Case Report: Kasky V. NikeAlexis Niles & Justin Helke Business Law & Ethics October 29th, 2011
3 There are a few large American companies that have been accused of producingtheir products in sweatshops. In the 1990’s many students and laborers joined amovement to protest the sweatshop conditions that these companies furnish. Therewere many demonstrations on the streets outside of the World Trade Organization(WTO) meetings. These demonstrators boycotted these accused companies, andprotested publicly. This report deals with one of the most publicly known “sweatshop”produced companies, Nike Inc. and the fed up consumer activist, Marc Kasky. Nike Inc. is a large producer and marketer of athletic wear, whether its shoes,apparel or gear, Nike makes it. They are most famous for their slogan of, “Just do it.”They promote this image heavily and to do so, in 1997 it cost them more than$970,000,000 in advertisements and branding. Nike, like many large companies, hascontracted labor in counties with lower labor costs. This allows for a greater mark upand profit margin. Nike only contracts the labor; the facilities that produce the goods areowned by South Korean, Taiwanese, and Chinese companies who contract the workout to those willing to produce their goods at lower wage costs. Nike became aware of the public frenzy in the 1990’s, and tried to enhance theirpublic image. In doing so Nike sent out press releases and letters to large Newspapereditors to publish. In 1995, a Korean company opened a large facility in Vietnam givingit a large share of Nike’s production needs. This meant that between 300,000 to500,000 Asian workers were producing Nike goods. A complaint then alleged that mostof these workers were females who were under the age of 24. Nike pursued the appearance of good working conditions. They requiredcontractors to sign documents ensuring they understood and would comply with local
4laws of minimum wage, overtime, child labor laws, insurance benefits, holiday, vacation,and proper working conditions. Nike also required documents showing their fulfillment ofthese requirements. To confirm that the outsourced facilities were complying,accounting firms would randomly audit the labor and environmental conditions. In 1997, Nike became engaged with a consulting firm Co-chaired by AndrewYoung. Andrew Young was the former ambassador to the United Nations (UN). Thisconsulting firm went to evaluate the labor conditions. The firm visited twelve factoriesand Mr. Young reported in favor of these working conditions and was unable to findevidence of neglect to workers. However, reports were leaked that things were not asthey seemed. There were reports of pollution to the air consequently causing respiratoryproblems in 77 percent of the workers in the factories. While many people took what Nike’s accounting firm, and Andrew Young had tosay for face value, a few activists did not buy their statements. Marc Kasky, a consumeractivist,brought a lawsuit against Nike in 1998 in California courts.He claimed Nikewasdeceptive in reports of factory conditions, engaged in unlawful and unfair businesspractices, and false advertisement under California’s Unfair Competition Law and FalseAdvertising Law. Kasky claims a total of six falsifications were made concerning theirlabor conditions. Nike filed a defense to this complaint saying Kasky’s claims wererestricted by the First Amendment. The trial court reviewing the case sustained Nikes defense and dismissed thecase without leave to amend. In other words Kasky could not change his originalcomplaint against Nike Inc. Marc Kasky filed for an appeal with the California Court ofAppeals only to still have the case dismissed.
5 Kasky then appealed yet again to the California Supreme Court. The SupremeCourt then reversed the lower court’s decision on the case. The Supreme Court ruledthat Nike’s statements were commercial speech, but doesn’t have as muchconstitutional protection as non-commercial speech. If they were found guilty of false ormisleading information they would be punished. Several months after the case Kaskyand Nike settled out of court for $1.5 Million. The settlement stipulated that Nike makeinvestments to improve and strengthen workplace monitoring and factory workerprograms.Questionso Do you believe filing the lawsuit on the basis of free speech as Kasky did is an effective way to combat the sweatshop issue? We feel that Kasky had an effective way to combat the sweatshop issue by filing suitagainst Nike. After filing suit and going through the Supreme Court Kasky and Nikecame to an agreement. Part of the settlement ensured the improvement andstrengthening of workplace monitoring and factory worker programs. Nike was put onthe spotlight for their unethical business practices. Most people would agree it isunethical to contract work overseas to workers being paid less, work longer hours, andhaving these workers working in terrible conditions. America has a great standard forworking conditions which the Occupational Safety and Health Administration(OSHA)ensures. However, since Nike contracts other countries to produce their goods,OSHA does not apply outside of the United States.
6o Thinking in terms of the utilitarian theory, what ethical issues do companies like Nike contemplate? There are a few ethical issues that all companies, not just Nike must contemplate.One large issue is taking jobs overseas in order to pay lower wages. In 1984 Nikeclosed their last U.S factory costing 64,000 Americans their jobs. They also weigh theissues of the working conditions in the countries they choose to contract their productsto, and the public image that sends.BibliographyFind Law. (2003, June 26). Supreme Court. Retrieved from Find Law: http://caselaw.lp.findlaw.com/cgi- bin/getcase.pl?court=US&navby=case&vol=000&invol=02-575Glenn, T. (n.d.). Nikes Cheap Labor. Retrieved from CLR Labor: http://www.clrlabor.org/alerts/1997/nikey001.htmlHalbert, T., & Ingulli, E. (2012). Law and Ethics in the Business Environment (7th ed.). (R. Dewey, Ed.) Mason, OH: South-Western, Cengage Learning.Law.com. (n.d.). Kasky v. Nike Inc. Retrieved from Law: http://www.law.com/regionals/ca/opinions/may/s087859.shtmlReclaim Democracy. (n.d.). Nike V Kasky - Corporate Right to Lie? Retrieved October 29, 2011, from Reclaim Democracy: http://reclaimdemocracy.org/nike/