WHO PAYS? LIABILITY DEBATE RAGES ON
Byline: Kristi Ellis / Kristin Young
LOS ANGELES — So what exactly is a garment manufacturer? The definition, at the heart of a controversial year-old law being debated by various state agencies and labor groups, will determine just who is on the hook for wage and hour violations at contractors — manufacturers alone or retailers who do private label as well.
The law, still known as Assembly Bill 633, has been in effect since Jan. 1, 2000, but it hasn’t been broadly enforced because of the raging debate over its intention. It has only been applied on a case-by-case basis. It originally sought to hold retailers and manufacturers jointly liable for labor law violations at the contracting level, and is now in the home stretch of a yearlong regulatory process.
The regulatory process after a law is signed is typical in California.
The state labor commissioner’s draft of regulations on how the law should be implemented is sparking the most-recent controversy. The draft appears to largely let retailers off the hook and could provide manufacturers with a loophole through which they could avoid liabilities — two points that irk some labor advocacy groups and contractors.
Opponents of the draft claim the state labor commissioner’s office and staff attorneys have completely changed the AB633’s original intent, which aimed to hold “manufacturers” liable and create a wage guarantee in cases where contractors were found in violation of minimum wage and overtime laws.
At the root of the current debate over the draft is the definition of a garment manufacturer.
Any day now, a final draft is headed for the Office of Administrative Law at the state Department of Industrial Relations for review. Following the OAL review and publishing, the bill will wend its way through a series of public hearings in Los Angeles, San Francisco and around the state.
A final version of the law is expected to be enacted by spring, according to representatives at the state labor commissioner’s office.
Darrell Steinberg, an assembly member in Sacramento and the bill’s author, is among those who recognize how much the bill has changed.
“The original version of AB633 was a joint-liability bill,” he told WWD. “In the end, all parties came to an agreement that manufacturers and retailers who engage in manufacturing would be responsible for paying the wages of the garment worker, if the contractor could not. That was the understanding and that’s what the regulations must reflect.”
But after the yearlong battle among lawmakers, the West Coast fashion industry, lobbyists and labor advocates, the latter group is among those leading the claim now that draft regulations steer away from making retailers jointly liable — a provision for which they diligently fought.
Labor groups considered it a coup to win the inclusion of joint liability — which former governor Pete Wilson vetoed twice — in the original bill.
In the broader definition of the original bill, merely using contractors that are in violation of labor laws creates joint liability. Even retailers that produce private label goods through a manufacturer would have been implicated.
According to the latest, narrower definition put forth in the draft, a person must actually purchase the piece goods, own them through the manufacturing process and convert them into finished product to be considered a manufacturer and held liable. Most retailers under this definition would be exempt from liability, given retailers’ common practice of hiring manufacturers as middlemen to produce private label goods.
As would be expected, Bill Dombrowski, president of the California Retailers Association and a lobbyist representing Macy’s West, Gap Inc., Mervyn’s California and 55 other retailers based here, said he is pleased the joint-liability issue as it pertains to retailers was removed from the bill.
“We fought with advocates over this issue. Advocates want to make retailers jointly liable for rogue manufacturers and contractors. And retailers have been pulling out of California and shifting production elsewhere. The whole point of the regs is that they tell the retail community that they are going to be in a safe harbor,” Dombrowski said.
Several retailers who were involved in the debate declined to be interviewed for this story, fearing retribution from advocacy groups that could target them and publicly accuse them of using sweatshops to produce their goods.
Maintaining that the latest draft is a step backward, labor advocates could indeed go on the offensive. Sources say once a final version of the law is published, several organizations could file lawsuits.
“Our main position is that the draft regulations negate the intent of the legislation,” said Nikki Fortunato Bas, director of Sweatshop Watch. “There are a couple of huge loopholes for retailers and manufacturers.”
Under the current definition of garment manufacturing, Bas said manufacturers can simply make sure that contractors themselves own the material. “That would let them off the hook for the wage guarantee,” she explained. “Retailers are let off the hook completely, even if they produce private label goods.”
Christina Chung, staff attorney for the Asian Pacific American Legal Center, a legal advocacy group that has won significant settlements from garment manufacturers on behalf of unpaid employees, said she is “disappointed” about the draft regulations.
“We know the industry and those who are responsible for working conditions, and we know that they will try to get out of the intent of the law. We are disappointed that the state may allow that to happen,” said Chung.
“Retailers and manufacturers have the most power in terms of the wages workers make and all that we are asking for is a second wage guarantor, which is someone who can pay back wages if the contractor can’t,” she added.
