California Passes Law Establishing New Wage and Hour Requirements for Employers in the Garment Industry

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On September 27, 2021, California Governor Gavin Newsom signed SB 62, also known as the Garment Worker Protection Act, into law.  SB 62 makes California the first state to require an hourly minimum wage for garment workers by banning piece rate pay.  SB 62 expands the definition of a garment manufacturer and extends the scope of liability for wage and hour violations to clothing brands—and likely some retailers.  Under SB 62, “any person contracting for the performance of garment manufacturing” is joint and severally liable with any of their manufacturers and contractors, thus creating upstream responsibility for unpaid wages, attorney’s fees, and civil penalties arising from Labor Code violations.  Although the new law does not become effective until January 1, 2022, companies that contract or subcontract for garment manufacturing, or have employees who perform garment manufacturing functions in California, should begin familiarizing themselves with SB 62 and determining whether/how it affects their business.

Elimination of Piece-rate Compensation Plans in Garment Industry

Piece-rate compensation plans are common in numerous industries.  Piece-rate compensation allows an employer to pay an employee a fixed amount of money for each piece or unit produced, regardless of the number of hours the employee worked.  As a result, employers can tie labor costs to output and employees who are more productive receive greater compensation than less productive employees.  Nonetheless, all employees still must receive at least minimum wage for all hours worked, meaning that weekly compensation must result in an hourly wage that is at least equal to minimum wage.  Additionally, overtime compensation requirements still apply.

Under SB 62, California employers can no longer pay employees “engaged in the performance of garment manufacturing” by piece rate.  Moreover, “garment manufacturing” now includes “sewing, cutting, making, processing, repairing, finishing, assembling, dyeing, altering a garment’s design, causing another person to alter a garment’s design, affixing a label to a garment, or otherwise preparing any garment or any article of wearing apparel or accessories designed or intended to be worn by any individual.”  Although employers can still pay garment workers incentive-based bonuses (which should be included when calculating an employee’s regular rate of pay), employers must now pay garment workers at an hourly rate that is not less than the applicable minimum wage.

Expansion of Liability for Wage and Hour Violations

In addition to the change in compensation for garment workers, SB 62 expands liability for wage and hour violations.  SB 62 states that “[t]o ensure that employees are paid for all hours worked, a garment manufacturer, contractor, or brand guarantor who contracts with another person for the performance of garment manufacturing operations shall be jointly and severally liable with any manufacturer and contractor who performs those operations for the garment manufacturer or brand guarantor.”  The new law defines “brand guarantor” as “a person contracting for the performance of garment manufacturing . . . regardless of whether the person with whom they contract performs manufacturing operations or hires a contractor or subcontractor to perform manufacturing operations.”  In other words, the entire clothing supply chain—including fashion brands, holding companies, and potentially retailers—may be jointly liable for any alleged wage and hour violations committed by a contractor (and conceivably a contractor’s subcontractor(s)) that performed “garment manufacturing.” Thus, companies selling apparel made in whole or in part in California now may be subject to liability and lawsuits from wage violations even though the seller was unaware of or unable to control the violations.

Brand guarantors are joint and severally liable with any manufacturer and contractor for the full amount of unpaid wages and any other compensation, penalties, and attorney’s fees due to an employee for any wage and hour violations.  Violators also are subject to paying compensatory damages of $200 per employee for each pay period in which each employee is paid by the piece rate.  Consequently, the potential cost for a case involving numerous employees could be substantial.

Additional Provisions Under SB 62

Garment workers can enforce their rights under the new law simply by filing a claim with the California Labor Commissioner.  An employee may establish a presumption of liability with as little as a brand label.  While SB 62 does not provide a private right of action, it sets a very low evidentiary bar for complainants and creates a burdensome and complicated hearing process for respondents.  SB 62 creates a rebuttable presumption that a garment manufacturer or brand guarantor is liable with the contractor for any amounts found owed to the employee.  Further, the Labor Commissioner now has enforcement powers to issue a stop order or citation.

SB 62 also modifies recordkeeping requirements, which now extend to any entity in the chain of the garment manufacturing process, including brand guarantors.  Under the current law, every employer engaged in the business of garment manufacturing must keep certain records for three years, including, among other things, contract worksheets indicating the price per unit agreed to between the contractor and manufacturer.  However, SB 62 significantly expands the recordkeeping requirement.  Starting January 1, 2022, garment manufacturers, contractors, and brand guarantors now must keep all contracts, invoices, purchase orders, work orders, style or cut sheets, and any other documentation related to garment manufacturing performance for four years.

Potential Impact of SB 62

California has the highest concentration of garment industry workers in the country.  In Governor Newsom’s announcement on the passage of SB 62, he claims that it will “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.”  However, the California Chamber of Commerce has deemed the new law a “ job killer” because it “significantly increases the burden on nonunionized employers in the garment manufacturing industry in California.”  The Chamber of Commerce argues that “[n]othing in SB 62 will address the problem of underground, bad actors in the garment industry evading the law;” rather “SB 62 simply eliminates piece rate work and allows those bad actors to continue to operate with business as usual while passing the buck to companies that have no control over these workers.” Although SB 62 may ultimately curb the practices of some “bad actors” in the garment industry, the more immediate impact of the new law’s requirements will likely be that some companies contract with garment manufacturers outside of California, thereby decreasing the number of garment manufacturers and workers in California.

Main Takeaway

Given the potential liability and lawsuits that may result from SB 62, companies with garment workers based in California should begin auditing their wage and hour policies, and inquiring about the policies of any of their California contractors, to ensure they are compliant with the new law’s requirements in advance of January 1, 2022.  Businesses with any questions or concerns about compliance should consult with experienced employment law counsel.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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