On May 30, 2024, the US Department of Labor (DOL) filed a complaint in the Middle District of Alabama against a US subsidiary of Korean carmaker Hyundai seeking to hold Hyundai liable for child labor violations alleged to have occurred at a Hyundai supplier's facilities in Alabama. The complaint alleges that Hyundai violated the child labor provisions of the Fair Labor Standards Act (FLSA) notwithstanding the facts that the minors in question were employees of a staffing agency used by Hyundai's supplier and that neither the supplier nor Hyundai was alleged to have been aware of their age. DOL's complaint appears to be part of a recent strategy to address growing concern surrounding child labor in US manufacturing by going after “gatekeepers” (here, major manufacturers) by forcing them to take responsibility for labor practices occurring throughout their supply chains.
Background
DOL's complaint comes amid escalating enforcement efforts related to child labor in US supply chains. Allegations of child labor in Hyundai's Alabama supply chain date back to at least July 2022, when Reuters published the first of a series of articles based on its investigation into child labor at Alabama auto parts suppliers, including the supplier that is a codefendant with Hyundai in the current action.1 In August 2022, DOL filed a complaint in the Middle District of Alabama against another Hyundai supplier for similar child labor violations involving staffing agency employees, but in that instance did not include Hyundai as a defendant.2 In an apparent response to Reuters' reporting and the 2022 DOL action, Hyundai announced in a February 2023 shareholder letter that it had divested from the supplier that is a codefendant in the current action and that both its suppliers had terminated their relationships with the implicated staffing agencies. Hyundai further noted that, among other remedial measures, it was implementing a new corporate program to prevent future child labor violations, including a training program in collaboration with DOL.3
In early 2023, The New York Times began publishing its own series of articles detailing its ongoing investigation of migrant child labor in US manufacturing plants.4 Those articles drew the attention of US lawmakers and the public. Although the articles called out labor practices associated with the supply chains at various named companies, the Times did not allege that any of the companies was aware of child labor violations (and, in response to the articles, named companies emphasized that they were unaware of any child labor in their supply chains and that they require suppliers to comply with their sourcing standards and have systems in place to audit suppliers' labor practices).5
Shortly after the first Times article, DOL and the US Department of Health and Human Services announced in February 2023 an interagency task force to address growing child labor violations in the United States.6 Congress has similarly stepped up efforts to address the issue over the last year, including by establishing a Child Labor Prevention Task Force in July 2023 led by Congressman Dan Kildee and Congresswoman Hillary Scholten.7
The Complaint
Hyundai's Alabama supplier and the supplier's staffing agency are codefendants with Hyundai in the DOL's complaint. All three entities are accused of having violated those provisions of the FLSA prohibiting child labor, and the complaint seeks as a remedy disgorgement of those profits attributable to the alleged violations.
According to the complaint, the staffing agency regularly provided the supplier with temporary workers for its manufacturing operations. Among them was a 13-year-old girl who is alleged to have worked up to 50–60 hours per week over a six-to-seven month period operating machines that formed sheet metal into auto parts. These auto parts were allegedly shipped by the supplier to a Hyundai facility where they were incorporated into Hyundai vehicles. The complaint vaguely alleges, without additional details, that other children employed by the staffing agency also worked in the supplier's manufacturing facility.
Although neither the supplier nor Hyundai is alleged to have been involved in the vetting or onboarding of the minors, DOL seeks to hold both the supplier and Hyundai accountable for the child labor violations by (i) attempting to establish that the supplier and Hyundai were “joint employers” of the workers and (ii) invoking the “hot goods” provisions of the FLSA.
Joint Employment Liability
The FLSA does not define “joint employer” or “joint employment,” and courts may consider multiple criteria to determine whether a joint employment relationship exists, including whether the purported joint employer exerted control over the workers.8 With respect to the supplier, DOL points in the complaint to several aspects of purported control the supplier exerted over the minors, including the supplier's ability to direct their work, mandate their start and end work times, and terminate them or exclude them from the facility. DOL asserts that these factors and others indicate that the supplier had sufficient control over the temporary workers to be considered their joint employer.
DOL then endeavors to establish that Hyundai was also a joint employer of the minors by focusing on the control Hyundai exerted over the supplier. As asserted by DOL in the complaint, Hyundai had “indirect” control over the minors because it controlled the supplier and that control caused Hyundai and the supplier to be “a single employer for purposes of liability under the FLSA.” In support of its claim, DOL cited, among other factual assertions, that Hyundai (i) was the principal purchaser of the supplier's product, (ii) subjected the supplier's employees to the Hyundai Code of Conduct, (iii) had its own employees serve both as corporate officers of the supplier and on the supplier's board of directors, and (iv) loaned the supplier over $100 million. DOL also asserts that the minors' work was “integral” to Hyundai's business (another factor that courts may consider when determining whether a joint employment relationship exists).
