that sees only the two parties immediately involved in the transaction. The common law does not generally take too much account of the effects on third parties, including workers participating in the full enterprise from one end of the supply chain to the other. What is becoming ever more clear is that the common law leaves labor and employment interests in the dust, unable to keep up, incapable of protecting workers.

A recent common law case demonstrates the freedom enterprise has to organize its affairs to its own interests while escaping any obligation to workers down line in the supply chain. In Doe v. Wal-Mart Stores, Inc., plaintiffs were employees of enterprises located around the world that make and sell goods to Wal-Mart. Wal-Mart’s contracts with plaintiff’s employers all incorporate Wal-Mart’s Code of Conduct obliging these suppliers to provide basic labor standard protections to their employees and allowing Wal-Mart to monitor compliance including canceling contracts if the suppler “fails or refuses to comply” with the Code. Requiring suppliers to agree to the Code shields Wal-Mart from attack, including consumer boycotts, for selling goods made by child labor or under other sweatshop conditions. Nevertheless, the workers at the ends of the supply chain were in fact not provided the labor protections the Code claimed to mandate. Claiming injury from their employers’ mistreatment, plaintiffs sued Wal-Mart because it failed to either monitor or enforce compliance with its Code. The Ninth Circuit, applying traditional common law, rejected all four of plaintiffs’ claims. First, plaintiffs were not third party beneficiaries of the contracts between plaintiffs’ employers and Wal-Mart. Second, Wal-Mart was not a joint employer of these employees with their employers. Third, Wal-Mart owned no duty to plaintiffs and so it could not to be held to be negligent. Fourth, Wal-Mart was not unjustly enriched by the employers’ mistreatment of the plaintiffs. In short, independent contractor law allows Wal-Mart to arrange its legal relationship with its supplier to their mutual advantage while also cutting off the claims of the employees of the suppliers. As has been true from the earliest sweatshop days in the garment business, the actual producers are completely contingent, ready to disappear and to reappear in a new format at a new location at a moment’s notice in order to avoid any obligations owed the workers. Sweatshop conditions have grown far beyond the garment industry to include electronics and many other labor intensive businesses.

So, ironically, those interested in workers’ rights might need to start thinking about reforming the common law, at least as it applies to employees, if law is to be relevant to worker protections. For the purposes of worker protection, enterprises may have to be reconceptualized so that the Wal-Marts of this world are viewed as a single enterprise from the beginning to the end of the supply chains, without regard to the private ordering they engage in to divide the whole into many parts. In fact, if not law, they do form a functional whole, despite the present law that separates them into many independent legal entities. The normative basis for such a new approach is that, if the Wal-Marts of this world are not responsible for labor standards to workers to the very end of the supply chain, then no one is.

If enacting the Employee Free Choice Act and the various civil rights bills pending in Congress face tremendous challenges to be enacted, the question is whether legislation to reconceptualize workers’ rights in these subdivided enterprises has any chance at passage. In the recent era, the common law courts have also retreated from the advances made when what we call “employment law” was just beginning to blossom.

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2 Responses

  1. A.J. Sutter says:

    But think of the efficiencies of Wal-Mart’s not having to monitor and enforce the agreements. If they had to incur that expense, what with suppliers all over the world, consumers might have to pay higher prices.

    — just kidding. A post like this is a salutary breath of fresh air, even in a relatively enlightened blog like the present one.