updated 8/1/2008 2:56:55 PM ET 2008-08-01T18:56:55

Nike Inc. said Friday that it has found major worker rights violations at one of its Malaysian contract factories, including squalid living conditions, garnished wages and withheld passports of foreign workers.

The investigation began more than a week ago following a report of "human trafficking on a major scale" of foreign workers at the factory by Australia's Channel 7.

Nike said its investigation confirms there are serious breaches of its code of conduct and has taken numerous steps to immediately protect the workers.

Hannah Jones, Nike's vice president for social responsibility, said she would not qualify the violations as human trafficking but said the investigation is ongoing.

"This isn't about definitions, this [is] about action on the ground to help these workers," Jones said.

About 1,200 employees work at the Hytex factory, which has produced T-shirts for Nike for 14 years.

Because of a shortage of labor in Malaysia and poor employment opportunities in their home countries, a recent influx of workers have come from Bangladesh and other areas into Malaysia.

Nike confirmed many of the recent migrant laborers paid a fee in their home country to agents to get the jobs. And once in Malaysia, the factory held their passports.

Their wages were also withheld until a $375 foreign worker fee the Malaysian government requires from the factory is repaid. Nike says the fee is less than a quarter of their average annual income.

The workers were also forced to live in cramped, filthy factory-provided housing.

Nike said all workers are being transferred to Nike-inspected and approved housing, roughly 100 have already been moved and the transition will be complete within a month.

All workers will be reimbursed for any fees and going forward, the fees will be paid by the factory. All workers will have immediate access to their passports and any worker who wishes to return home will be provided return airfare.

Nike said it last investigated the factory in February and found poor record-keeping and management issues but said the influx of workers had not occurred yet and the housing was not identified as an issue.

Nike said it is reviewing its entire Malaysian contract factory base within the next 10 days and requires its factories there to institute the same policies.

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