Apple punishes iPhone assembly partner Pegatron

Contract manufacturer Pegatron belongs to a special group of companies that assemble Apple devices including the iPhone. The Taiwan based manufacturer has been punished by Apple according to Bloomberg. The U.S. based tech giant discovered that Pegatron was in violation of a student workers' program. As a result, Apple has suspended doing new business with the assembler.

Apple said that a few weeks ago it discovered that Pegatron had misclassified some student workers which allowed them to work nights and overtime in violation of Apple’s Supplier Code of Conduct. Pegatron "went to extraordinary lengths" to cover this up, Apple said. As a result, Pegatron is now on probation until the latter corrects the violations. In case you were wondering, Apple's actions should not impact the availability of any of the four new 5G iPhone models.

But what the suspension might do is give Luxshare Precision Industry Co. a chance to start producing the first iPhone models ever assembled on mainland China. Companies that Apple has used to produce the iPhone, including Foxconn, Pegatron and Wistron, are based in Taiwan. However, earlier this year Luxshare acquired Wistron's iPhone manufacturing facilities. Because labor is cheaper on the mainland, Apple is expected to save some money when Luxshare replaces Wistron and starts rolling out the first iPhone units built in mainland China. GF Securities analyst Jeff Pu said, "Pegatron’s current iPhone business should not be affected. However, it is likely that Pegatron will lose some orders for the Apple’s new handsets next year to Luxshare, which is poised to become a new iPhone assembler in 2021."

Apple has been focusing on the physical and mental health of those who assemble its products after a series of suicides took place at Foxconn, Apple's largest assembler, starting in 2010 and running through 2013. Apple threatened to pull its business from partners who failed to follow local labor laws. In 2013, an audit conducted by Apple found fake documents that were used to verify the ages of some employees working for Real Faith Pingzhou Electronics. Apple ended up firing the company and even reported the infraction to local authorities. Unfortunately, the use of underage employees is a problem that has yet to be eradicated by manufacturers.

Pegatron today released a statement that said, "We are working on the corrective actions and are confident that we will complete it soon." The contract manufacturer said that the violations occurred at its campuses in Shanghai and Kunshan and that students working overtime, night shifts and in positions not related to their major were "not in compliance with local rules and regulations." It says that it has taken "quick action" to improve its procedures and will look at how well senior management follows local labor rules when their performance is evaluated. The company added that "Upon discovery of this non-compliant activity, we immediately took the student workers off production lines and worked with our customer and third-party experts to make appropriate arrangements for them to return to their homes or schools with proper compensation alongside all necessary support and care."

Apple said that it did not find any evidence of underage or forced labor at Pegatron. It did find falsified paperwork that covered up violations. The manager who was in charge of the student worker program at Pegatron has been fired. Apple released its own statement which said, "Pegatron misclassified the student workers in their program and falsified paperwork to disguise violations of our Code, including allowing students to work nights and/or overtime and in some cases to perform work unrelated to their major. The individuals at Pegatron responsible for the violations went to extraordinary lengths to evade our oversight mechanisms."