CUPERTINO -- A human-rights group recently infiltrated a Chinese factory that is making a new iPhone offering from Apple (AAPL) and found dozens of violations of labor rights, according to a report the group released Monday.
"At this moment, in Shanghai, China, workers in Apple's supplier factory Pegatron are monotonously working long overtime hours to turn out a scaled-back, less expensive version of the iPhone," the report reads, detailing six-day workweeks of 11-hour days with pay of $1.50 an hour, which adds up to a salary less than half the average of Shanghai residents.
The group, China Labor Watch, also reported that Pegatron used labor agencies that charged illegal fees and kept the ID cards of workers it recruited to block them from resigning, along with other violations such as unpaid overtime, underage workers and discrimination against certain ethnic groups. In all, China Labor Watch reported 86 labor-rights violations, with 36 of those breaking laws.
Apple issued a statement to The Wall Street Journal after it published news of the report Sunday evening, saying Apple had audited Pegatron facilities 15 times in the past six years, and determined in June that Pegatron workers had an average workweek of 46 hours. The company also said that it had approached Pegatron immediately after China Labor Watch uncovered that workers' ID cards were being held and forced the employer to stop the practice, adding that new revelations will be investigated in special inspections this week.
"We will investigate these new claims thoroughly, ensure that corrective actions are taken where needed and report any violations of our code of conduct. We will not tolerate deviations from our code," Apple's statement read.
Pegatron also said it would investigate the findings.
Reports have long suggested that Apple will introduce a lower-priced iPhone in an attempt to boost sales in countries like China, with those reports focusing on a plastic case -- as opposed to the iPhone's metal body -- and various color options. China Labor Watch reported that the Pegatron facility in question was building such a device, putting in its report, "During the period of our investigation, Pegatron Shanghai had begun producing the cheap iPhone."
The group reported that production was low as the factory was just beginning to produce the item, but workers on the task were still forced to work a dozen hours of overtime.
"Today's work is to paste protective film on the iPhone's plastic back cover to prevent it from being scratched on assembly lines. This iPhone model with a plastic cover will soon be released on the market by Apple," the undercover worker recorded in the report.
Apple sold a record 31.2 million iPhones in the second quarter of 2013, but continues to lose market share in the smartphone market as phones running Google's (GOOG) Android operating system appeal to buyers with a range of prices and features. Apple also was hit with a severe downturn in its sales in China in the quarter: Apple's revenue in the Greater China region fell 43 percent sequentially and 14 percent year-over-year last quarter, accounting for $5 billion, or 13 percent of Apple's revenue.
Reuters reported in June that Apple was discussing the introduction of a lower-priced, plastic iPhone in five or six colors with a starting price of $99, based on anonymous sources in Apple's Asian supply chain. The report noted that Hon Hai, or Foxconn, would assemble the higher-end smartphones while Pegatron would handle the cheaper model.
Apple stock, which has fallen as much as 45 percent from highs reached around the time of the iPhone 5 launch in 2012, moved higher Monday, gaining 1.5 percent to $447.79.
Contact Jeremy C. Owens at 408-920-5876; follow him at Twitter.com/mercbizbreak.