N IKE ’ S R ESPONSES TO S WEATSHOP C HARGES : P ROTECTED OR U NPROTECTED

S PEECH ?
Imagine that every day you go to work you are exposed to toxic chemicals without having any protective
clothing or safety training and that the workplace has poor ventilation and fire safety. Suppose that you are
subjected to physical and verbal abuse at the hands of your employer and that there is a lack of drinking
water in the workplace. Suppose further that you are paid only a couple of dollars per day and forced to
work excessive overtime hours. Would these be satisfactory working conditions—for anyone, anywhere in
the world?
These are the types of conditions found in businesses commonly known as sweatshops. A sweatshop is
typically characterized by poor working conditions, including health and safety hazards; extreme
exploitation, including the absence of a living wage or benefits; and arbitrary discipline, such as physical
and psychological abuse.
According to CorpWatch, sweatshops exist throughout the world and in a variety of manufacturing
industries, including apparel, shoes, toys, and electronics. Nearly 70% of immigrant garment workers in
Los Angeles receive less than the legal minimum wage. Women workers in some Central American
countries are often forced to undergo pregnancy testing or take contraception. Workers in many Asian
countries are exposed to dangerous chemicals while making shoes.

Sweatshop Accusations and Nike’s Responses Nike began encountering criticism in the early
1990s for the sweatshop conditions that existed in its contractors’ factories. Nike responded by becoming
one of the first American companies to establish and publish a code of conduct for the contract
manufacturers in its supply chain. According to Nike officials, the company’s Code of Conduct was an
initial step in a conscious strategy to improve working conditions at its contract factories. Drafted in 1991,
the Code of Conduct was distributed to the contract factories in 1992 and was intended to guide decisions
in those production facilities.
In June 1996, Bob Herbert, a columnist for the New York Times, wrote two articles accusing Nike of
exploiting workers in Asian sweatshops. Herbert charged that laborers earning $2.20 per day in Indonesia
or $30 per month in Vietnam were manufacturing Nike’s athletic shoes. Herbert contrasted these miniscule
wages with “the $20 million a year Nike was then paying basketball legend Michael Jordan to promote its
products and to [Nike CEO Phil] Knight’s own $1.6 million salary and bonus for fiscal 1995.” Knight
responded with a letter to the editor, which the New York Times promptly published. Knight maintained
that “Nike has paid, on average, double the minimum wage as defined in countries where its products are
produced under contract. History shows that the best way out of poverty for such countries is through
exports of light manufactured goods that provide the base for more skilled production.”
In January 1997, the accounting firm Ernst & Young, hired by Nike, conducted a labor and
environmental audit of several Nike contract factories in Vietnam. Ernst & Young uncovered sweatshop
conditions in numerous factories. Nike did not publicly disclose the audit report. Nike also hired Andrew
Young, the former U.N. ambassador, to evaluate 12 factories that made its athletic footwear, most in Asia.
Young, who had access to the secret Ernst & Young document, issued a favorable report in June 1997, and
Nike issued press releases about his findings. Nike also “wrote letters to colleges faced with anti-
sweatshop activists who were urging the schools to boycott Nike products. The company emphasized its
code of conduct requiring contractors to adhere to decent labor standards.”
 A worker at Tae Kwang Vina Industrial Co. (TKV), one of the factories covered in the secret Ernst & Young
audit report, leaked the document to Dara O’Rourke, a consultant with the United Nations Industrial Development
Organization in Vietnam and a research associate with Transnational Resource and Action Center (TRAC). In
November 1997, TRAC—now known as CorpWatch—released the leaked Nike document. O’Rourke’s
independent assessment of the factory and photos from inside it made front-page news in the New York Times.
TRAC asserted that its “release of the Ernst & Young report significantly increased the pressure on Nike to
improve conditions in its overseas factories.” TRAC also cited an editorial in the Multinational Monitor, which
argued that “for a whole year, Nike denied that its contractors in Asia abused and mistreated workers. The
company said that the information was being sent out by fringe activists on the Internet. . . . With the leak of an
Ernst & Young report, the fringe became mainstream.”

Enter Marc Kasky In April 1998, Marc Kasky, a community activist living in San Francisco, sued
Nike, alleging that Nike CEO Knight’s letter to the editor violated California’s consumer protection laws
against deceptive advertising and unfair business practices. Kasky’s suit also “alleged that Nike officials
had made false or misleading claims on at least eight other occasions in the course of responding to
criticisms of its Asian labor practices: in five press releases, two personal letters to critics, and one form
letter sent to scores of athletic directors at colleges and universities.”
Nike maintained that its campaign was designed to explain working conditions at factories of their
overseas contractors. Nike further maintained “that its statements concerned labor practices, not products,
and therefore should be considered protected political speech.” Kasky countered that Nike’s campaign was
indeed commercial speech—it was intended to protect the company’s image and sell more sneakers. This
set the stage for a legal battle over commercial speech and its First Amendment protection.

