American Apparel Learns Breaking Immigration Law Is Bad for the Bottom Line

By Jon Feere and Jon Feere on October 25, 2010

Last year, the amnesty-advocating, Arizona SB 1070-opposing, and garment-manufacturing company American Apparel was the focus of an Immigration and Customs Enforcement investigation. It was discovered that up to 1,800 of the company's employees were likely illegal aliens. The result was the removal of about one-third of American Apparel's manufacturing workforce.

One year later, the company continues to face fallout from their illegal hiring practices.

A class action lawsuit was filed in August on behalf of all persons who purchased American Apparel, Inc. securities between December 20, 2006 and August 17, 2010. The law firm filing the lawsuit, Milberg LLP, explains:

The complaint charges American Apparel and certain of its officers and directors with violations of the Securities Exchange Act of 1934. The complaint alleges that during the Class Period, defendants made false and misleading statements about the Company's hiring practices and the effect of such practices on the Company's financial performance. On September 3, 2009, the company announced that it was forced to dismiss 1600 employees who were unable to prove their immigration status or fix problems with their employment records. Those terminations came two months after the company announced that the US Immigration and Customs Enforcement agency charged that 1,600, or one-third, of American Apparel's workers were illegal immigrants. At the time, American Apparel executives said they didn't anticipate any significant loss in productivity.

Then, on August 17, 2010, the Company issued a press release announcing that it expected to report a loss of $5 million to $7 million in the second quarter of 2010 on net sales of $132 million to $143 million. A significant factor in such losses, according to the Company, was "lower labor efficiency at the Company's production facilities." The lower labor efficiency was primarily a result of the hiring of over 1,600 net new manufacturing workers during the second quarter of 2010." American Apparel's stock dropped approximately 41% on this news.

To sum up, American Apparel had to deal with an ICE investigation and suffer negative publicity, layoff a third of its workforce, seek out hundreds of new workers, train the new workers, absorb a financial loss in the form of both lower productivity and stock depreciation, and now is facing a potential class-action lawsuit.

Wouldn't it have been easier just to use E-Verify from the very beginning?