California Apparel News

Among the flurry of state propositions on the Nov. 2 ballot, one will have a direct financial impact on California’s apparel and textile business: Proposition 72.

Proposition 72 requires medium to large businesses to offer health-care coverage to their employees and their dependents. If passed, the proposition would stipulate that employers with more than 200 employees pay at least 80 percent of their employees’ heath-care coverage costs starting in 2006. Companies with 50 to 199 employees would start covering health-care costs in 2007.

“Proposition 72 is the biggie for a whole bunch of businesses, especially apparel,” said Jack Kyser, chief economist for the Los Angeles County Economic Development Corp. Kyser worries that the proposition would put up one more economic barrier for businesses to operate in California.

Under the measure, employers would have to pay for health-care coverage or pay a fee to a state medical insurance board that would purchase private healthcare coverage.

Proponents note that the measure is expected to reduce the cost of county health programs by “the low hundreds of millions of dollars annually.”

Opponents of the measure argue it would cost businesses up to $12.9 billion a year, according to the No On 72 Web site (www.stopthehealthtax.org). No On 72 is cochaired by Bill Dombrowski, president and chief executive officer of the California Retailers Association; Jot Condie, president and chief executive officer of the California Restaurant Association; and Allan Zaremberg, president and chief executive officer of the California Chamber of Commerce.

Proponents maintain that figure is too high, citing a recent Los Angeles Times story that said the proposition’s authors estimate “the costs to be $4.7 billion, of which the employers’ share would be $2.2 billion.”

Supporters of Proposition 72 include the AARP (formerly called the American Association of Retired People); the California Medical Association; the California Nurses Association; and the Consumers Union, publisher of Consumer Reports.

Still, many local manufacturers argue that the cost of implementing Proposition 72 is too high and the measure would hinder insurance programs already in place.

“I think the legislature has to come up with something that is considerably more affordable for small and medium businesses,” said Lonnie Kane, president of Vernon, Calif.–based Karen Kane Inc., which has been making contemporary women’s clothing for decades.

Kane has been covering 100 percent of his employees’ health-care costs for the past 25 years but not the health-care cost of his employees’ dependents. He said that if passed, the proposition could mean his employees would have to begin paying for lower-quality health-care coverage because the measure would require him to cover 80 percent of his employees’ coverage costs, as well as the health-care costs of their dependents.

“To be able to afford to do that, I would have to end the policy I have now, which is a ritzy policy,” he said. “I insure with one of the best companies offering health insurance. They are the high-end plan. They are the ones that you get everything you want. I would no longer be able to offer that to my employees. I would have to go to a bottomtier provider because I’m going to have twice as many people I’m paying for.”

Critics of Proposition 72 note that the measure does not clearly specify how it would apply to temporary workers, who make up many of the employees at the state’s apparel factories.

“This is a seasonal business,” said Ilse Metchek, executive director of the California Fashion Association, a nonprofit group that fosters growth in the state’s apparel industry. “How do you cover seasonal employees if the insurance companies won’t take them?”

Some contend the measure could put smaller companies out of business.

“You certainly will devastate the contractors. They don’t make enough money to do it,” Kane said. “Now you take a whole segment of the sewing business that your apparel industry needs, and you put them out of business. It is a major mistake.”

Joe Rodriguez, executive director of the Garment Contractors Association of Southern California, has been urging his members and others in the contracting community to oppose the proposition.

But the Garment Worker Center in Los Angeles, which fights for workers’ rights in the apparel industry, supports the proposition.

“There is a huge crisis in this country and state. Millions of people don’t have health insurance,” said Joann Lo, the center’s lead organizer. “We think this is an important proposition. It would help employees of large- and medium-sized businesses gain health insurance.”

However, the number of California apparel companies affected is likely to be low because many companies employ fewer than 50 workers. The bill does contain wording to the effect that if the minimum worker requirement were lowered to 20, some sort of subsidy would be granted to the employer, explained Kyser.

“We will have to watch and wait to see what happens,” he said. “If it does pass, I think there will be lawsuits filed against it.”

Jimmy Macias, owner of the Ja-Mar Apparel Manufacturing Co., a sewing contractor in Irwindale, Calif., that has been around for more than 30 years, employs between 12 and 40 people at a time. He acknowledged the threat to his business if he had to insure his employees and their dependents. “I would love to give health care to my employees, but I can’t afford it. I’m afraid if I had to, it would be the nail in the coffin,” he said.

The proposition could prompt some companies to cap their growth or consider moving out of state.

“What you could see is firms might go up to the 19 level and hold at that,” said Kyser. “And then if you had more business, guess where you go? Nevada and Arizona.”

Taking aim at unfair competition

Another measure on the ballot that could have an impact on the apparel industry is Proposition 64, which would limit an individual’s right to sue on the basis of unfair competition. It has been well received by small and large businesses.

Proposition 64 could reduce legal fees for business owners by limiting lawsuits to cases in which the plaintiff has suffered physical harm or property damage has occurred.

“It is a very narrow finite change to an existing law,” explained Greg Weisman, an attorney with Los Angeles–based Silver & Freeman. “What they are intending to do here is to take one cause of action in California for unfair competition, which is currently defined as a law prohibiting a person from engaging in unlawful or fraudulent business acts.”

Weisman explained that the “customary legal requirement for a person to bring lawsuit is they have to be the person who was harmed.”

But California law currently allows others to bring action against businesses for unfair competition and, in essence, act as the attorney general on behalf of others “even though that person may or may not have ever suffered any damage or injury,” he continued.

“Prop 64 only relates to this particular law and this particular standing,” he said. “What it is going to do is bar the private attorney general doctorine in this particular arena.”

The measure also notes that only the California attorney general or local government prosecutors could sue “on behalf of the general public to enforce unfair business competition laws.” This clause might deter individuals from suing a company unless life and limb were on the line.

Lloyd Mann, a lawyer in Sherman Oaks, Calif., who often represents apparel companies, noted that many small businesses have to close their doors after expensive litigation.

But the American Lung Association, the Sierra Club, the California Nurses Association and the Consumers Union oppose Proposition 64 because it limits enforcement of the Unfair Business Competition Law of 1933, which is used to protect the environment, public health and privacy rights. When Safeway Inc. altered the date on old meat and resold it, consumer groups brought a case against the supermarket chain under the unfair competition law.

The proposition is backed by Exxon Mobil Corp., State Farm Insurance Cos., Citigroup Inc. and General Motors Corp.

Senior editor Deborah Belgum and Executive Editor Alison A. Nieder contributed to this article.