Commercial Speech In 1942, the U.S. Supreme Court ruled that business-related speech, in contrast
to ordinary speech, did not enjoy First Amendment protection. At that time, commercial speech was
narrowly construed as speech that does “no more than propose a commercial transaction.” By 1976, the
U.S. Supreme Court altered its position somewhat, indicating that some forms of commercial speech should
receive First Amendment protection. “The increased protection for commercial speech was intended not to
serve the interests of faceless businesses but to ensure the public’s right to receive information from
commercial sources.” Courts began to recognize that commercial speech could include claims about the
social responsibility of manufacturers.
Over the years the boundaries between commercial speech and ordinary speech (sometimes referred to
as political speech) became extremely murky as different courts and regulatory agencies—usually the
Federal Trade Commission (FTC)—dealt with specific cases. Some advertising claims that seemed very
similar to public discourse were treated as regulated commercial speech. “To make matters even more
confusing, courts also acknowledged that commercial speech was not necessarily limited to paid
advertisements, nor, conversely, did messages in paid advertisements necessarily amount to paid
commercial speech.”
A company can be sued if someone thinks its commercial speech is false or misleading, and the
consumer protection laws don’t require that malice be intended. Moreover, under California’s extremely
broad consumer protection laws, anyone can sue on behalf of the general public. Consequently, a person
who brings suit in California need not have experienced any harm or damages from a company’s alleged
false or misleading commercial speech, which was the case with Marc Kasky.
The Legal Battle over Nike’s Speech Kasky v. Nike alleged that Nike’s commercial speech
contained false and misleading statements. Nike argued that the various communications in question were
not commercial speech, but rather protected political speech. Nike requested that the trial court dismiss the
suit. The California Superior Court sided with Nike, with the dismissal being subsequently affirmed by the
California Court of Appeal. Kasky appealed to the California Supreme Court, and on May 2, 2002, the
lower court decision was reversed by a 4-3 vote. In ruling against Nike, the California Supreme Court
stated, “[B]ecause a company’s public statements about its operations might persuade consumers to buy its
products, those statements must be treated as run-of-the-mill commercial speech, thereby warranting
severely limited constitutional protection.” The California Supreme Court ruling also “indicated that such
speech could be restricted even when those statements appear in news stories, op-eds, press releases, or on
Web sites published anywhere in the world, just as long as the statements reach residents of California.”
Nike appealed the California Supreme Court ruling to the U.S. Supreme Court. Nike asked the U.S. Supreme
Court to declare unconstitutional the California law under which Kasky brought his original lawsuit. The
issue before the Supreme Court was whether Nike could be held liable for its misrepresentations under
false advertising laws or whether its various public documents and letters to the press and others were
constitutionally protected speech. Nike argued that responsible corporate communication “benefits consumers by
ensuring that they receive information that is both complete and accurate.” In its legal brief, Nike maintained that
the California court ruling was having a “chilling effect” on its activities. Nike said the prospect of being sued in
California made it too risky for the company to release its annual corporate responsibility report, participate in the
Dow Jones Sustainability Index, participate in media interviews, or accept invitations to speak at business and
academics forums.
Nike’s appeal received support from many different organizations and entities. The United States
Government, the American Civil Liberties Union, the U.S. Chamber of Commerce, organized labor,
numerous media organizations, many European entities, and trade associations filed amicus curiae or
“friend of the court” briefs after the U.S. Supreme Court decided to hear Nike’s appeal. An amicus brief
filed by a group of 40 media organizations including CBS, CNN, the New York Times Company, and the
Washington Post Company, argued that “[t]his chilling effect will deprive the public of access to important
news stories and the clash of competing viewpoints that undergirds the First Amendment.”
Just as some interested parties filed amicus briefs on behalf of Nike, other interested parties filed amicus
briefs supporting Kasky. As a member of the socially responsible investing (SRI) community, Domini
Social Investments LLC filed an amicus brief with the U.S. Supreme Court in support of Marc Kasky. The
brief argued that, “The SRI community depends upon the accurate flow of corporate social and
environmental performance data. All investors depend on government regulators to ensure that information
from corporations is provided on a timely and accurate basis. If any of this information is deemed to be
‘political speech,’ it will severely undercut these regulatory efforts. Nike’s definition of political speech—
any commercial speech that also touches upon matters of public concern—is alarmingly broad, potentially
affecting nearly every aspect of a corporation’s business, from treatment of stock options to compliance
with environmental regulations.” The attorney for Domini also emphasized that “[i]t is important to note
that this case has no bearing on Nike’s actual practices regarding its overseas contractors, or whether its
statements were in fact false or misleading. It addresses only the constitutional question of whether
companies like Nike can claim full First Amendment protection for public statements regarding their own
business practices that also touch upon matters of public concern.”
ReclaimDemocracy.org and the National Voting Rights Institute jointly filed an amicus brief in support
of Kasky. This brief asserted “[t]he claim that corporations possess a right to intentionally deceive the
public has no basis in the U.S. Constitution. Incorporation is a privilege granted by the people’s
representatives in state governments, and corporations must remain subordinate to our democratic
institutions. The discredited judicial creations of ‘corporate personhood’ and corporate ‘political rights’
should be unequivocally rejected by the Court.”
 On April 23, 2003, the U.S. Supreme Court heard oral arguments in the case of Nike v. Kasky. Nike’s
lead counsel, Harvard Law Professor Laurence Tribe, urged the Supreme Court “to reaffirm the First
Amendment right to free and open debate and to overturn an unprecedented California state court ruling
that severely restricts the ability of business and other organizations to speak out on matters of public
importance.” Tribe asserted that Nike was not selling anything when it defended itself against accusations
about its overseas contractors running sweatshops. He further stated, “[i]t was a lively political debate that
included letters to the editor and other public statements that were intended to set the record straight.” An
attorney representing Kasky countered that, “Nike’s statements amounted to misleading efforts to sell its
products. He said Nike’s defense included specific statements about work conditions and other labor issues,
and were intended to reassure potential consumers.”
On June 26, 2003, the U.S. Supreme Court announced its 6-3 decision declining to rule on the First
Amendment issue and sending the case back to California for trial. The next day Kasky told the Associated
Press, “[w]e now have the opportunity to go to trial to determine if Nike’s comments were true or not.”
National and international reaction to the case’s return to California for trial suggested that resolution of
the case in the court system could set three international precedents. First, Nike’s contractors might have to
open their business practices to unwanted public scrutiny. Second, companies would need to exercise much
greater caution about claims made not only in advertising, but also in public relations and all other public
statements that might be construed as advertising. Third, companies with sweatshop practices or conditions
would encounter additional public scrutiny.
On September 12, 2003, Nike and Marc Kasky jointly announced a settlement of the case brought by
Kasky. “The two parties mutually agreed that investments designed to strengthen workplace monitoring
and factory worker programs are more desirable than prolonged litigation.” Nike agreed to contribute $1.5
million over a three-year period to the Fair Labor Association (FLA) to help fund workplace-related
programs. The $1.5 million figure was in addition to Nike’s other FLA expenditures on monitoring and
related activities. Nike also agreed to maintain a $500,000 funding commitment over two years to the after-
hours worker education program in its footwear facilities and to its Micro Enterprise program. The Micro
Enterprise program provides small business loans to poor people in developing nations, especially in rural
areas where the people do not have access to commercial banks.
No court ever addressed the truth or falsity of any statement made by Nike. Nike admitted no liability in
the settlement.

