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American Apparel says some employees may not be working legally

A federal inspection of employment records raised questions about the status of about 1,800 workers, the Los Angeles clothing maker says in an unusual announcement.

July 02, 2009|Andrea Chang

Most companies might shy away from trumpeting their troubles with the law, but not American Apparel Inc.

On Wednesday, the Los Angeles manufacturer and retailer known for its racy advertising, colorful clothes and outspoken support for immigration put out a news release to announce that the government had found that about 1,600 of its workers did not appear to be authorized to work in the U.S. About 200 more had been found to have discrepancies in their employment records, the company said.

The findings were the result of an inspection last year by the federal Immigration and Customs Enforcement agency. Among the infractions found were some employees' use of fake Social Security numbers.

"Clearly, if there is widespread use of Social Security numbers that either are not real or belong to someone other than the person named, we have concerns about possibly a scheme to avoid immigration law," said Pat Reilly, a spokeswoman for the immigration agency. "They are going to be fined no matter what. What's in question now is the amount of the fine."

Reilly said it wasn't typical for a company to put out a news release about unfavorable audit results.

In an interview, American Apparel founder and Chief Executive Dov Charney declined to discuss the specifics of the inspection but said, "We've always been committed to following the law." And he added: "We rigorously support immigration reform."

The company has conducted an advocacy campaign called Legalize L.A., calling for the legalization of undocumented workers.

In its release, the company said it would give the employees cited by the government -- most of whom work at its downtown L.A. factory -- a "reasonable" amount of time to verify their immigration status.

If they can't, "such employees will not be able to continue their employment at the company," it said.

Losing some workers is unlikely to affect the company's operations in the current economy, in which the average factory employee is "underutilized," Todd Slater, an analyst at Lazard Capital Markets who follows American Apparel, wrote in a note to investors.

"This is likely to be more of a human-interest story than one affecting the ability to make enough garments," Slater said. "Should have no impact on earnings."

Still, the news added to the firm's history of controversy. Recently, the retailer -- which has about 10,000 employees worldwide -- made headlines for settling a lawsuit brought by director Woody Allen.

"As a concept, American Apparel has the potential to be the next Gap, but there's always some sort of issue," said Matthew Wiger, director of research at securities firm Monness, Crespi, Hardt & Co. "And those issues over time have not helped build management's credibility with investors."

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andrea.chang@latimes.com

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