Volkswagen Case- proposal for solution

The recent Volkswagen scandal has managed to hit waves both on the American continent and across the Atlantic, bringing European consumers to doubt the same question Californian consumers are trying to solve: When does a false public statement by a company infringe the rights of consumers,  or are those companies been protected by the freedom of speech principle?

At the consumer level, a more substantive question that is troubling in an era of globalization, is the practical question of whether a consumer can ever be truly certain that a product that he is purchasing is in line with the basic standards of human labour?

This topic has been widely developed in California, where two main cases, Kasky v. Nike, and Doe. v. Walmart, had managed to evolve two separate precedents regarding false public statements by companies with relation to working conditions in  South Asia.

In Doe v. Walmart, the court ruled that Walmart did not take any obligation to protect the workers, and had no legal obligation to inspect the working facilities and working conditions of the workers, because “Walmart merely reserved the right to cancel its supply contracts if inspections revealed contractual breaches by the suppliers.”[1]

This ruling can be seen as a troubling ruling for some. The problem in this notion is that the plaintiffs did not claim that Walmart made any false allegations or declarations. The lawsuit was based on the contractual obligations between Walmart and the sub-contractors. The point of false declarations was at best secondary, almost non-existent in the lawsuit. Therefore, the court did not address this line of arguments.

When a company makes false allegations or public declarations that the specific company takes care of the workers or that their working facilities are safe, trying to create an image of a socially responsible company, yet proven that this is not the case, it amounts to a separate issue. On the one hand, there is the right to free speech, as established in the First Amendment to the United States Constitution. At the other end  is the issue of fraud.  This can be apparent in Kasky v. Nike.

In Kasky v. Nike, the main point of litigation in court, and deliberation in the public sphere, was that Nike declared on a public platform false declarations. Nike declared that their workers that are based in supplier working facilities in China, Vietnam and Indonesia, are protected from any sort of abuse, that they are paid in accordance with the law and sometimes double than the average in their home country, in addition to meals and health care and that the Nike supplier work facilities are all in complied with national law regarding health and safety.

Volkswagen

When relating the two cases to the recent Volkswagen case, the main relation that can be drawn is that all three companies had deliberately lied to their consumers. In the Volkswagen case, the issue is even more troubling, due to the fact that the emission standards in California are higher. This means that the consumers who purchased Volkswagen cars are risking a heavy fine, even though they were lied to by the Volkswagen group regarding the emissions standards of the cars.

The main question that can be deduced from these three cases, is how can the consumer, be assured that the product that he is purchasing falls under the standards that is expected and promised by the companies?

Recommendations

When tackling this issue on a global level, this issue can be dealt within the realm of public and private international law, and this will eventually mean a treaty will have to take place, and to be signed by the contracting parties, mainly Member States. In my opinion, this form of legislation will not be very effective. It has been proven in the past that international law, both private and public, has not been sufficient enough to tackle global problems. Till this day dozens of violations of human rights are been committed on a daily basis, even within the sweatshops and factories that Nike and Walmart claimed to not have known of their existence, yet international law had yet to be in the position to tackle this problem.

Yet, on an EU level, this might prove to be different. Most global commercial companies hold branches within the EU. These companies vary from retail, machinery, and luxury products. These companies hold specific promises to their consumers, such as child labour free products, decent working conditions in the factories, organic products, gluten free, lactose free, animal testing free and so forth.

Problems arise when these companies lie to their customers and  use false commercial speech, as established in Kasky v. Nike (The Supreme Court of California ruled in Kasky v. Nike in favor of the plaintiff and established that the public declarations made by Nike are regarded as commercial speech, and in that sense laid down the foundations for future cases. Nike’s declarations were regarded as commercial speech, because of the three Bolger factors (Bolger v. Young Drug Products Corp.) and of the elements that were established in Pharmacy Bd. v. Va. Consumer Council. The court ruled that Nike’s speech is commercial due to the fact that Nike’s speech loses the measure of protection by the First Amendment when it concerns facts material to commercial transactions, the fact that Nike promoted its own products, and mainly because that misleading declarations have no constitutional value in itself).

At the EU level, there is one directive that is directed to unfair commercial practices, such as misleading and false promises by the companies. Directive 2005/29 on unfair commercial practices states the criteria for misleading actions, as well as misleading speech in article 6 (1); “A commercial practice shall be regarded as misleading if it contains false information and is therefore untruthful or in any way, including overall presentation, deceives or is likely to deceive the average consumer, even if the information is factually correct, in relation to one or more of the following elements, and in either case causes or is likely to cause him to take a transactional decision that he would not have taken otherwise.”

This directive is major progress in the field of false commercial speech. The issue that is still at stake is that there is no regulatory body that can function with EU authority to fine or hold certain companies at misconduct of practice.

The same problem was addressed at the bio-medical field of startups. Medical and biotechnological companies are always under strict scrutiny when releasing a product to the market. In recent years, it has become apparent to companies who want to release medical or biotechnological products that these products must go through assessment through the FDA. Once the FDA gives its approval on a specific product, it can be deducted that the product is safe to use.

A similar approach can be taken on the EU level when discussing consumer protection. The main objective of the FDA is to assure consumers that the product is safe to use. If an objective of a child labour free and decent working conditions is important to the EU consumer, this can be regulated under a new EU body, which will be semi private and regulated by the EU institutions.

This new EU body will have the sole purpose of checking and verifying that companies that are based within the EU, or hold branches within the EU, will not break the EU directive, and will ensure that consumers will not be fooled by gross misleading statements of the commercial companies.

The EU body will have the sole license to perform such verification and will eventually award the companies the title of being within the scope of the unfair commercial practices directive. The criteria that will be checked by this regulatory body will be the criteria that is mentioned in Directive 2005/29.

I believe that a high standard of a regulatory body that will work in conformity with Directive 2005/29, will lead to better consumer protection and clarity between the commercial companies and its customers.

[1] Doe v. Walmart [No. 08-55706]: United States Court of Appeals for the Ninth Circuit: 2009