Nike’s Activities since the Settlement Nike’s Code of Conduct has been revised and updated
over the years. In 2002, Nike instituted Code Leadership Standards (CLS) that included “23 safety
standards, 13 standards for management concerns (including labor issues), 9 standards for environmental
regulations, and 6 health standards.” The CLS provided guidance for the company’s supply chain. As of
early 2005, Nike’s supply chain consisted of more than 900 contract factories with more than 660,000
contract workers—predominately women, aged 19 to 25—in more than 50 countries including the United
States.
Through its independent external monitoring (IEM), the Fair Labor Association’s verifies Nike’s and
other participating companies’ compliance in their contract factories. The FLA conducts unannounced,
independent, external monitoring visits in a company’s contract factories and reports all noncompliance
findings in those factories. In preparing its 2004 report, the FLA conducted 40 IEM visits to Nike
contractors. There were no noncompliance findings of employment of underage workers or forced or
bonded labor in facilities producing for Nike. Some noncompliance existed regarding health and safety as
well as wages and hours. The noncompliance findings regarding health and safety issues usually related to
inadequate postings and evacuation procedures, safety equipment, and personal protective equipment.
Noncompliance involving wage and hour issues primarily concerned overtime limitations, overtime
compensation, and worker awareness of their wages and benefits. In all instances, Nike initiated
appropriate remediation, either independently or in conjunction with other FLA participating companies.
 Nike has made substantial progress in dealing with sweatshop issues in its supply chain, but more remains to be
done. All of the sweatshop issues probably will never be resolved. Of equal importance is the failure to resolve the
issues raised by all the legal maneuvering between Marc Kasky and Nike. Perhaps one day, companies and
consumers will know which business communications are commercial and which are not.