In her public comments about the complaint, Solicitor of Labor Seema Nanda emphasized that “[c]ompanies cannot escape liability by blaming suppliers or staffing companies for child labor violations when they are in fact also employers themselves.”9
“Hot Goods” Liability
In addition to asserting joint employer liability, DOL attempts in the complaint to establish liability for all three of the defendants under the “hot goods” provisions of the FLSA, which prohibit companies from shipping products originating from or including components that originated at any worksite in which child labor violations have occurred. Without providing detailed or individualized facts to support its claims, DOL generally asserts that Hyundai, its supplier, and the staffing agency “individually and collectively” violated the “hot goods” provisions because they “shipped and/or delivered for shipment goods from their respective facilities, such as component parts and fully assembled automobiles, that were manufactured in facilities” in which child labor violations occurred.
Takeaways
DOL's complaint appears to reflect an initiative to grapple with widespread child labor concerns by pursuing the manufacturing industry's “gatekeepers” for child labor violations even if they occur at their suppliers and through temporary employees provided by staffing agencies. Combined with the national attention on child labor issues, we expect child labor investigations and enforcement activity to increase.
In response, and to protect themselves against similar types of complaints, companies should consider the following:
- Strengthening supplier requirements to include explicit prohibitions on child labor and requiring that suppliers apply similarly rigorous standards for their own vendors, including staffing agencies;
- Establishing ongoing and per-delivery representations by suppliers that they are in compliance with the FLSA and that none of the products provided by the suppliers was made using child labor, which could assist companies in taking advantage of the “good faith” exception to the “hot goods” provisions of the FLSA;10
- Requiring that suppliers train their employees to identify and escalate potential child labor violations;
- Mandating that suppliers undertake periodic audits—including unannounced (or semi-unannounced) visits and observation of overnight shifts—of their labor practices with a focus on identifying potential child labor violations; and
- Examining their relationships with their suppliers, particularly the amount of control exerted over the suppliers, to determine whether there are opportunities to decrease the likelihood of a joint employer finding.
Footnotes
1. Joshua Schneyer et al., Exclusive: Hyundai subsidiary has used child labor at Alabama factory, Reuters (July 22, 2022), https://www.reuters.com/world/us/exclusive-hyundai-subsidiary-has-used-child-labor-alabama-factory-2022-07-22/.
2. Walsh v. SL Alabama, 3:22-CV-00507-CWB (M.D. Ala. Aug. 24, 2022).
Press Release, Hyundai, Hyundai Motor Releases Details of Supplier Investigations (Feb. 2023), https://www.hyundainews.com/en-us/releases/3776.
3. See, e.g., Hannah Dreier, Alone and Exploited, Migrant Children Work Brutal Jobs Across the U.S., The New York Times (Feb. 25, 2023), https://www.nytimes.com/2023/02/25/us/unaccompanied-migrant-child-workers-exploitation.html.
4. See Hannah Dreier, They're Paid Billions to Root Out Child Labor in the U.S. Why Do they Fail? (Dec. 28, 2023), https://www.nytimes.com/2023/12/28/us/migrant-child-labor-audits.html.
5. Press Release, DOL, Departments of Labor and Health and Human Services Announce New Efforts to Combat Exploitative Child Labor (Feb. 27, 2023), https://www.hhs.gov/about/news/2023/02/27/departments-labor-and-health-and-human-services-announce-new-efforts-combat-exploitative-child-labor.html.
6. Press Release, Congressman Dan Kildee, Kildee, Scholten Launch Child Labor Prevention Task Force (July 18, 2023), https://dankildee.house.gov/media/press-releases/kildee-scholten-launch-child-labor-prevention-task-force.
7. See Reyes-Trujillo v. Four Star Greenhouse, Inc., 513 F. Supp. 3d at 783 (E.D. Mich. 2021) (noting that courts may consider the following factors when determining whether joint employment exists: (1) the permanency of the relationship between the parties, (2) the degree of skill required for the rendering of the services, (3) the worker's investment in equipment or materials for the task, (4) the worker's opportunity for profit or loss, depending upon his skill, (5) the degree of the alleged employer's right to control the manner in which the work is performed, and (6) whether the service rendered is an integral part of the alleged employer's business).
8. Press Release, DOL, US Department of Labor Files Complaint to Stop Hyundai Manufacturer, Partners from Using, Profiting from Oppressive Child Labor (May 30, 2024), https://www.dol.gov/newsroom/releases/whd/whd20240530#:~:text=MONTGOMERY, AL – The U.S. Department,plant, from employing children illegally.
9. Note that general representations about compliance, even if recertified annually, do not satisfy the requirements of the “good faith” exception to the “hot goods” provisions. To qualify, representations must be specific to each delivery, among other requirements.
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