American Apparel: the downside to sweatshop-free labor

Further evidence that it's untenable for garment factories to employ American citizens while making a profit: troubles for American Apparel (APP), long targeted by the U.S. Immigration and Customs Enforcement Agency, were recently laid bare. The U.S. says nearly a third of the company's 5,600 Los Angeles factory workers may not have proper documentation: 1,600 may have gained employment through "suspect and not valid" eligibility documentation, and another 200 may be ineligible to work in the U.S. due to discrepancies in their I-9 identity documents.

American Apparel has built its corporate reputation on "sweatshop-free" U.S.-made T-shirts and knit clothing. But rather than addressing the treatment or legal employment status of its workers in the SEC filing -- except with a vague statement about its policy to comply with federal obligations -- the company only addressed its profitability. Even if all the employees end up being ineligible, management said in its 8-K, filed June 24, "The Company believes that its current surplus levels of inventory and manufacturing capacity would mitigate the adverse impact of any disruption to its manufacturing activities that may potentially result from the loss of these employees."