Questions for Discussion

1. Why are sweatshops viewed with disgust and abhorrence? Does a sweatshop accomplish
anything positive?
2. Is it ethically appropriate to expect a company that operates beyond California’s boundaries to
essentially conform all of it communications to California’s legal standards?
3. The U.S. Supreme Court declined to rule on the First Amendment issue regarding whether
Nike was using commercial speech or protected political speech; consequently, it remains
unresolved. In your judgment, was Nike using commercial speech or political speech? Explain
your answer.
4. No court ever addressed the truth or falsity of any statement made by Nike. In your viewpoint,
did Nike make false and misleading statements? Explain your position.
5. Considering all of the costs associated with Kasky’s lawsuit and Nike’s defense as well as the
end result, was this a wise use of resources? What good, if any, did this do for people working
in sweatshop conditions?
Sources
This case was developed from material contained in the following sources:
Bachman, S.L. (June 27, 2003) Nike v. sweatshop critic: Back to California. Global Policy Forum,
http://www.globalpolicy.org/globaliz/econ/2003/0630nike.htm, accessed February 17, 2005.
Code of Conduct. Nikebiz.com, http://www.nike.com/nikebiz/nikebiz.jhtml?page=
25&cate=code, accessed February 17, 2005.
Exposing sweatshops. (June 11, 2003) CorpWatch, http://www.corpwatch.org/article.
php?id=11304, accessed February 20, 2005.
Global giving. Nikebiz.com, http://www.nike.com/nikebiz/nikebiz.jhtml?page=26&item=
globalization, accessed February 17, 2005.
Hammond, K. (November 7, 1997) Leaked audit: Nike factory violated worker laws. MotherJones.com,
http://www.motherjones.com/news/feature/1997/11/nike.html, accessed February 20, 2005.
Henderson, S. (April 24, 2003) Supreme Court hears Nike case. Knight Ridder Tribune Washington Bureau, from Newspaper Source
database at http://search.epnet.com/
login.aspx?direct=true&db=nfh&an=2W61647916701, accessed February 17, 2005.
Herman, E. (June 27, 2003) Supreme Court sends false-advertising lawsuit against
Nike back to California. New York Daily News, from Newspaper Source database at http://search.epnet.com/login.aspx?
direct=true&db=nfh&an=2W63885868202, accessed February 17, 2005.
Holmes, S. (April 28, 2003) Free speech or false advertising? Business Week, from Business Source Premier database at
http://search.epnet.com/login.aspx?direct=true&db=
buh&an=9586203, accessed February 17, 2005.
McCaffrey, S. (January 11, 2003) Supreme Court to decide if Nike can stretch the truth in its defense. Knight Ridder Tribune
Washington Bureau, from Newspaper Source database at http://search.epnet.com/login.aspx?direct=true&db=nfh&an=
2W60092923630, accessed February 17, 2005.
Nike, Inc. and Kasky announce settlement of Kasky v. Nike First Amendment case. Nikebiz.com: Press Release,
http://www.nike.com/nikebiz/news/pressrelease.
jhtml?year=2003&month=09&letter=f, accessed February 17, 2005.
Nike Inc.—FLA independent external monitoring in Nike’s applicable facilities. (2004) Fair Labor Association 2004 Annual Report,
http://www.fairlabor.org/2004report/
companies/participating/factoryData_nike.html, accessed February 20, 2005.
Nike urges U.S. Supreme Court to reaffirm First Amendment right to free and open debate. (April 23, 2003) Nikebiz.com: Press
Release, http://www.nike.com/nikebiz/
news/pressrelease.jhtml?year=2003&month=04&letter=c, accessed February 17,
2005.
Nike vs. Kasky: Corporations are not persons. (June 11, 2003) CorpWatch, http://www.
corpwatch.org/article.php?id=1710, accessed February 20, 2005.
Our business model & its challenges. Nikebiz.com, http://www.nike.com/nikebiz/
nikebiz.jhtml?page=25&cate=businessmodel, accessed February 17, 2005.
Parloff, R. (August 11, 2002) Can we talk? A shocking First Amendment ruling against Nike radically reduces the rights of
corporations to speak their minds. Will the Supreme Court let it stand? Fortune, http://www.fortune.com/fortune/subs/print/
0,15935,367780,00.html, accessed February 17, 2005.
Socially conscious investors file amicus brief with Supreme Court in Nike v. Kasky. (April 7, 2003) CorpWatch,
http://www.corpwatch.org/article.php?id=6313, accessed February 20, 2005.