Apple Inc suspended new business with key supplier Pegatron Corp after discovering labour violations at a student workers’ programme, taking strong action to clean up its Chinese-focused production chain.

The Cupertino, California-based technology giant said it discovered several weeks ago that the Taiwanese iPhone manufacturer misclassified student workers and allowed some to work nights and overtime in violation of Apple’s Supplier Code of Conduct. Apple has since placed its partner on probation and won’t give them new business until corrective action is completed.

Pegatron is one of just a handful of partners Apple relies on globally to assemble marquee products such as the iPhone. Like larger rival Foxconn or Hon Hai Precision Industry Co, the Taiwanese company is an integral part of Apple’s global supply chain, which has been the target of criticism by labour activists over the years. Pegatron’s shares gave up gains and closed down 2.1% in Taipei.

"We have a rigorous review and approval process for any student worker programme, which ensures the intern’s work is related to their major and prohibits overtime or night shifts,” Apple said in a statement. "Pegatron misclassified the student workers in their programme and falsified paperwork to disguise violations of our Code, including allowing students to work nights and/or overtime and in some cases to perform work unrelated to their major.”

Apple is in the middle of producing four new iPhone models with 5G, and has been working with Pegatron to expand iPhone production outside of China. Those efforts are unlikely to be impacted by this suspension, which was first reported by local outlet The Paper, as it only covers new business.

"Upon discovery of this non-compliant activity, we immediately took the student workers off production lines and worked with our customer and third-party experts to make appropriate arrangements for them to return to their homes or schools with proper compensation alongside all necessary support and care,” Pegatron said in a statement.

Apple said it didn’t find evidence of forced or underage labour, but discovered the supplier falsified paperwork to hide violations. Pegatron has fired the manager who oversaw the student worker programme, it added. "The individuals at Pegatron responsible for the violations went to extraordinary lengths to evade our oversight mechanisms,” the US company said.

The consumer technology giant added that it will continue working to strengthen its oversight mechanisms and that its focus is on ensuring that its supply chain workers are "protected and treated with dignity and respect.”

Pegatron said the violations took place at its Shanghai and Kunshan campuses in eastern China and that students working night shifts, over-time, and in positions unrelated to their majors was "not in compliance with local rules and regulations.” It said it took "quick action” and worked with an external firm to strengthen its procedures, and will add assessments of adherence to the code of conduct to metrics used to evaluate senior management.

 - Bloomberg