Jobs may unravel

State labor regulators threaten sewing business with higher taxes on artisans

June 25, 2008|By JAY HANCOCK

Foreign competition and state regulation haven't completely wiped out Maryland's once-storied needle-trade industry, but the Department of Labor, Licensing and Regulation is working on it.

It wants to raise taxes on Alice's Home & Cottage, a small Hagerstown company that sells period clothing to Monticello and Colonial Williamsburg and buys work from dozens of nearby women who lost jobs when the sewing mills closed.

The state says Alice's must treat the women as employees and pay tens of thousands of dollars to the unemployment insurance pool on their behalf - even though by any common sense measure they are independent contractors.

FOR THE RECORD - Jay Hancock's June 25 column in Business incorrectly credited WBAL-TV with first reporting the dispute between Maryland regulators and Alice's Home & Cottage of Hagerstown. The Hagerstown Herald-Mail had the story in February, several months before the WBAL piece.
The Sun regrets the error.

If the state wins, President Alice Backman says she's out of business. That's a plausible scenario, considering that federal authorities would probably pile on and demand contributions for Social Security, Medicare and other employee taxes.

There don't seem to be too many other companies profitably employing American seamstresses these days.

"If I were having my products made in China, I would be in full compliance and would not be going through this audit," said Backman. "I guess that is what they want me to do."

DLLR says it can't talk about specific cases. Department Secretary Thomas Perez claims "20 percent of Maryland employers are misclassifying employees as independent contractors," which sounds like a stretch. The state is trying to do a better job of enforcing correct employee classification in "hot spots," such as the construction industry, he says, but Alice's was caught up in a random audit.

He rightly says companies that misclassify are unfair to workers, taxpayers and other employers.

But the seamstresses working for Alice Backman, whose problem was first chronicled by WBAL's Deborah Weiner, aren't misclassified. They aren't employees.

Wilma Fletcher, 66, learned how to sew at the London Fog raincoat factory in Hancock. She still spends hours with her machines, bought from the plant when it closed in the early 1990s, sewing for family and neighbors, sometimes in exchange for snow plowing or a bottle of home-brew wine.

When she has time, she sews handbags, potholders and other items for Alice's Home & Cottage, 50 miles from her Little Orleans home, delivering the items by car and getting paid by the piece.

Sometimes she makes items for Alice's for eight hours at a stretch. Sometimes she'll go a week without sewing. Sometimes she turns jobs down, like the pillows she doesn't like doing.

"What they are doing to Alice is not right," she says. "We have a choice to do what we do for her - or say 'no.'"

Another seamstress, Ruth Kimble, used to work for the now-closed S. Schwab clothing factory in Cumberland. Now she does work for Backman but has at times taken extended time off for a son's illness and a death in the family.

"We work when we want to," she says. "And if that isn't independent, I don't know what is."

This is the hallmark of an outside contractor. It's true that the women (only one or two men sew for Alice's) get direction and materials from Hagerstown. But they're no different, says commercial builder and Washington County Del. LeRoy E. Myers Jr., from independent drywall installers and electricians he hires on his projects.

Other characteristics of independent contractors under Maryland law are that they work away from the premises of their client and are "engaged in an independent business or occupation." Sounds like Backman's freelance seamstresses.

Myers has tried to help her, but, he says, "There is a stepped-up effort by the state of Maryland to try to ferret these people out - discover who is not an independent contractor and who should be paying."

Backman founded her company in the early 1980s. It produced more than $3 million in yearly sales at its peak in the late 1990s and sells aprons, bonnets, quilts, note paper, coasters and other items wholesale to stores across the country and overseas. You can buy Alice's Paul Revere-style work shirts in the gift shops at Colonial Williamsburg and Monticello in Virginia.

But cheap imports have been tough on American apparel makers. Baltimore's sewing factories are long gone, and in recent decades upstate Maryland mills operated by companies such as London Fog, S. Schwab, Hartz and Celanese have also closed.

The Labor Department blames imports or the shift of employment overseas for the disappearance of 4,300 Maryland textile and apparel jobs between 1991 and 2003.

The pressure hurt Alice's Home & Cottage. Backman says sales have declined substantially in recent years, although she declines to specify. She briefly tried her own offshore procurement, in India. But shipments took too long, she said, "and I had a horrible conscience about not employing Americans."

She employs 10 people in Hagerstown and is happy to pay jobless insurance on their behalf. They come to the office regularly and work under her supervision.

But in the 2006 audit DLLR insisted that Backman's freelance seamstresses also be classified as employees. The agency demanded documents, interviewed seamstresses, asked to see their tax forms and wouldn't back down. Now Backman is amid an expensive appeals process - $17,000 in legal bills from Venable and counting. If DLLR wins, her added state and federal liabilities would hit $75,000 a year, her accountant calculated.

"They just keep asking for more information," she said. "Tyranny," she calls it.

An overstatement, perhaps. But, given the state of Maryland's textile industry, it is reasonable to assume that the extra taxes DLLR would add are the difference between paying Backman's sewers for part-time piecework and going out of business and paying them nothing.

That would be a shame even if the state were correct. But it isn't.

jay.hancock@baltsun.com

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