PART FOUR: Financial and Material Impacts of Child Labour

Tesco/ Intertek and Nike scandal analysis

On the 18th December 2022, a lawsuit against Tesco and Intertek was filed by 130 workers in Thailand who were employed by VK Garment Factory (VKG), a supplier of jeans, jackets and other items to F&F, Tesco's clothing line. Allegations centred around illegally low pay, hazardous working conditions and indicators of forced labour such as "retention of identity documents, retention of wages, lack of freedom of movement, intimidation, threats, physical and sexual violence".

Specifically, the defendants in the case were named as Tesco PLC; Ek-Chai Distribution System Company Limited (owned by Tesco PLC until 2020); and the UK headquartered auditing companies Intertek Group PLC and Intertek Testing Services (Thailand) Limited.

When this story broke in the media, it was a landmark case as it was the first example of a UK company being sued in English courts for the actions of a company that they do not own, in their extended supply chain and not based in the UK. Additionally, the case was also brought against Intertek, who had carried out the social audits on Tesco's behalf. It is believed that this is the first time an auditing firm has been included in such a lawsuit in this way.

Both Tesco and Intertek denied the claims, with Tesco stating that they have no responsibility to protect the claimants under Thai law. The claimants previously filed a case with the Thai Department of Labour Protection and Welfare and then the Thai labour court, both of which concluded that claimants were only entitled to severance pay and notice pay. Thai experts on the case believe this is partly due to the fact that Intertek had audited VKG and verified their compliance to labour standards up until 2020. VKG therefore relied on the audit results which allowed them to deny knowledge of the situation.

This case is still ongoing and the outcome is uncertain. Contact the Leigh Day Press Office for further enquiries.

Forced labour and child labour in the Tesco & Intertek case study

While this case involved forced labour, there are two main points to consider when relating it to child labour and the potential risk for company share price and impacts on other financial and material assets:

• Forced labour also includes child forced labour. In 2021, there were an estimated 27.6 million people in forced labour globally, 3.3 million of whom were children, according to the International Labor Organisation.

• If a UK company and their auditors were sued for forced labour violations by 130 workers in Thailand, the risk of similar lawsuits for child labour violations is much higher; in fact, there are 160 million children in child labour globally, which is 5.8x higher than the number of forced labourers (calculated using ILO Global Estimates of Modern Slavery 2022), based on the current estimates of 27.6 million people. So, for every 130 forced labourers in the world, there are 754 children in child labour.

HACE analysis shows that if child labourers were added to the total global employed workforce, they would make up 4.6% of that total workforce.

According to Tesco's company disclosure and Open Supply Hub, a small supplier might have 50 workers. 4.6% of 50 means 2.3 workers are statistically likely to be child labourers.

F&F jeans. Source: WrS.tm.pl Own work, CC BY-SA 3.0 https://commons.wikimedia.org/wiki/File:F%26F_jeans,_organic_cotton_from_Tesco.jpg

Our second case study begins in 1996, when Life magazine ran a story on child labour that included an emotive photo of a 12-year-old Pakistani child sewing a Nike football. There is debate on whether this image was staged or not but it didn’t matter; a global child labour scandal began, arguably the first one to be publicised at such a scale.

On the 20th April 1998, Nike Inc. was sued over statements in which they denied the use of child labour and substandard wages in sweatshops in Asia. Activist Marc Kasky filed the lawsuit claiming these statements were deceptive. The case was swiftly dismissed by the trial court on grounds suggested by Nike of the US First Amendment guarantee of free speech. Therefore, Kasky appealed to the California Court of Appeals and further to the California Supreme Court.

In May 2002, the California Supreme Court declared Nike's statements were commercial speech and entitled to less constitutional protection, at which point Nike appealed to the US Supreme Court. By 26th June 2003, the US Supreme Court had dismissed the case and left the California Supreme Court's ruling to stand. Several months later a settlement was agreed for Nike to pay $1.5 million, in addition to investments to strengthen workplace monitoring.

The LA Times reported that "shares of Nike fell 11 cents Friday to $55.68 on the New York Stock Exchange."

While this share price drop and $1.5 million settlement could be considered a relatively small financial impact, it is potentially the first time in public record that a child labour scandal has impacted a company financially in such a public, global and damaging way. Often when we ask a member of the general public which companies are 'bad' for child labour, Nike is mentioned. The precedent was set over 20 years ago that consumers and shareholders care about this issue, a trend which has increased exponentially to create the impacts discussed in other case studies here.

This blog post concludes our 4-part series on Financial and Material Impacts of Child Labour.

We will be releasing the full Financial and Material Impacts of Child Labour White Paper on the 26th October, for those who didn’t sign up to our early-release waiting list.

The White Paper will cover 6 company case studies of child labour scandals alongside HACE analysis.

Look out for our next series, “Child Labour: The Problem” which will explore the issue of child labour itself, and will begin on November 2nd.