AVOIDING LABOR-LAW VIOLATIONS
CALIFORNIA MANUFACTURERS RESPOND BY HIRING PRIVATE COMPLIANCE FIRMS TO MONITOR CONTRACTORS, BUT IS IT ENOUGH?
Byline: KRISTI ELLIS
LOS ANGELES — Labor-law compliance has been on the tip of the industry’s collective tongue for some time, but recently it has become an issue that contractors, manufacturers and retailers can no longer avoid. California manufacturers, caught in the middle of what most call predatory pricing at the retail level, have slowly begun to react to the state and federal enforcement of minimum wage, overtime and child labor in their contracting shops by hiring and training quality control people or independent, private compliance firms. While many believe that it is an unfair burden, they know they can no longer look the other way because a confiscated or delayed shipment in a contracting shop with violations could spell disaster.
But enforcement efforts to bring the industry into compliance have also raised many issues, such as whether it levels the playing field and how effective it will be in the long run without retailers’ involvement.
For three years, the state and federal government have assumed a much bigger role in policing the apparel industry and cracking down on labor abuses. Through the Targeted Industries Partnership Program, a multi-agency task force teaming state and federal officials, investigators have measured the size of the problem and set about tackling it.
In August, the magnitude of the problem was underscored by the discovery of the single most egregious sweatshop operation to date: El Monte, in which 72 Thai nationals were allegedly held in slave-like conditions and forced to pay off smuggling debts by sewing clothing for a number of local manufacturers. Twelve alleged El Monte operators are sitting in jail awaiting a criminal trial and facing charges ranging from harboring illegal aliens to kidnapping.
The mere mention of the city’s name sends shudders through every manufacturer, particularly those in California. They have all been touched, directly or indirectly, by the barrage of publicity surrounding the case and its ramifications.
The increased joint state and federal enforcement has prompted manufacturers and industry organizations in California to take more active measures in the area of labor compliance, but the jury is still out as to whether rates have improved.
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* The U.S. Department of Labor instituted a compliance program three years ago known as the “long form” and pressured manufacturers whose contractors had repetitive violations to sign up to the mandatory monitoring program. More recently the Labor Department released a controversial Trendsetter list, naming both manufacturers and retailers that are taking extra steps to ensure that their garments are made in law-abiding contracting shops.
* In Los Angeles, a group of 12 manufacturers has formed the Compliance Alliance, which is under the direction of Richard Reinis, an apparel industry attorney, to conduct audits of their contractors beyond the realm of the government.
* The Coalition of Apparel Industries in California (CAIC), a group of manufacturers, recently pitched a certification program to manufacturers and contractors to drum up support for proposed legislation. The bill’s architects are trying to set up a statewide program in which contractors voluntarily pay to be certified and audited. The theory is that manufacturers would start to use the certified contractors because they would not be held liable for any violations their contractors committed. (Although the CAIC has received support from Assemblyman Louis Caldera, who might offer the bill next year, contractors and union members oppose the program in its current form.)
* El Monte is offering a joint liability bill that would hold manufacturers jointly liable for the labor violations of their contractors. Under current state law, manufacturers can be held liable only if the contractors are unregistered. Gov. Pete Wilson vetoed a similar joint-liability bill in 1994.
* The California Fashion Association (CFA), composed of manufacturers, financial institutions, fashion-education institutions and others, was established this year to give a unified voice to the industry and tackle labor-law compliance among other issues.
* The Garment Contractors Association of Southern California, which was recently awarded a regional special-achievement award by the Labor Department for a clean record over 20 years, is discussing whether it will require its members to become certified through the association and pay for auditing. Contractors will also be required to name the GCA as the certificate holder on their registration forms, so if the contractor cancels worker’s compensation and continues to operate, the GCA will be notified.
* San Francisco manufacturers, along with the U.S. Labor Department, created a master agreement that addresses a number of issues, including shortfalls in prices between manufacturers and contractors, late deliveries and arbitration if necessary.
Labor officials maintain that more enforcement and higher compliance will level the playing field by eliminating unfair competition in the underground.
But many manufacturers and industry organizations voice concern over unregulated overseas production and the lack of retail involvement.
Francine Browner, president of Francine Browner Inc., was one of the first firms to sign the Labor Department’s long-form agreement. Her company uses an average of 30 contractors and pays approximately $60,000 a year to monitor them.
Browner claimed there wasn’t much choice involved, adding that she decided to comply rather than fight, which wasn’t an option.
