By Sankalp Phartiyal and Chandini Monnappa
NEW DELHI/BENGALURU (Reuters) -Apple Inc has placed supplier Wistron Corp on probation, saying on Saturday it would not award the Taiwanese contract manufacturer new business until it addressed the way workers were treated at its southern India plant.
Early findings of an Apple (NASDAQ:AAPL) audit in the wake of violence at the Wistron plant in India's Karnataka state showed violations of its 'Supplier Code of Conduct', the Cupertino, California-based tech giant said in a statement.
Contract workers angry over unpaid wages destroyed property, gear and iPhones on Dec. 12, causing millions of dollars in losses to Wistron and forcing it to shut the plant.
Apple said Wistron had failed to implement proper working hour management processes, which "led to payment delays for some workers in October and November".
Wistron on Saturday admitted some workers at the plant in Karnataka's Narasapura had not been paid properly or on time, and it was removing a top executive overseeing its India business.
Apple said it will continue to monitor Wistron's progress on corrective action.
"Our main objective is to make sure all the workers are treated with dignity and respect, and fully compensated promptly," Apple said, adding that it continued to investigate issues at the plant, which is located some 50 km outside of the southern tech hub of Bengaluru and assembles one iPhone model.
"This is a new facility and we recognise that we made mistakes as we expanded," Wistron said in a statement. "Some of the processes we put in place to manage labor agencies and payments need to be strengthened and upgraded."
Wistron said it is re-structuring its teams and setting up 24-hour hotlines for employees to make anonymous complaints.
"Apple has sent a strong message to its suppliers, telling them unequivocally that they need to adhere to its standards," Neil Shah of Hong Kong-based tech researcher Counterpoint said.
"In the long-run it should make suppliers more cautious and likely create fewer such public-relations headaches for Apple."
MANUFACTURING SETBACK
The Apple probation will delay Wistron's smartphone production and hurt its manufacturing push in India where it had committed to invest some 13 billion rupees ($177 million) over the next five years as part of New Delhi's production-linked incentive plan for smartphone manufacturing.
Wistron had plans to make another iPhone model at the Narasapura plant and was planning to hire up to 20,000 workers in a year's time, a source told Reuters previously.
But it could not cope with the rapid scaling up of manpower and breached several laws, Karnataka state officials found after an inspection of the plant following the violence.
The number of workers rose to 10,500 from the permitted 5,000 in a short span of time, the Karnataka factories department said in a report, which was reviewed by Reuters.
"The HR department has not been adequately set up with personnel of sound knowledge of labour laws," the report of the inspection, which was conducted on Dec. 13, concluded.
Wistron did respond to emails from Reuters seeking comment on the violations listed.
Other violations highlighted in the report included underpayment of wages to contract workers and housekeeping staff, and making female staff work overtime without legal authorisation.
The findings of this inspection, and another preliminary government audit, confirm the grievances over unpaid wages and poor attendance recording systems recounted in interviews to Reuters by at least half a dozen Wistron workers.
The Wistron probation will likely also dent Apple's plans to scale up in India, a market it has bet on to expand its manufacturing base beyond China.
Apple began the assembly of its first iPhone model in India via Wistron in 2017. It has now ramped up assembly operations, with Foxconn in southern India and another top supplier Pegatron is set to begin local operations.
($1 = 73.5700 Indian rupees)