Exclusive-Hyundai to divest Alabama subsidiary following child labor revelations

[February 24, 2023]  By Joshua Schneyer, Kristina Cooke and Mica Rosenberg

NEW YORK (Reuters) - South Korean automaker Hyundai Motor Co on Friday told shareholders that it would divest its controlling stake in a major Alabama auto parts plant where Reuters last year documented children as young as 12 were working.

In a Feb. 24 letter to shareholders from Hyundai Chief Executive Jaehoon Chang, the company said recent audits at 29 of its direct suppliers across Alabama made it confident they are "now in full compliance with underage labor laws."

The audits began last August, after Reuters first reported on the issue, and were conducted by an outside law firm that reviewed documents and did on-site inspections.

Hyundai provided a copy of the letter to Reuters.

Hyundai also told investors it was implementing extensive new corporate measures, including a training program for its parts suppliers to begin next month in collaboration with the U.S. Department of Labor (DOL), to prevent future child labor violations. DOL did not immediately respond to a request for comment.

Hyundai's pledge to its shareholders comes after a 2022 Reuters investigation showed several suppliers to the automaker's massive Montgomery, Alabama vehicle plant used underage migrant workers to make parts for its popular U.S.-made cars and SUVs.

One of the plants where children worked, SMART Alabama LLC in rural Luverne, Alabama, is a direct Hyundai subsidiary. According to Hyundai's financial statements from last year, the automaker controls a 72% stake in SMART.

Chang wrote that Hyundai was "in the process of divesting its ownership interest in SMART" but it would ensure "that the economically important jobs in the Luverne, Alabama community are preserved."

Hyundai's letter did not say when the transaction would be completed or identify a buyer or the form a divestiture would take. Since the early 2000s, the metal stamping plant has made chassis parts for hundreds of thousands of Hyundai vehicles per year.

An underage worker previously employed at SL manufacturing facility poses for a portrait in his bedroom in Savannah, Georgia, U.S., December 9, 2022. REUTERS/Cheney Orr

STATE AND FEDERAL INVESTIGATIONS

Following Reuters' first story on child labor at SMART last July, as many as 10 Hyundai suppliers in Alabama have been under investigation by state or federal authorities for child labor violations, Reuters reported in December.

One of the plants was inspected last August and authorities found and removed several children from the factory floor, later issuing penalties to the plant operator and a third-party staffing firm who recruited them.

"The use of underage labor at a supplier or any operation is unacceptable, and we are committed to making sure non-compliance never happens again," Chang wrote in the letter. "This is a zero tolerance issue."

As Reuters reported earlier, many of the underage workers who found their way into the Alabama auto parts plants were recruited by third-party staffing agencies, a process that can allow big corporations to turn a blind eye to the illegal employment of minors.

In the shareholder letter, Chang reiterated that Hyundai was "discouraging" suppliers from relying on such staffing agencies in the future.

He wrote that staffing firms who hired children to work at Hyundai supplier plants had provided false employee documentation. In the future, however, Hyundai and its supply chain partners must do more to ensure children are never put to work in their factories, the letter said.

"Ultimately, the responsibility is with Hyundai to make sure all our suppliers understand and meet our high global workforce standards," Chang wrote.

U.S. and Alabama law prohibit people under age 16 from working in industrial factory settings, and anyone under 18 is prohibited from working in particularly dangerous roles in automotive plants, such as driving forklifts or operating metal-cutting and stamping machines.

Earlier this month, thirty-three members of Congress urged DOL to seek strong and swift penalties against those responsible for child labor in the Hyundai supply chain.

(Reporting by Joshua Schneyer and Mica Rosenberg in New York and Kristina Cooke in San Francisco; Editing by Paulo Prada and Jamie Freed)

[© 2023 Thomson Reuters. All rights reserved.]This material may not be published, broadcast, rewritten or redistributed.  Thompson Reuters is solely responsible for this content.