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Fashion's Dirty Laundry: American Apparel

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The clothes maker keeps finding new ways to offend people.

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The Good: Labor Practices

American Apparel (APP) has been lauded for its sweatshop free, "Made In Downtown L.A." production, a soup-to-nuts system where everything from knitting and dyeing to sewing and marketing is made and handled locally. According to its website, the average pay rate for its experienced sewers is $12 an hour, and that's for a full-time job including benefits and perks, a rarity in garment production.

But this is all for naught if your workers are undocumented. Last September, American Apparel let go of 1,500 workers after a visit from the Immigration and Customs Enforcement Agency found problems with the employees' immigration status. The company's "Legalize L.A." campaign has been the major outlet for founder Dov Charney's push for immigration reform.

The Bad: Lawsuits Abound (and Woody Allen is not a rabbi)

American Apparel's marketing materials are undeniably sexual (they appear to mimic cheap, amateur pornography), whether it be magazine ads, large street corner billboards, or in one of their very brightly lit 275 stores.

This aspect of the company has garnered more attention than its pro-worker, environmentally-aware products. Complaints came from residents in New York's Lower East Side neighborhood in 2007 over a billboard ad depicting a bent over young women wearing only a pair of tights.

Curbed LA reported similar distaste from residents of L.A.'s Echo Park neighborhood for another billboard of a topless female.

In September, the UK Advertising Standards Authority requested the company stop using an ad of a young girl in a hooded sweatshirt in various stages of unzip.

While the shots of the men's line have a certain nerdy quality -- call it hipster-nebbish -- the young male models are actually clothed. The female models are often partially clothed. And in both cases, they're not professional models. They're often employees. And here is where the problems begin.

 American Apparel
  • Photo courtesy of American Apparel

The suits are frequent and well-documented. A sampling: former sales associate Mary Nelson filed suit in 2005 for wrongful termination and sexual harassment. The case went to arbitration in January 2008. In December 2008, Nikki Yang filed a wrongful termination suit, charging a hostile work environment. Product placement executive Jeneleen Floyd filed suit in June 2008 for harassment.

Nelson claimed that Charney walked around in his underwear, and used abusive and sexual language to female employees. Yang claimed she was wrongfully terminated, and that Charney was misrepresenting sales figures just before the company went public. (American Apparel filed a countersuit, alleging extortion, in December 2008).

Floyd claimed that she was yelled at and ordered to perform sexual acts, as reported in Mother Jones magazine.

 American Apparel
  • Photo courtesy of American Apparel

There's also a suit charging wrongful termination by Bernhard-Axel Ingo Brake, the company's ex-head of European operations, who filed for wrongful termination among other charges in December 2008 and claims he is owed more than $1 million. He says he was fired after questioning American Apparel's European employment practices. The company has countersued, claiming Brake embezzled funds.

Another much-remarked-upon recent legal wrangle ended after film director Woody Allen settled with American Apparel for $5 million in May 2009 after a large outdoor billboard depicting Allen dressed as a rabbi appeared in New York and Los Angeles. The shot was actually a still from Allen's movie Annie Hall used without permission. Charney has written on American Apparel's website that he considered this a matter of free speech, while Allen has consistently refused to endorse products.

Montreal-born Charney began American Apparel in 1997. The company went public at the end of 2007 after a merger with Endeavor Acquisition Corp. Second-quarter reports state sales of $136 million.

The Ugly: Reminding the World of the Fashion Disaster That Was the 1980s

Off-the-shoulder T-shirts. Stirrup pants. Spandex dresses. Acid wash. Need we say more?

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No positions in stocks mentioned.

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