Guess? Accepts Pact to Curb Labor Violations

In a groundbreaking effort to crack down on widespread abuses in Southern California’s garment industry, the federal government and Guess? Inc. have reached an agreement designed to eliminate labor law violations by the company’s estimated 100 contractors.

U.S. Labor Department officials said the pact, due to be announced today, is intended to force the small sweatshops and other contractors that employ most local apparel workers to pay proper overtime and minimum wages and to stop using child labor.

The agreement with Southern California’s largest apparel company marks the first time that a major manufacturer will be held directly responsible for the wages and working conditions under which its brand-name products are made--even when the garments are actually sewn by independent contractors.

Government authorities hope to use the pact as a standard for further agreements with other apparel manufacturers. Such a move might help ensure that hundreds of Orange County shops that sew for brand-name manufacturers comply with often-violated labor laws.

The Labor Department is already negotiating similar pacts with four other companies in the Los Angeles area, said one source familiar with the talks who asked not to be identified.

The agreement follows more than a year of negotiations between Guess? and the Labor Department. It is officially being called a voluntary compliance program agreement, but the source said government officials dangled the threat of a lawsuit to pressure Guess? into making sure its contractors abide by federal labor standards.

Under the agreement, Guess? will regularly inspect its contractors’ workshops, review their payroll records and interview some of their employees to make sure there have been no labor law violations. It also will set up a telephone hot line for employees and contractors to call with questions or reports about possible abuses.

In addition, Guess? pledged to compensate employees who in the future are illegally underpaid by contractors. The company has already paid the Labor Department $573,000 to cover back wages owed to some of its contractors’ employees.

Labor authorities say the apparel industry is the most abusive employer in Southern California. State and federal investigations in the past in Orange County have found widespread failure to pay overtime, and workers earning less than $2 an hour. There have also been isolated instances of child labor.

By one estimate, more than 35% of the sewing shop workers in the Los Angeles area are paid less than the minimum wage of $4.25 an hour, and a far higher percentage are denied proper overtime pay. In addition, an estimated 7% of U.S. apparel contractors use illegal child labor.

The Labor Department had investigated Guess? under the little-used “hot goods” provision of the U.S. Fair Labor Standards Act. The section bars, among other things, interstate transport of goods made at companies that violate federal minimum wage, overtime pay or child labor laws.

In the past, federal and state labor officials have been frustrated in efforts to curb sweat shop abuses by the elusive nature of the apparel manufacturing business. Authorities say the worst problems typically occur at small, obscure sewing and cutting shops whose owners are quick to shut down and open under another name if they come under scrutiny.

Better-known, more stable apparel firms such as Guess? often rely on these contractors to provide most of their physical labor. As a result, big-name apparel marketers had rarely been the targets of Labor Department investigations.

That began to change in June, 1989, when the Labor Department launched a crackdown on immigrant-owned sweatshops that had sprung up in Orange County. In a new tactic, the agency dusted off the 1938 “hot goods” statute and began trying to apply it to apparel manufacturers by seizing goods made by their contractors in violation of labor laws. Guess? is the first manufacturer to agree to sweeping management changes designed to ensure that the contractors obey the law.

Stanley Levy, general counsel for Guess?, acknowledged Tuesday that the Labor Department approached the company about possible “hot goods” violations. He said, however, that Guess? responded by developing a voluntary compliance program that is more extensive than any measures the government could have imposed.

“We have no legal responsibility toward these employees; these are employees of independent contractors,” Levy said. “But we believe we have a moral responsibility, a social responsibility.

“We weren’t interested in discussing the legalities, we were interested in coming forward . . . to do what responsible corporate America is supposed to do.”

Steve Nutter, Western regional director of the International Ladies’ Garment Workers’ Union, called the pact a positive development.

“We have long believed that while the contractors are the ones who are breaking the law, the real culprits are the manufacturers who squeeze the contractors to the point where breaking the law is either required or good business,” he said.

Both Levy and Nutter predicted that the agreement will have little or no impact on prices consumers pay for the company’s jeans and other products. Contractors’ labor expenses, they said, are only a small part of the retail cost of apparel.

Nutter also dismissed the possibility that this sort of agreement could drive more production jobs out of the country, arguing that apparel firms need a base of U.S. contractors to meet tight deadlines for fashion merchandise. “Paying people the minimum wage and respecting labor law . . . means that people at the top will have a little less and people at the bottom will have a little more, and the public won’t notice anything,” he said.

Levy said Guess? plans “to stay American,” but he added that it is conceivable some companies will shift production out of the country to hold their costs down.

Guess?, a privately held company based in Los Angeles, has annual revenues of $750 million and employs 1,500 people. Levy said the company’s contractors employ another 7,000 workers.

Run by the Marciano family of Beverly Hills, Guess? was involved in a 6 1/2-year legal battle with rival jeans maker Jordache Enterprises for control of the company. The suits between the companies were settled in May, 1990, and although the dispute prompted various government investigations unrelated to the Labor Department’s probe, the company was never charged with any wrongdoing.

At apparel contractors’ shops, workers typically are paid on a piecework basis. The problem, authorities say, is that the piecework rates often are so low that many workers are not fast enough to earn the equivalent of the minimum wage.

Officials also say that under the piecework system, even many of the fastest workers are unable to earn legally required time and one-half pay for their overtime hours.

Still, with Southern California’s burgeoning population of illegal immigrants and unskilled workers from Latin America and the Far East, there is an ample supply of willing workers for local apparel manufacturing jobs, officials say.