The scene looked for all the world like a 19th century sweatshop on New York's Lower East Side. Underpaid immigrants hunched over sewing machines in a dimly lit shop. Mountains of cloth scraps sat stacked near pricey finished dresses. "The thing that struck me was how gloomy and dark the place was," recalls Will Garnitz, a Labor Dept. garment-industry investigator.

The story has a 20th century twist, however. Nary Sewing Shop wasn't on the gritty streets of Manhattan, but in East Hollywood, Calif. And the government's solution wasn't to shut down the factory. Instead, Labor went after one of Nary's customers.

Armed with a 56-year-old statute that lets the feds block shipments of goods made in violation of labor laws, Labor is demanding that Francine Browner Inc., a tony L.A.-based maker of upscale women's clothing, fork over about $30,000 to compensate employees of four contractors, including Nary, who weren't paid the $4.25-an-hour minimum wage. Labor also wants Browner to set up a toll-free number for workers' complaints. If it doesn't, the agency will impound Browner's shipments from the contractors. Browner declined to comment.

WAKE UP. The move against Browner is part of a broad new Clinton Administration crackdown on labor-law violations. After 12 years of budget cuts and neglect under Republican rule, the agency's enforcement activity had withered, and Labor Secretary Robert L. Reich has mounted a variety of efforts to beef it up. Because funds remain scarce, Labor is trying to leverage its resources with tactics that encourage self-policing by industry.

In the garment industry, for instance, where some 22,000 tiny contractors such as Nary are notorious for treating workers unfairly, Labor has dusted off the

so-called hot-goods provision of a labor standards law dating back to 1938 to hold such manufacturers as Guess? Inc. liable for their suppliers' actions (table). The goal: to overcome the near-hopeless task of overseeing 1 million garment workers with 800 investigators.

"This is an industry where people avoid responsibility and point the finger at someone else," says Maria Echaveste, head of Labor's Wage & Hour Div. "When you attach goods, someone has got to pay attention." Indeed, if the campaign succeeds, Labor hopes to expand it to agriculture and computers, where many small companies pay low wages to immigrant workers.

So far, self-policing seems to be paying off. More than 50% of garment-industry contractors pay less than the minimum wage, fail to pay overtime premiums, or violate labor laws in other ways, Echaveste estimates, based on a sampling of Labor's investigations. Labor has stopped shipments in only three cases since it started its hot-goods program in late 1992. But the threat of court orders to halt shipments has prompted apparel contractors and makers to pony up a total of more than $2.3 million in back wages since then. And hundreds of manufacturers have agreed to keep tabs on their suppliers.

Take Patagonia Inc., a Ventura (Calif.) sportswear producer. In December, 1992, Labor threatened to impound goods the company bought from Alba's Garment Works, a Ventura-based contractor that admitted to an unintentional error in not paying overtime. Patagonia agreed to spot-check contractors about twice a year to ensure that they know how to calculate overtime pay, which can be complex in a piecework industry.

Even companies whose contractors haven't been found guilty of anything have been willing to at least make a gesture. After Labor officials told several Dallas-based clothing makers that it would begin using the hot-goods law, J.C. Penney Co. offered to inform its suppliers that it would purchase only goods made in compliance with labor laws.

DOMINO EFFECT. Still, the threat of impoundment has limits in an industry where suppliers are so plentiful. When Labor demanded a $2,500 payment on Mar. 14 from San Francisco-based Jessica McClintock Inc. to compensate underpaid workers at Mary's Sewing Shop in Oakland, the company refused to knuckle under, according to Mary's owner, Kaphy Nghiem. McClintock avoided a showdown with Labor because Nghiem ultimately made the payment herself. McClintock declined to comment. But Randall Harris, executive director of trade group San Francisco Fashion Industries (SFFI), says: "It's a stretch to see why an apparel maker should be financially liable for contractors when they're separate businesses."

Nonetheless, the feds' results have been promising enough to prompt states to go a step further. California and New York plan to propose laws that would hold manufacturers and contractors jointly liable for wages. That scares even manufacturers willing to pay back wages. "We don't want to be in contractors' shops every day to find out what's going on," says Geoff Cline, Patagonia's general counsel. Even if that doesn't happen, manufacturers must get used to the idea of being their suppliers' keepers.

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