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California Garment Worker Act Gets This Founder Talking About Money Laundering

A California bill designed to improve the livelihoods of tens of thousands of garment workers has cleared another legislative hurdle, bringing it one step closer to becoming law. Not everyone is happy about it, however.

Last Thursday, the California Senate passed the Garment Worker Protection Act, also known as Senate Bill No. 62. Its next stop is the State Assembly, where an earlier version stalled in September after failing to be called to a vote in time.

But the American Apparel & Footwear Association recently told Governor Gavin Newsom that while it “strongly supports” the protection of labor rights for all workers in the apparel and footwear industry, it opposes discrete elements of SB 62, which it described as “well-intentioned” but economically damaging.

The Washington, D.C.-based trade group, which represents 1,000 household-name brands, including Adidas, Gap and J.Crew, takes particular issue with the so-called “brand guarantor” provision, which holds both the garment manufacturer and the contractors of garment production jointly liable for wages, damages, penalties and other compensation owed to the people who make those items.

“Although well-intentioned, the bill, as currently written, would, among other things, impose unprecedented joint liability on businesses with no control over garment workers,” Steve Lamar, CEO of the AAFA, wrote in a letter dated March 26. “If this provision becomes 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.”

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The Golden State’s apparel industry is the largest in the United States. Downtown Los Angeles houses some 2,000 garment manufacturers, employing more than 45,000 people and producing an output of $5 billion every year, according to the Garment Worker Center, a labor-rights group.

At present, all companies engaged in garment manufacturing must register with the California labor commissioner and pay a registration fee. If workers are on the receiving end of a labor violation, only their employer and any manufacturer who contracts directly with that employer are liable. SB 62 “significantly expands” this joint liability, Lamar said.

Lamar insists that the bill, as currently drafted, does not recognize that buyers might have little to no control over the payroll or enterprise-finance management of a particular garment factory employer. “Further, any ‘brand guarantor’ would be liable for the worker’s entire wage claim, not only wages for time spent on garments related to their brand,” he said, urging the labor commissioner to instead pursue “targeted enforcement” holding “bad actors” accountable.

Marissa Nuncio, director of the Garment Worker Center, told Sourcing Journal, however, that many of the AAFA’s claims are inaccurate and “this type of liability is not unprecedented,” since it exists in other industry groups 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.

Building back better

Friction over the Garment Worker Protection Act is nothing new.

While more than 140 L.A.-made businesses, including Reformation, Shaina Mote, Senza Tempo—and surprisingly, Fashion Nova, which was caught in 2019 using suppliers that paid as little as $2.77 per hour—have backed the bill, more than a dozen business groups, including the California Chamber of Commerce and the California Retailers Association, previously labeled the SB 1399 iteration of the Garment Worker Protection Act as a “job killer” that will exacerbate the financial hardship of retailers already hurting from the pandemic.

“SB 1399 imposes unfair and onerous burdens on any essential business in the apparel industry, makes significant changes to evidentiary standards for liability, and creates an unfair playing field between union and nonunionized employers,” said Jennifer Barrera, executive vice president of the California Chamber of Commerce, last June. “Like all employers, businesses in this industry have suffered from the financial crisis of this pandemic. SB 1399 only worsens that suffering.”

The bill’s proponents—chief of all State Senator María Elena Durazo, who introduced SB 62 in December—disagree, saying it fills a critical need by closing loopholes that allow wage theft to flourish.

Because of the stolen wages, California’s restitution fund, which was meant to be used on occasion, has “become the rule,” Durazo said at a press briefing organized by the Garment Worker Center in April, just after SB 62 was approved by the Senate Judiciary Committee. This means that the financial burden of compensating workers has fallen to the state—and by extension, taxpayers.

SB 62 also seeks to broadly eliminate the traditional piece-rate wage system that pays workers for every hem, sleeve or cuff stitched rather than the legal minimum hourly wage of $14 per hour for employers with 26 or more employees, and $13 per hour for employers with 25 or fewer employees. Instead, workers are paid an average of $5.15 per hour, Durazo said.

This structure has become the “de facto below-minimum wage strategy that’s used by many employers,” she added. “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. 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.”

The lack of regulation also creates an uneven playing field between brands that are paying the minimum wage and their predatory counterparts that are “getting away with it,” said Ayesha Barenblat, founder and CEO at worker-rights nonprofit Remake, at the same session. “And so the competition is simply not fair.”

With interest in nearshoring surging amid pandemic-induced supply-chain disruptions and mounting geopolitical tensions in China, Ethiopia, Myanmar and elsewhere, however, Los Angeles has the potential to become a sustainable fashion hub rather than a poster child for the race to the bottom. And with President Joe Biden’s push for domestic manufacturing, the time is ripe for change, she said.

“From a business imperative standpoint, if we want sustainable ethical manufacturing and sustainable brands to thrive in L.A….where we have the manufacturing power and also the creative industry…then we have to close out these loopholes and clean this up,” Barenblat said. “I think one thing is very clear; 30 years of voluntary efforts have simply gotten us not far enough, and it really is time for us to assure that regulation is passed.”

No plan to “build back better” regarding “made in the U.S.A.” can happen without including garment workers, who are mostly women of color, in the conversation, Nuncio said.

“We cannot have any sort of economic recovery or any rebuilding of domestic manufacturing on the status quo,” she said. “The status quo is exploitative; the status quo is a sweatshop; the status quo is sub-minimum wages that keep people in absolute poverty. Let’s talk about the businesses that are trying to do the right thing; they’re here struggling to compete with these sweatshops. Let’s talk about centering the workers, let’s talk about centering these businesses. Only then will we have any sort of real recovery in our domestic manufacturing sector.”

Nate Herman, senior vice president of policy at the AAFA, told Sourcing Journal that the bill could have the opposite effect and that companies doing the “right thing”—which is to say, pay prices that ensure decent wages for workers—will be held liable for companies that “intentionally try to do the wrong thing.”

But Kristen Fanarakis, founder of Senza Tempo, says that, in her view, not supporting the bill is “an admission of guilt,” or an admission that brands don’t know or trust the factories they contract enough to pay their workers full and fair wages.

“What this aspect of the bill does is force a brand like mine to truly do their due diligence on who they are doing business with, which companies should be doing and say they are doing,” Fanarakis, a former Wall Street trader, told Sourcing Journal. “In finance, we have a ‘know your client’ rule; it’s part of how the business is regulated, and if I had a client that was laundering money, or doing other shady things I would be held in part liable because I was supposed to ‘know my client.’”

There has been a long precedent of using liability—joint or otherwise—to clean up bad corporate behavior, she said, citing the Sarbanes-Oxley Act (born in the wake of the Enron scandal) and the Dodd-Frank Act (the 2008 financial crisis) as examples of legislators stepping in when capitalism “took things too far—which is exactly what we have seen in the fashion industry.”

“Capitalism has created the race to the bottom and unfortunately, that is when the government typically has to step in,” Fanarakis added. “That’s the purpose of the government and regulators.”

Editor’s note: This story was updated on June 4, 2021, to include additional commentary from Marissa Nuncio of the Garment Worker Center.