Ilse Metchek, executive director of the California Fashion Association, dismissed the notion that manufacturers will try to find loopholes in the draft regulations, claiming the draft does not absolve manufacturers of joint liability, and a manufacturer who buys from a contractor who is buying the fabric is still a manufacturer.
“[Manufacturers] are still in the chain,” said Metchek. “The only one avoiding liability is the retailer.”
She accused the legal advocacy groups of going after the deepest pockets and “the jugular.”
“[Legal advocacy groups] didn’t get everything they wanted,” Metchek said. “They wanted the biggest possible net in which to fish, and they didn’t get the whole thing.”
Contractors, however, are worried that manufacturers might exploit the loopholes, said Joe Rodriguez, executive director of the Garment Contractors Association of Southern California, which has about 200 members.
“Their definition of a manufacturer is too narrow,” said Rodriguez. Unlike legal advocacy groups, the GCA is not concerned with the exclusion of retailers. “We are not out to see a new process to get them all registered.”
But Rodriguez is concerned about the draft and how it pertains to manufacturers. He believes makers will seek to use package-goods contractors — entities that buy piece goods for manufacturers. This could circumvent the regulations.
“They are saying that they will no longer buy piece goods so that they can carve themselves out of the regulated industry, said Rodriguez. “This law, which we opposed violently, was meant to [prevent] people with deep pockets from funding certain bad practices or violations [at the contracting level] but the [proposed] draft will reduce the number of [wealthy] companies because they won’t have to register as manufacturers.
Randall Harris, executive director of the San Francisco Fashion Industries Guild, whose 230 members include manufacturers, retailers and other apparel industry participants, also predicted manufacturers would try to take advantage of the narrow definition.
“The companies are going to do whatever they need to be competitive in the marketplace,” he said. “If they have an opportunity to take advantage of open doors, they will.”
Paul Gill agreed. As executive director of Made by the Bay, a trade group of 40 contractors in San Francisco and Oakland representing a total of 2,000 workers, Gill observed: “If I don’t want my cats to go out, I don’t leave the door open. You can’t blame the cat if someone else leaves the door open.”
Manufacturers, traditional purchasers of their own raw materials, went on the defense.
Lonnie Kane, president of Karen Kane Co., a contemporary sportswear manufacturer based here, said the firm purchases raw materials and does not plan to change his strategy.
Kane uses an independent firm to monitor his contractors, insuring that there is compliance with labor laws.
“If a manufacturer tried to make the contractor purchase materials [to circumvent the law] it is a thin argument and it wouldn’t hold up,” said Kane.
Laura Worsinger, an attorney with Reinis & Reinis specializing in labor law compliance, said that many manufacturers hire firms to monitor contractors for violations.
Reinis & Reinis created the Compliance Alliance, a group of 15 major state manufacturers who have all signed a compliance agreement with the U.S. Labor Department.
“Our clients have gone out of their way to employ good monitoring firms,” Worsinger said. “A number of them have even switched from lower-priced firms to more expensive, meticulous companies.”
Retail lobbyist Dombrowski said state officials will find ways to address loopholes.
“We have to try to get this thing implemented and see what happens. But I’m pessimistic the advocates have only one objective and that is to make retailers jointly liable, and they want to do that through litigation,” he added.
Another concern in the law is an increase in annual registration fees, which could hurt contractors. Annual registration fees paid by manufacturers and contractors will rise to $250 to $2,500 a year, depending on the size of the company, from the previous $100 a year.
Roger Miller, assistant chief in charge of the Bureau of Field Enforcement at the Department of Industrial Relations, said the department is awaiting a final version of the law to start collecting fees and hire more labor enforcers.
“The longer we delay, the longer we don’t get the money to pay for enforcement,” he said. The fee hike could provide funds for up to 18 new investigators to bump up policing of currently shaky compliance levels in Los Angeles and San Francisco.
In Los Angeles, the current level of compliant firms has dropped to 33 percent in 2000, compared with a high of 39 percent in 1998 and 1996. The percentage of San Francisco firms that comply with labor laws is 74 percent, compared with 79 percent in 1997 and 57 percent in 1995.
Meanwhile, the state has prepared a draft of emergency regulations, a set of rules detailing three parts of the draft that can be implemented immediately: registration fees, methods to determine a wage guarantor’s proportionate share of liability and what information should be contained in contracts between manufacturers and contractors.
“There are certain things in the law that don’t need a regulations statute,” said Miles Locker, chief counsel for the state labor commissioner, noting the three areas are less subject to interpretation and controversy. “In absence of regulations some of these issues have been decided on a case-by-case basis. It’s been more challenging than it need be. This is an area where we’re not going to get 100 percent agreement from everyone.”