Doe v. Wal-Mart Stores, Inc.
Filed July 10, 2009
Cite as 08-55706

Supplier's Employees not Third Party Beneficiaries of Retailer

Plaintiffs were employees of foreign companies that sell goods to Wal-Mart Stores, Inc. (Wal-Mart).

Wal-Mart’s supply contract included a code of conduct for its suppliers referred to as “Standards for Suppliers”. Under the standards, foreign suppliers were required to follow local laws and local industry standards concerning working conditions like pay, hours, forced labor, child labor and discrimination.

The standards also included a provision regarding right of inspection wherein suppliers acknowledged that its failure to comply with the Standards could result to cancellation of orders and termination of its business contract with Wal-Mart.

Plaintiffs filed a class action suit against Wal-Mart based on the working conditions in each of their employers’ factories. They alleged that Wal-Mart failed to adequately monitor its suppliers.

Wal-Mart successfully removed the case to federal court. It filed a motion to dismiss on the amended complaint of the plaintiffs. The district court granted the motion.

Plaintiffs appealed.

The United States Court of Appeals, in affirming the motion to dismiss, concluded that Plaintiffs failed to state a claim against Wal-Mart.

Wal-Mart did not owe Plaintiffs the duty to monitor its suppliers. The appellate court ruled that when Wal-Mart entered into contracts with its suppliers requiring them to enforce agreed-upon labor standards, Plaintiff’s were not third-party beneficiaries under California law.

Moreover, Wal-Mart was not a joint employer. Hence, it was not liable for suppliers’ alleged violation of labor standards where it undertook no duty to monitor the suppliers. Wal-Mart’s monitoring and inspections were performed to determine whether suppliers were meeting their contractual obligations and not to direct the daily work activity of the suppliers’ employees.

Further, Plaintiffs’ claims of third-party beneficiary negligence, negligent retention of control, negligent undertaking, and common-law negligence all failed under California law. Wal-Mart did not owe plaintiffs a common-law duty to monitor retailer’s suppliers or to prevent alleged intentional mistreatment of plaintiffs by the suppliers.