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Brooklyn sweatshop workers have won a major victory with an Eastern District of New York judge’s ruling that they are third-party beneficiaries to an agreement between a sportswear maker and the U.S. Department of Labor. Judge I. Leo Glasser said the workers can recover minimum wages and overtime pay that their factories failed to pay them. The workers, Glasser said, were the intended beneficiaries of a contract that Street Beat Sportwear Inc. signed with the department. The compliance agreement obligated the sportswear manufacturer to ensure that the factories it hired to produce its goods could meet the minimum standards for employee pay under the law. The ruling in Chen v. Street Beat Sportwear, Inc., 01-CV-9792, was also a win for the Asian American Legal Defense and Education Fund, which launched the effort to obtain decent wages for the workers with the pro bono assistance of attorneys at New York-based Davis Polk & Wardwell. The attorneys had argued before Glasser that the purpose behind the compliance agreement between the Department of Labor and Street Beat was to ensure that the clothing manufacturer could not escape liability for working and wage conditions by contracting out garment assembly to independent factories. The Augmented Compliance Program Agreement, which was signed in 1997, required Street Beat to evaluate, before signing a contract with a factory, whether the price terms were so low as to make it impossible for the factory to comply with the Fair Labor Standards Act in terms of paying its workers minimum wage and overtime pay. Between 1996 and 2000, the plaintiffs worked at two Brooklyn factories as garment inspectors, hangers, button sewers, iron pressers or general helpers. They sued Street Beat and the garment factories, 1A Fashions Inc. and Red Arrow Inc., claiming violations of the compliance agreement, alleging that Street Beat knew or should have known that the workers were not being paid minimum wage or overtime pay. The workers said that Street Beat had a representative present in the factories on an average of three times a week. LONG HOURS, LOW PAY Judge Glasser said that the employees worked at substandard wages seven days a week, with only one or two days off per year. Toiling shifts that often began early in the morning and ended after midnight, the workers were threatened with firing if they did not stick to the schedule or complained about their conditions. Their complaint, in addition to asserting third-party beneficiary status to the compliance agreement, charged Street Beat with negligent supervision and hiring, and negligence per se under the federal and state “hot goods” provision of the Fair Labor Standards Act, as well as New York Labor Law. However, Street Beat argued that the negligence claims were barred by New York Workers’ Compensation Law, which provides that benefits under the law are “the exclusive remedy” for injury to an employee, and that common law remedies are therefore barred. Glasser said he was “not unmindful of the cases in which claims of negligent hiring, retaining and supervising an employee have been held to be precluded by the WCL.” But “[i]n virtually every case … ,” he said, “that claim of negligence is added as an appendage to an action brought primarily to redress a claim of discrimination in one form or another with no indication that consideration was given in them to the historical underpinning of the WCL.” However, he said, “Notwithstanding the label attached to the claim at issue, namely ‘negligent supervision’ and ‘negligent hiring,’ a reading of the allegations can leave little doubt that the conduct complained of is not negligence at all, but a deliberate and intentional subjection of the plaintiffs to working conditions which are reminiscent of a Dickens novel.” In the end, Glasser said, the argument that the Workers’ Compensation Law’s exclusivity provision acts to bar the plaintiffs’ claim must be rejected because of the nature of the employee-employer relationship in the case. “If the manufacturer defendants are ultimately properly viewed as general contractors, then they are not plaintiffs’ employers,” he said. “On the other hand, if the plaintiffs claim that the manufacturer defendants are joint employers with 1A Fashions Inc. and Red Arrow Inc, then the WCL … is also inapplicable.” Turning to the motion to dismiss the third-party beneficiary claim, Glasser said that “[b]ased on the language of the agreement itself, it is strikingly obvious that the entire purpose of the [compliance agreement] is to ensure that employees of factories which contract with Street Beat are paid minimum wage and overtime, and that it was they who were directly intended to be benefitted.” Street Beat had argued that the compliance agreement’s remedial scheme does not expressly provide for third-party beneficiary suits to enforce the compliance agreement. Judge Glasser disagreed, saying “the [compliance agreement]‘s silence on this issue is not fatal to the plaintiffs’ claim because … an intent to benefit the plaintiffs may otherwise be gleaned from the contract as a whole.” Penny Ann Lieberman and Marc S. Wenger of White Plains, N.Y.-based Jackson Lewis Schnitzler & Krupman represented the defendants. Kenneth Kimerling of the Asian American Legal Defense and Education Fund, Inc. and James H.W. Windels of Davis Polk & Wardwell represented the plaintiffs.

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