1938 Law Resurrected in War on Sweatshops : Jobs: “Hot goods” statute bans interstate shipment of merchandise made in violation of labor laws.

For years, state and federal labor officials have been trying to police Southern California’s unruly garment industry. And for years, the sweatshops have been winning.

Now, after discovering a new pocket of Vietnamese-owned sweatshops in Little Saigon--and an age-old set of wage, hour and child-labor abuses--federal authorities in Orange County have taken a new tack.

They have dusted off a 1938 statute, and for the first time are trying to use it to prosecute not just the owners of the sweatshops, but also Los Angeles garment manufacturers who profit from them by selling clothing made by underpaid workers to some of the nation’s swankiest department stores.

The 1938 law, dubbed the “hot goods” statute, forbids the shipping across state lines of any product made in violation of the federal labor laws.

It has been applied to everything from auto parts to turkeys, according to Herbert A. Goldstein, regional director of the U.S. Labor Department’s Wage and Hour Division in San Francisco. Until now, in the garment industry, it has been used only occasionally to force sewing-shop owners to pay minimum wage.

But now, authorities are attempting to block four Los Angeles manufacturers from shipping to retailers “hot goods” made in Orange County sweatshops that allegedly violate minimum-wage, overtime, home-sewing and child-labor laws.

“I am hopeful that once we start getting them into court, the manufacturers will pay attention,” said Rolene Otero, director of enforcement for the Labor Department’s Wage and Hour Division in Santa Ana, who is spearheading the crackdown. “It’s laborious, but we really have to get the manufacturers’ attention.”

Federal and state officials say their previous enforcement efforts--raids, fines, confiscating sweatshop wares--have made only a small dent in the fiercely competitive suburban sweatshop industry that has sprung up in Orange County and in immigrant strongholds across Southern California.

“These cases are just so difficult that no supervisor keeps doing them,” Otero said. “You try once or twice and run into so much mud that it’s hard to keep at it.”

“Everybody has a stake in the status quo,” she added. “The illegal aliens don’t want to talk with us. Even the legal ones are often reticent to cooperate because in the countries they come from, government has never been honorable. The (shop) owners are fighting for their existence, and they’re sure they could make it if they were just given more time and a chance. And the manufacturers have made lots of bucks off wave after wave of immigrants.”

Regulators complain that efforts to improve conditions are being thwarted by cities that are selling licenses to allow sewing women’s garments at home in direct violation of both state and federal law; by sweatshop owners who insist they will go bankrupt if they pay the minimum wage--and do go under at the rate of up to 30% a year, and by workers who won’t complain, no matter how bad their treatment, because many are undocumented aliens, welfare recipients or simply terrified.

State officials have similar complaints.

“We raid them. We fine them. They pay the fines,” said John B. Carter, a senior deputy labor commissioner for the state Division of Industrial Relations in Santa Ana. “I think they feel it’s just part of the cost of doing business.”

“We have limited capacity to enforce something that’s endemic,” Carter added.

The new federal strategy is designed to overcome some of these obstacles by holding manufacturers accountable for conditions under which their garments are made, even when the actual sewing is being done by an independent contractor.

The policy already is irking manufacturers, who say they make every effort to do business with law-abiding sewing shops but cannot oversee, and should not be held responsible for, their suppliers’ suppliers.

“In this industry, it’s very, very hard to check unless you have a separate police force,” said Arthur Gordon, president of En Chante, a Los Angeles women’s dress and sportswear maker.

En Chante, which has annual sales of $40 million in junior sportswear and dresses, and a client list that includes J.C. Penney, Wal-Mart and Sears, was contacted by federal officials after its garments turned up in a Santa Ana home, where a 7-year-old boy was helping to assemble them.

The boy’s mother, Juana Valladares, had been given the goods to sew at home, in violation of both state and federal law, by a Vietnamese sewing subcontractor, Ho Van Chien. He, in turn, had received them from En Chante’s contractor, Su Enterprises Inc. of Garden Grove, according to federal documents.

Using the “hot goods” statute, federal officials ordered Chien not to ship Gordon’s garments until the manufacturer, En Chante; the broker, Su Enterprise, or Chien himself paid the legal wages owed the workers.

En Chante refused, but after negotiations, Su Enterprises agreed to pay $5,765 in back wages to get the garments out of hock, federal documents show.

Su Enterprises, through its attorney, refused comment on the case.

Gordon insisted that he had no idea that Su had been subcontracting the work and had never even heard of Chien. When he learned of the arrangement, Gordon said, he warned Su and his other 40 contractors that any such future violations would be grounds for dismissal and obtained a written pledge of cooperation.

Chien signed a consent decree with the Labor Department, promising not to commit such violations again. He also agreed to pay $54,000 in back wages to 28 workers, including the litte boy, federal documents show.

Chien’s shop closed during the investigation. Federal officials thought the case was closed, too. But this month, Chien was back in business under a new name in the same spot, sewing clothing that he said belonged to En Chante. In interviews with The Times, two of his workers alleged that they still were not earning minimum wage.

When called for comment about Chien’s return, Gordon said he personally reviewed Su’s records, and insisted that the garments in Chien’s shop did not belong to En Chante. When Chien’s employees came to work the next morning, they were told that the shop would be closing again.

After decades of raiding sweatshops, only to watch them close and others open in their place, some authorities, reformers, and union leaders are skeptical of manufacturers’ claims not to know where and how their garments are made.

Moreover, they charge that manufacturers--and the retailers they sell to--in fact do control wages and working conditions throughout the industry because they set the prices. And the prices, they say, are often set so low that the garments cannot possibly be made for minimum wage.

