Doe v. Walmart Stores
572 F.3d 677 (2009)
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Rule of Law:
A retailer's inclusion of a supplier code of conduct and a reservation of a right to inspect its suppliers' facilities for compliance does not create a legally enforceable duty for the retailer to protect the suppliers' employees. Such provisions do not establish third-party beneficiary rights, a joint-employer relationship, a duty of care for negligence claims, or a basis for an unjust enrichment claim by the employees against the retailer.
Facts:
- In 1992, Wal-Mart developed a code of conduct for its suppliers called 'Standards for Suppliers' ('Standards').
- Wal-Mart incorporated these Standards into its supply contracts with foreign suppliers, requiring them to adhere to local laws and industry standards regarding working conditions.
- The Standards included a 'RIGHT OF INSPECTION' clause stating that Wal-Mart 'will undertake affirmative measures, such as on-site inspection... to implement and monitor said standards.'
- The contracts stipulated that any supplier failing to comply or refusing inspection was subject to cancellation of orders and termination of its business relationship with Wal-Mart.
- Employees of Wal-Mart's foreign suppliers in countries like China, Bangladesh, and Indonesia alleged they were subjected to substandard working conditions that violated the Standards.
- The employees alleged that Wal-Mart's monitoring was inadequate, inspections were often announced, and workers were coached on how to respond to auditors.
- The employees also alleged that Wal-Mart's low prices and short deadlines in its supply contracts forced the suppliers to violate the Standards.
Procedural Posture:
- Plaintiffs, employees of Wal-Mart's foreign suppliers, filed a class action lawsuit against Wal-Mart in California Superior Court (a state trial court).
- Wal-Mart removed the case to the United States District Court for the Central District of California (a federal trial court) based on diversity of citizenship.
- Plaintiffs filed an amended complaint in the federal district court.
- Wal-Mart filed a motion to dismiss the complaint for failure to state a claim upon which relief can be granted, pursuant to Federal Rule of Civil Procedure 12(b)(6).
- The district court granted Wal-Mart's motion to dismiss.
- The Plaintiffs (Appellants) appealed the dismissal to the United States Court of Appeals for the Ninth Circuit.
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Issue:
Does a retailer's corporate code of conduct, which is included in its supply contracts and reserves a right to inspect its suppliers for compliance, create legally enforceable duties toward the suppliers' employees under theories of third-party beneficiary, joint employer, negligence, or unjust enrichment?
Opinions:
Majority - Gould, J.
No. A retailer's code of conduct in a supply contract does not create legally enforceable duties toward the suppliers' employees. On the third-party beneficiary claim, the court held that the contract did not create a duty for Wal-Mart to monitor its suppliers; instead, it merely reserved a right to inspect. The language did not show an intent by Wal-Mart and its suppliers to grant the employees a right to performance against Wal-Mart. On the joint employer claim, the court reasoned that Wal-Mart did not exercise the 'comprehensive and immediate level of day-to-day authority' over the employees required to establish an employment relationship; setting prices and deadlines are typical buyer-seller terms, not acts of an employer. For the negligence claims, the court found Wal-Mart owed no duty of care to the employees because it had no contractual obligation to protect them, was not their employer, and did not undertake a duty to provide protective services. Finally, the unjust enrichment claim failed because the relationship between the employees and Wal-Mart was 'simply too attenuated' to support a claim for restitution.
Analysis:
This decision significantly clarifies the limited legal effect of corporate social responsibility (CSR) policies within supply chain contracts under U.S. law. It establishes that unless a company assumes a clear, affirmative duty, a code of conduct and a right to inspect are insufficient to create third-party liability for conditions in a supplier's factory. The ruling insulates retailers from liability stemming from their supplier codes, making it more difficult for plaintiffs to hold U.S. corporations accountable for labor abuses in their foreign supply chains. Future plaintiffs will likely need to demonstrate a much more direct level of control or a specific contractual promise intended to benefit workers to succeed on similar claims.
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