Exactly John..."That" as a pronoun or as used in a relative clause (restrictively) to refer to "people" is CORRECT.

. . after talking to the local people that work in that plant, . . .etc., etc.

Why the use of the 'that' instead of 'who' as I was taught for the correct grammar.

Another one: . . . it was John that broke the news about the bribery . . . etc., etc.

Is it an "exceptional" rules that when reporting (hence, verbal statement as opposed to written) it is acceptable the use of 'that'?

I second to Kurt. Avrom explained it well. Unfortunately, I got an X (wrong) when I answered "that" during an exam. I was taught well in grammar during my tertiary years and got suddenly taken aback with the rejection of the use of "that" after relating to "people".

I inquired to the erudite who put an "X", she said (as what others are probably being taught of or one can read in some grammar books) that "that" are only used to refer to things (non-living) and not to persons/people. Use of "which" is explicit.

I believe "English" is an art. Why "has got" was accepted in grammar? English sometimes is as complicated as "Life". It has standards and flexibility issues as it is an "art".