“We would suffer losses if we strictly abide by the federal minimum wage law of $4.25 an hour,” said one member of a Vietnamese family that runs a sweatshop in Garden Grove.

She displayed a woman’s three-piece casual pantsuit that the shop was sewing for another Los Angeles label. A fast worker could make the tank top, pants and jacket in an hour and a half, she said, and the manufacturer pays $6 for all three pieces, noting that the California minimum wage is $4.25 an hour.

“This is a very hard business,” she said. “People come in one door and out the other right away. In one year, a place can have four or five different owners.”

One high-ranking federal labor official, who spoke on condition that he not be named, said manufacturers are well aware of this problem.

“They know exactly how long it takes because they have (sample makers) in their own shops who run through it to find out how long it takes,” the official said. “They use that to beat the guys down. . . . They can figure out the math, but they beat it down to the lowest price. They say, ‘If you don’t want to do it, fine, we’ll go down the street to someone else.’ ”

Gordon disputed this. “You need a time-and-motion person to know if people are being paid the minimum wage,” he said. Nevertheless, he said, competition is so fierce that he has a dozen garment contractors coming to his door each day to ask for work.

“If I wanted to, I could probably get anything made at any price I wanted to,” Gordon said.

Other manufacturers also insist that they try to make their suppliers comply with the law and give work only to reputable contractors that cannot be described as sweatshops.

“We make every effort to only work with shops that treat their people the way they’re supposed to,” said Mark Steinman, president of Chorus Line Inc. in Los Angeles, one of whose Orange County contractors recently was found to have violated overtime laws. “We pay the price to get the things made the way they’re supposed to be.”

Chorus Line, which specializes in moderate-priced junior dresses sold under the label All That Jazz, has annual sales of $90 million to some of the nation’s top department stores, including Nordstrom, Bullock’s and Robinson’s, company executives said.

When one of Chorus Line’s contractors, Queens Fashion of Garden Grove, was ordered to pay $10,000 in back overtime wages, Chorus Line froze all work orders to the shop and offered to withhold payments to the shop owner until the workers were paid properly, Hogan said.

“We stress quality, we don’t go for the last 50 cents,” Hogan said.

But experts say that no amount of policing will make sweatshop owners obey the law if doing so would push them into bankruptcy. And many are clearly on the edge, as evidenced by their failure rate.

Westminster, for example, has issued city business licenses to 88 different sewing contractors since mid-1985, but only 34 of the licenses are still current, city records show. Of those 34, only five have held their licenses for two years or more.

Officials at the International Ladies’ Garment Workers’ Union in Los Angeles said the production process itself, splintered among manufacturers, contractors and subcontractors, invites abuse.

“The system of subcontracting is basically a way of avoiding responsibility,” said David Young, director of organizing in Los Angeles. “The manufacturer and the retailer are the power players in the industry. The great majority of the contractors and the workers are helpless. . . .

“Essentially, the contractors are put in the position of paying workers less than the minimum wage or going out of business. So it’s ridiculous to think that fining contractors when they have no control will solve the problem.”

Federal officials and some state reformers say California also is not doing enough to squelch the sweatshops.

“They have a tiny staff to police a vicious industry,” said Edna Bonacich, a professor of sociology at UC Riverside who is studying Asians in the garment industry. “The enforcement is totally inadequate, and the law is really weak.”

In 1984, California adopted a law authored by Sen. Joseph B. Montoya (D-El Monte) requiring would-be garment contractors to register with the state and to pass an exam covering the applicable California laws.

The license fees were supposed to pay for increased enforcement, but “that has never materialized,” said Joe Rodriguez, executive director of the Garment Contractors Assn. of Southern California.

“The state has diverted those funds God knows where, and very little of it has been spent in enforcement,” Rodriguez added.

Meanwhile, federal labor official Otero hopes that by using the hot goods law, by dragging repeat offenders into court, and by mustering the legal power of the federal government, she can succeed where previous enforcement efforts have failed.

“If we could just make it clear that if you do business in Orange County, you’re going to do it legally, then I’ll feel I’ve succeeded,” Otero said.

THE MAKING OF A GARMENT

1. MANUFACTURERS

Almost none of the 3,000 garment makers in greater Los Angeles sew their own clothing. Instead, they design the garments, order the fabric and farm the work out to subcontractors.

2. MILLS

Fabric is ordered by the manufacturer and delivered to be cut into pieces.

3. CUTTER

Turns bolt of cloth into pre-cut pieces to be sewn.

4. CONTRACTOR

Hires workers and actually does the sewing. During peak periods, or for rush orders, however, may send some of the work elsewhere. There are at least 400 contractors and subcontractors in Orange County alone.

HOME WORKERS

Officials cannot estimate how many people are sewing at home, but they say the practice is widespread. Entire families, including grandparents and children, sometimes help.

4a. SUBCONTRACTORS

Range from mom and pop shops to mini-factories with up to 30 employees. In some cases, employees take work home at night -- a practice that is illegal but commonplace.

5. MANUFACTURERS--50% markup

Competition among manufacturers is intense. If a shipment is late or goods are selling poorly, retailers sometimes refuse to take delivery of orders.

6. RETAILERS--50% markup

Manufacturers typically double their costs to arrive at the wholesale price.

7. CONSUMERS--50% markup

Retailers then typically double the wholesale cost. Later, the price may be reduced during sales.

Wages for the worker typically account for 10% or less of the price the consumer ultimately pays.

Sources: Federal and state labor officials, Los Angeles Area Chamber of Commerce, International Ladies’ Garment Workers’ Union, Garment Contractors’ Assn. of Southern California.