American Apparel Has Oodles of Dirt on Former CEO

May 12, 2015

By Matt Townsend

American Apparel Inc. has a dossier of employee complaints about former Chief Executive Officer Dov Charney abusing them — sometimes physically — that it may use in a legal fight against its founder.

The retailer has assembled e-mails, videos and audio recordings documenting complaints by those who worked for Charney. One e-mail to the human resources department in 2013 reported that he threw a medicine bottle at an employee, according to internal documents obtained by Bloomberg News. In a separate e-mail, a female worker said he called her a “slut” and a “whore.” In a resignation letter, an employee said, “I’m afraid to return to work and face further abuse.”

Charney was fired from American Apparel in December following a six-month suspension. In moving to terminate the executive, the board said that he violated sexual-harassment polices and misused funds. A lawyer for Charney called the allegations baseless, and the 46-year-old has spent months fighting to be reinstated.

Keith Fink, a lawyer at Fink & Steinberg who is representing Charney, said he hasn’t seen the documents alleging abuse by the former CEO. The apparel company told him there were no documents in Charney’s personnel file during the arbitration over his firing, Fink said. He said he believes any new documents being leaked to the media are “back dated” and “false.”

Fink also said that thousands of current employees support Charney, and the new management team has been firing workers in retaliation for complaining about unfair treatment. Fink represents some employees making these allegations. American Apparel said the claims are without merit.

Charney denied using the derogatory terms or throwing a medicine bottle. He declined to comment further. Arielle Patrick, a spokeswoman for American Apparel, declined to comment on the abuse complaints.

A person close to the Los Angeles-based company said the documents are authentic and will probably be used in connection with the ongoing arbitration process. The person asked not to be identified because the matter is private.

While Charney was CEO, he and American Apparel were sued multiple times for alleged incidents with employees, including accusations of sexual harassment and physical assault. The sexual-harassment cases were all either dismissed or settled privately. American Apparel defended Charney at the time, saying in 2011 that claims in at least two sexual-harassment lawsuits weren’t true.

Since Charney was pushed out, his allies have filed shareholder lawsuits against the company, arguing that the CEO was fired as part of a power grab. They’re also going after Standard General, the hedge fund that is now deeply involved in the clothing chain. Last week, Charney sued Standard General for defamation. He’s seeking $30 million in damages.

“Charney and his associates continue to file frivolous, meritless lawsuits at a breakneck pace,” New York-based Standard General said in response.

One former executive backed up complaints that Charney was verbally abusive to his staff, saying that it caused several employees to leave the company. The behavior included the use of misogynistic terms and embarrassing workers in front of others, said the person, who didn’t want to talk publicly about a previous employer.

Charney initially fought his ouster by forging a partnership with Standard General. The hedge fund loaned him money to boost his stake in American Apparel in exchange for giving up some voting rights on his shares. That led to a deal with the clothing chain: Charney would be re-evaluated by three board members while he was on suspension, and they would determine if he should still be fired.

After that review, the board went ahead with his termination in December. Charney complained at the time that Standard General double-crossed him.
“I gave them my entire life’s work and they agreed to put me back in,” he said. “They betrayed me.”

Charney turned down a chance to stay on as an adviser to American Apparel, saying Standard General had too much sway over the company, people familiar with the matter have said.

Besides the lawsuit against Standard General, Charney also is seeking $40 million in damages from American Apparel for breach of his employment contract. He added another defamation suit on Tuesday, this time going after the company and chairman Colleen Brown for damages of at least $20 million, according to a copy obtained by Bloomberg News. American Apparel said in a filing that the claims are without merit.

Shareholder lawsuits — filed by former American Apparel employees who worked for Charney — have claimed his firing amounted to proxy fraud because investors weren’t told the board was investigating the CEO for misconduct when they voted at the annual meeting last June. Later that day, Charney was served with a termination later. The litigants accuse the company of ousting Charney because he didn’t want to go along with a plan to sell the company. American Apparel called the claims “completely baseless.”

Shares of the money-losing company have tumbled more than 40 percent this year as it attempts a turnaround under new CEO Paula Schneider. The company reported a wider quarterly loss on Monday and said it would need to raise money by selling stock. The stock fell 2.6 percent to 60 cents on Tuesday.