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Will SB 62 Help or Hinder a Revival of LA’s Denim Industry?

In the heart of Los Angeles, a pitched battle over the soul of California’s garment industry has drawn to a close.

On Monday, Governor Gavin Newsom signed Senate Bill 62, better known as the Garment Worker Protection Act, into law, requiring that garment workers be paid an hourly wage and expanding liability for fashion brands that have largely skirted responsibility for wage theft and other forms of worker abuse in their supply chains.

California’s apparel industry is the largest in the United States. The bulk of it is concentrated in downtown Los Angeles, which is home to some 2,000 garment manufacturers and whose 45,000 workers produce $5 billion in clothing and footwear every year. Many are small factories that operate without proper registration or oversight, fueling a climate of exploitation that leaves workers with little recourse to pursue wage claims, according to the Garment Worker Center, a local labor-rights group. This will now change.

“California is holding corporations accountable and recognizing the dignity and humanity of our workers, who have helped build the fifth-largest economy in the world,” Newsom said in a statement. “These measures protect marginalized low-wage workers, many of whom are women of color and immigrants, ensuring they are paid what they are due and improving workplace conditions.”

SB 62, a version of a bill that died in the last legislative session after it failed to be called to a vote in time, has sought to improve the livelihoods of a workforce that has been “exploited for far too long,” according to State Senator Maria Elena Durazo, its co-author. Most workers in the state are compensated using a piece-rate system that pays them pennies for every hem, cuff or sleeve they stitch. While the structure is widely employed by the industry, Durazo says it has become the “de facto below-minimum wage strategy that’s used by many employers,” promoting wages of less than $5 an hour instead of the state-mandated $13 or $14.

“They try to say that’s an opportunity for some of these workers to make so much more based on their skill, which is not true,” she said. “The workers have no control over what the piece rate is, they’re never [able to] negotiate what the piece rate is, and if they get to do better, it’s at enormous costs to their bodies and health.”

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Wage violations are rampant in the sector. When the U.S. Department of Labor’s Wage and Hour Division swept through 77 randomly selected garment contractors in Southern California between 2015 and 2016, it found that 85 percent of them owed $1.3 million in back wages to 865 workers. Labor campaigners say that many garment workers are Latino immigrants who are undocumented or don’t speak fluent English, so they seldom file wage claims or otherwise seek redress because they fear repercussions. When complaints do happen, they’re paid out through California’s restitution fund, which was meant to be used only on occasion but has since become “the rule,” Durazo said. This means that the financial burden of compensating workers has fallen to the state and, by extension, taxpayers.

One of the most contentious parts of SB 62 is its desire to hold so-called “brand guarantors” liable for any wages, damages, penalties and other compensation owed to the people who make those items, no matter how many layers of subcontracting stand between them. The sourcing squeeze by brands often encourages suppliers to accept prices that are lower than what is necessary to comply with wage laws, said Marissa Nuncio, director of the Garment Worker Center. “Brands profit from this dynamic but have no legal liability for the wage theft they create in their supply chain,” she said. “SB 62 proposes joint liability to correct this problem and ensure that all actors share the responsibility for wage compliance.”

Before businesses fled to cheaper climes in Asia, South America and elsewhere, Los Angeles was once the premium denim capital of the world. Critics of SB 62 say they fear it will finish off what offshoring started, encouraging companies to “contract with manufacturers outside of California, thereby limiting the demand for the state’s garment manufacturers,” according to the California Chamber of Commerce, the state’s largest business advocacy group.

In dated March 26, Steve Lamar, CEO of the American Apparel and Footwear Association, a Washington, D.C.-based trade group told Governor Newsom that the “well-intentioned” but economically damaging bill would, among other things, “impose unprecedented joint liability on businesses with no control over garment workers.” He added that if the provision became law, it would “drive garment manufacturing out of California and lead to the loss of jobs in California’s garment manufacturing sector, not because companies don’t want to do the right thing, but because there would be [a] heightened risk of being penalized precisely for doing the right thing.”

Nuncio said that criticisms are not only misguided but inaccurate, since this form of joint liability already exists in sectors such as janitorial, warehousing and port trucking. “We also know from Department of Labor studies that it is not true that ‘brand guarantors’ have no control over the factories that supply them but instead the contract prices they set for their garment orders have a tremendous impact on the factory’s ability to comply with wage requirements,” she said.

Because SB 62 only merely proposes to ensure the existing legal minimum wage, brands would be held liable only face liability or additional costs of doing business in California only if their supply chain is was harboring wage theft to begin with, “which they should want to eliminate rather than profit from,” Nuncio said.

She noted that ethical businesses that manufacture in California are all for tougher enforcement, and the lack of safeguards like SB 62 may be preventing others from joining their ranks, stymying the possibility of a domestic revival in the wake of Covid-19. “Our ethical business allies tell us that wage theft is deterring companies who want to set up shop in California, but are concerned about its atrocious labor track record,” she added.

More than 140 businesses, including denim purveyors Boyish Jeans, Reformation, Triarchy and Saitex have publicly expressed their support for SB 62. In a letter dated July 28, they demanded that the California Chamber of Commerce remove the bill from their “job killer” list, adding that “sweatshops will not come to an end” until brands are jointly liable.

