Nordstrom, Neiman Marcus and other brands were buying clothes from a 'sweatshop' that paid just $1.58 an hour — in California

• The Department of Labor randomly investigated 50 clothing companies in Southern California.
• It found that more than 80% were breaking one or more provisions of federal labor law.

A conscientious consumer may think that buying clothes made in America automatically means wages are better than those in the developing world.

But that is not necessarily true: When the Department of Labor randomly examined the practices of dozens of clothing makers based in the United States, it found that the vast majority were breaking the law — and that workers making clothes for Nordstrom and other brands were in some cases earning less than $2 an hour.

Clothes with a "Made in the USA" tag account for a small fraction of sales in the American market, typically coming with a higher price tag. But when federal investigators looked at 50 contractors and manufacturers in Southern California, the heart of the domestic garment industry, they discovered that 80% were breaking one or more provisions of US labor law, according to the report published Wednesday.

Over a third of garment makers falsified their payroll records, investigators found, while more than a quarter kept no documentation at all. And while California in 2021 banned piece rate wages, where workers are paid based on how much they produce, the Department of Labor discovered that 32% of those investigated were still doing it, resulting in take-home pay that sometimes fell below the legal minimum.

In what the department described as a "particularly egregious case," one garment manufacturer — making clothes for brands including Nordstrom, Neiman Marcus, Stitch Fix, and Von Maur, per investigators — was found to be paying some workers an hourly rate of just $1.58. Investigators also found that, on average, manufacturers who contract out their work were not paying enough per item for workers to make more than the federal minimum wage.

Even with such low pay, theft by employers continues to be a major issue: between 2017 and 2022, the Department of Labor collected $10.4 million in back wages and penalties, including $9.2 million from companies in Southern California alone.

"Despite our efforts to hold Southern California's garment industry employers accountable, we continue to see people who make clothes sold by some of the nation's leading retailers working in sweatshops," Ruben Rosalez, part of the department's wage and hour division, said in a statement. "Many people shopping for clothes in stores and online are likely unaware that the 'Made in the USA' merchandise they're buying was, in fact, made by people earning far less than the US law requires."

Mike W. Peterson, a department spokesperson, told Insider that the company found to be paying less than $2 an hour is based in El Monte, a suburb about 15 miles from downtown Los Angeles. The department ended up recovering more than $98,000 in back wages and overtime for 13 employees, Peterson said.

That California is home to sweatshops that exploit workers is not breaking news. In 1995, abhorrent conditions at a factory in El Monte — where dozens of Thai immigrants were held against their will — prompted lawmakers to enact tough new measures aimed at combating human trafficking.

The Garment Worker Center, based in Los Angeles, where some 45,000 people, largely immigrants, are believed to be employed in the clothing industry, said the Department of Labor's findings should prompt a response at the federal level. In a statement, the employee advocacy group urged passage of a bill, The Fabric Act, introduced by New York Democratic Sen. Kirsten Gillibrand that would impose a nationwide ban on piece rate pay — and extend liability for the actions of manufacturers who break the law to the brands who buy their products.

Gillibrand told Insider she found the Department of Labor's report to be "disturbing." It shows, she argued, "that strong federal action is needed to change the abusive pay rates in the American garment manufacturing industry."

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