“We all agree that sweatshops are a bad thing,” she said in a phone interview. “Our compliance with the government has helped them set an example.”
The one flaw in the aggressive domestic enforcement, according to Browner, is the lack of monitoring overseas. “Our government should not allow people to do business in factories [overseas] that operate in substandard conditions,” she declared. “That’s why domestic contractors have trouble competing.
“It’s a double standard, and I fully understand that there is no way a private manufacturer can monitor overseas,” she said, adding that monitoring should be the function of the government.
Many manufacturers who have taken steps to comply as well as industry group executives also argue that retailers must be more involved in the monitoring of their vendors and contractors in order for enforcement to work in the long run.
“Retailers should be held at the same level of responsibility as manufacturers because most do their own private label,” contended Lonnie Kane, president of Karen Kane Co.
Kane uses roughly 35 contractors on average and a private compliance service to monitor them.
“That’s the best way to go because it takes the burden off the manufacturer to set up an in-house compliance program,” he said.
Kane estimated that the upfront cost with 35 contractors at $40,000. He hired the company in February.
“That is a big price tag, but if one of my lots was coordinated bottoms and it was stuck in a contracting shop, and I couldn’t ship it, it would be a disaster,” he explained, noting that 1,200 bottoms could theoretically hold up 12,000 coordinated tops.
He said, “I sleep a lot better at night,” knowing that he uses a compliance firm.
Richard Reinis, acting director of the Compliance Alliance, also contended that retailers should be more involved.
He has drafted a proposal in an effort to engage retailers in compliance and phase out government. He said he will try to get support for it on Capitol Hill next year.
Reinis’s proposal calls for retailers to set up a compliance program and send out their own field investigators, conduct audits and report the results to the Labor Department.
“That would be a top-to-bottom approach,” he claimed. “If retailers don’t take this kind of approach they will continue to buy goods from people that don’t comply,” he asserted.
The Labor Department agrees. Maria Echaveste, Department of Labor administrator, said: “In order to eradicate sweatshops, we have to have the involvement of every part of the industry — and that includes retailers.” She suggested a multipronged approach that consists of continued enforcement, education and increased awareness among retailers and manufacturers.
The Labor Department’s retail summit and recently released Trendsetters list were also ploys to involve retailers.
The two national retail organizations have maintained that the focus of enforcement and compliance should be on manufacturers, not retailers. But many retailers are taking a more proactive approach. They have adopted guidelines condemning non-complying manufacturers and contractors, and some are even reviewing their vendors’ lists.
Gregg Fiene, owner of XOXO, claimed that many of his customers — including J.C. Penney and The Limited — scrutinize his contractor base and give their approval or disapproval of individual contractors. Fiene has hired eight extra quality-control inspectors and trained all 18 on labor-law compliance. He claimed he hasn’t had many problems because he tries to keep most of his 70 contractors busy and give them enough lead time, which has become difficult due to retailers’ demands for quick turns.
Fiene acknowledged that he still feels squeezed because stores are giving him less of a lead time and the demand for production is faster and faster. “I have to project further in advance, which is dangerous,” he said, adding that stores are giving him smaller windows for sewing time.
In today’s climate, Fiene said, manufacturers must accept much smaller margins because they have to pay higher prices for labor while retailers refuse to come up on prices.
Despite the proactive attempts to bring the industry into compliance, the results remain to be seen. It may take another decade to force significant change.
Jose Millan, the state’s acting labor commissioner, acknowledged that the jury is still out on enforcement and compliance results. He said that 1995 compliance levels are slightly up over last year’s but admitted that he is concerned about an alarming increase in child-labor violations. The preliminary results for 1995 indicate that the state conducted 660 garment inspections and assessed civil penalties of $4.46 million.
The federal Department of Labor initiated 209 investigations in the Los Angeles area in 1995 and recovered back wages of more than $1 million for about 4,000 workers.
(It should be noted that the extent of the DOL’s accomplishments depends on its budget, and a proposed 12 percent cut is awaiting Congressional approval.) Millan’s mission is to crack down on the underground, which his department views “as the single largest threat to legitimate businesses.” He believes enforcement will diminish the power of the underground in 1996.
Millan said the private associations, like the Compliance Alliance, can’t hurt the situation. But he said he is wary of marketing gimmicks that get retailers to favor one section of the market over another.
“I just want the California apparel industry to be in compliance and be a home for good industries to thrive,” Millan said. “Once we raise the level of compliance, we will make this industry a showcase for others to follow.”