“The sustainable business community wants a level playing field, enabled by strong labor laws, because we believe it is crucial for California fashion to flourish well into the 21st century,” they wrote. “SB 62 is right for the fashion businesses of California. SB 62 proposes grounded, sensible solutions to the shameful wage theft that exists in our industry by proposing to expand liability along the entire supply chain, closing loopholes that have long allowed brands to enjoy tremendous bargaining power with their suppliers but none of the liability.”

Donna Watts, an instructor in the Department of Retailing at the University of South Carolina, said the bill appears to be “helpful and long overdue,” at least at first glance, because it compels companies that their social duty to “up their game.”

“No one argues that worker conditions in Los Angeles are in many cases substandard and that workers deserve better treatment and higher pay,” she said. “Certainly, it is disappointing to consider the requirements placed upon many workers and laws most definitely need to be in place to prevent their unfair treatment. They have been neglected for a long time and deserve to be adequately compensated for their hard work.”

Watts said she’s concerned, however, that SB 62 could inadvertently backfire because manufacturers, like all businesses, want to make a profit. “If they are forced to pay workers more money, their prices will no doubt increase and consumers will ultimately feel the pinch,” she said. “Factories will also find other ways to cut expenses. Unfortunately, research shows that these cuts will often come in the form of reduced worker benefits. Manufacturers may choose to increase automation, outsource to countries with lower wages or move entire operations to other countries. I certainly hope not, but time will tell.”

One manufacture who isn’t cowed by the prospect of SB 62, however, is Sanjeev Bahl, CEO of Vietnam-based jeans manufacturer Saitex, which counts among its clients high-profile names such as Everlane, G-Star Raw, J. Crew and Madewell. He also sees automation as a good thing. Saitex recently established a denim “microbrewery” in Los Angeles, where it plans to make 1 million jeans a year, or one-sixth of the company’s current output from Southeast Asia. The 200 workers at its L.A. outpost currently receive $13 to $14 an hour to operate semiautomatic sewing machines, robotic sprayers and advanced laser cutters, a tack that allows Saitex to be ethical, sustainable and profitable.

Bahl said that Saitex’s burgeoning business model—80 percent production in Vietnam, 20 percent in the United States—could provide a new way forward in a post-pandemic world that needs to shorten and diversify its supply chains to protect against future disruptions. He’s already considering opening similar microbreweries elsewhere in the country to improve efficiencies and save costs. Making shortcuts with labor doesn’t have to factor into it.

Though AAFA panned a bill championing garment worker rights, members like Patagonia and Adidas don't seem to share the group's views.
A worker at Saitex USA’s Vernon, Calif. factory sews jeans, June 2021. Sourcing Journal

“I think we abolished slavery a long time ago,” Bahl said. “In 2021, we’re still grappling with it in the United States? Really? Ridiculous. Why is labor such a big conversation around cost? Why isn’t the conversation shifting to making the right investments into technology [that has] a far more efficient output? People should not be compromised or exploited. I think there has to be a level playing field for human beings—forget about business. Business comes second.”

For Adam Taubenfligel, founder and creative director of Triarchy, it’s fresh infusions by companies like Saitex, not ignoring wage theft, that will help resurrect Los Angeles’s denim stature. Triarchy used to make all its jeans in the city, but then Covid-19 hit, making it more financially viable to shift to Turkey. Taubenfligel is plotting his way back, but the type of facilities that offer the services he needs are few and far between.

“I think the only way that denim will remain, or get back the status of denim production capital is by spearheading sustainability, and really becoming the sustainable denim manufacturing capital of the world,” he said. “And people need to make a minimum wage—that goes without saying. I do agree that if this gets reset in an on-the-level way, where the manufacturers are responsible for their employees, we can make it work together.”

It’s a sentiment with which Carrie Freiman Parry, Reformation’s Director of Sustainability, agrees. Nearly half of the sustainability-centered brand’s cutting and sewing is done in Los Angeles, and roughly 5 percent of its products are made in Reformation’s own factory, which opened in the city in 2012.

“L.A. has a rich history of manufacturing, particularly within the denim sector; the conversation around SB 62 is a clear sign of investment in the city as a manufacturing hub, and something we’re energized to see as a brand that produces a portion of our Ref Jeans collection in the community,” she said. “Producing locally has many benefits which we believe will only increase in the coming years, incentivizing investment in California. This bill will force brands to look hard at their social compliance programs and purchasing practices, and invest more in the necessary improvements at both the brand and supplier level which will, in turn, help manufacturing in L.A.”

Parry said that now, more than ever, there is a need for brands to understand how their decisions impact workers in their supply chain while doing “everything we can” to mitigate negative impacts.

“The criticism around the bill’s joint liability raises awareness about the industry-wide change that is desperately needed around improving purchasing practices, so that brands take accountability and actually support suppliers in providing decent working conditions,” she said. “SB 62 is an opportunity for the industry, brands and the government to come together and create a race to the top to protect workers throughout the supply chain.”