Sunday, November 30th, 2008


American Apparel, Inc. is a California based clothing manufacturer whose high profile CEO Dov Charney has been the subject of many news reports for his flamboyant behavior. Mary Nelson, a former sales manager, sued American Apparel for sexual harassment and wrongful termination, alleging that Mr. Charney had harassed her and then fired her after she made it known that she planned to sue the Company.

The day before trial, the parties announced that the case had been “settled” through an agreement to submit all claims to final and binding arbitration before a neutral private arbitrator. In fact, the settlement, which was supposed to be strictly confidential, provided that Nelson would be paid $1.3 million immediately and that the subsequent arbitration proceeding would be rigged so that the arbitrator would totally exonerate both American Apparel and Mr. Charney. This would allow American Apparel to issue press releases that put the Company and the CEO in a positive light. In effect, Ms. Nelson agreed to deliberately “lose” her case in exchange for a $1.3 million payment.

The “deal” came unraveled when Ms. Nelson and her lawyer didn’t show up at the sham arbitration hearing – by then they had already cashed their settlement check. The Company filed a lawsuit in state court to enforce the settlement by forcing Nelson to attend an arbitration hearing. Nosy judges eventually made the parties reveal the full terms of the settlement – including the planned fake arbitration proceeding. The court then “enforced” the settlement, but only after making the terms of the agreement public knowledge. That publicity made it impossible for American Apparel to get what it wanted – a public “victory” in exchange for a private and confidential payoff of $1.3 million.

Bottom line: Nelson and her lawyer got to keep the $1.3 Million. American Apparel not only failed to get the positive publicity it craved but also got panned in the press for duplicity in trying to make a payoff look like a win.

This is an example of how not to settle a case.


As the decline in union membership continues (7.5% of private sector employees), several unions have become increasingly aggressive in trying to force unionism on employees who have rejected the union at the ballot box.

The Teamsters and UNITE HERE (needle trades and hotel workers) have been trying to organize Cintas for over six years. Cintas supplies work uniforms and have over 34,000 employees. Employees have repeatedly voted against union representation.

In a new twist, UNITE began “tagging” Cintas employees. The union had its organizers secretly visit Cintas parking lots and write down the tag numbers on employee vehicles. Motor vehicle registration records were then used to get home addresses so that union organizers (aka “goons”) could visit employees at home to get cards signed (that should make everyone feel good about the Employee Free Choice Act).

The employees objected and sued UNITE seeking punitive damages for violation of their privacy rights. The trial court turned the workers down, but the Federal Appeals Court in Philadelphia recently reversed that ruling and sent the case back for trial before a jury.

In a similar case, the United Food & Commercial Workers Union has been trying to organize pork processor Smithfield Food for over a decade. The union’s tactics have included filing numerous charges against Smithfield with regulatory agencies and a massive publicity campaign trying to damage the image of the Company and its products – all in an effort to force Smithfield to recognize the union and agree to a contract when employees have repeatedly said they don’t want union representation. Not so ironically, the union’s tactics were designed to destroy Smithfield’s business and the jobs of the very employees the union was hoping to organize. Smithfield finally had enough and sued the union and its allies, alleging violations of federal racketeering laws. A federal judge in Eastern Virginia recently ruled that the suit could proceed to trial. After that ruling, the Union agreed to suspend its organizing effort in exchange for dismissal of the lawsuit.

These cases illustrate how desperate unions are today for members.


The Family & Medical Leave Act (FMLA) has been on the books for fifteen years, and millions of employees have taken advantage of this federal mandate to take unpaid leave (up to 12 weeks per year) to deal with births, adoptions, and personal and family health issues. Many more millions would have taken advantage of this legislation but could not afford to take unpaid leave. Some companies have experienced little to no disruptive effects from these leaves of absence, but many others have complained of the burden and cost of replacing workers who take extended leaves or who have frequent absences with little or no advance warning under the “intermittent” leave portion of this law.

President Elect Obama and Democrats in Congress want to expand employee leave rights. They are poised to support the Healthy Families Act, which would require companies with 15 or more employees to provide seven paid sick days every year to cover employees and sick family members. If that proposal is too costly (especially in tough economic times), the back up plan is to amend the FMLA to (1) drop the coverage threshold from companies with 50 or more employees to 25 – which will double the number of employees covered by the law, and (2) expand leave rights to cover extended family members and provide time off for school related activities.

Some states and municipalities are not waiting on federal action.

San Francisco, Milwaukee and Washington, D.C. already have ordinances requiring employers doing business in those cities to provide paid sick leave to all employees. California, New Jersey, and New York are looking at using unemployment compensation or temporary disability funds to partially compensate employees on FMLA leave. Again, the economic downturn and the rise in claims for jobless benefits may temporarily damper enthusiasm for these programs.

Finally, some companies are taking novel approaches such as Future Leave – a program that allows employees to “save” money from each paycheck and deposit the money in a fund that is used to cover unpaid time off down the road. While this type program could have problems under the wage-hour law because it sounds a lot like “comp time” programs that allow employees to accumulate time from one work week to cover time off in another work week, the employee response has been favorable at those companies offering this benefit.

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Disclaimer regarding legal advice: The information in this newsletter should not be construed as legal advice. This information is not intended to create or constitute an attorney-client relationship. For more information or an explanation about the matters discussed in this newsletter, please contact an attorney in this practice group.