Saturday, October 22, 2016
In the past decade, Goodwill Omaha has made an undisclosed amount of money performing a manufacturing magic trick — a sleight of hand that long struck some employees as wrong and may have broken federal law.
The Omaha nonprofit has for years routinely received deliveries from a metro-area beauty supply company named Prestige Products: dozens of giant boxes packed with hair rollers made at a factory in China.
Omahans in several Goodwill programs, including teenagers with mental and physical disabilities, take the Chinese rollers out of these boxes and repack them into smaller plastic bags to ready them for sale. These bags have a brand name, Nylrem, on the front and an eyebrow-raising three-word phrase on the back:
“Made in America.”
Voila! That’s how a Chinese-made hair roller “becomes” an American-made product, sold in Omaha by a retail chain and on the Internet, with a knowing assist from Goodwill Omaha, where at least one top executive has known about the practice for more than five years.
Your tax dollars are helping fund this practice, too: Most of the Omahans who actually perform the repacking for Goodwill Omaha are being paid from federal, state or local grants.
Four ex-employees with direct knowledge of the repackaging program confirmed the China-to-U.S. switcheroo performed almost daily by Goodwill employees. The World-Herald also obtained a photograph of the repacking process. We then bought several packages of the hair rollers at a local store, with the packages stamped “Made in America.”
On the Internet, Nylrem hair rollers that appear identical to the store-bought ones also are described as “Made in U.S.A.”
The Federal Trade Commission says a product can be labeled “Made in the USA” or “Made in America” only if “all or virtually all the product” has been made here. That includes parts, processing and labor. “Products should not contain any, or should contain only negligible, foreign content,” it says. The commission has enforced that legal standard for decades.
A company that inaccurately labels its product as “Made in America” is at risk of violating a law that bars “unfair or deceptive acts or practices” that affect commerce. (See FTC Act, 15 U.S.C. § 45(a) of the U.S. Code for more information.)
In the past two years, the FTC has settled roughly 50 cases of companies misrepresenting their products as made in the United States. Generally, the company misrepresenting its product agrees to remove the “Made in the USA” labeling in order to avoid fines or other punishment.
“If that is the case, then that’s a violation of the law,” says Bonnie Patten, executive director of Truth in Advertising, a deceptive-advertising watchdog. “Not only are they harming consumers by deceiving them, but they are also economically harming the company’s competitors who are being honest.”
Some rank-and-file employees at Goodwill Omaha have long worried about the ethics and legality of taking Chinese products and relabeling them “Made in America,” and their complaints reached Goodwill Omaha executives on several separate occasions in the past decade.
One ex-employee described a complaint from 2010, when an employee learned of the practice, was disgusted by it and complained to Goodwill Omaha executives. The employee was told the “Made in America” labeling was acceptable. Why? Because the Chinese hair rollers were being packaged in a plastic bag that was made in America. Therefore, the argument went, it could be labeled “Made in America.”
Another ex-employee says Todd Milbrandt, a Goodwill vice president, detailed the “Made in China” to “Made in America” switch to her in 2014 while they stood feet from the area where employees were repacking hair rollers.
Early this year, another complaint triggered a meeting that included Goodwill Omaha President and CEO Frank McGree, Milbrandt and several other top executives, according to an ex-employee with direct knowledge of that meeting.
Among that meeting’s topics: What to do about the hair rollers?
The answer, after consultation with Prestige Products, was to again continue with the contract. This time, a different justification was used: Taking Chinese hair rollers and putting them in a bag stamped “Made in America” is the same as taking Japanese-made parts and installing them into an American-made car.
“That analogy gets them nowhere,” said Patten, whose group has battled retailers for allegedly marketing foreign products as made in the United States. “Because in the example of a car, if the car’s parts are from a foreign country … then that car can’t be labeled ‘Made in the USA’ either.”
Complaints about the practice have continued off and on for years, raising the question: Why didn’t Goodwill Omaha just cancel its contract with Prestige Products and quit repacking the hair rollers?
“Simple,” says one ex-employee with direct knowledge of the contract. “Anything to make money.”
Ex-employees with knowledge of the situation say they believe Goodwill Omaha’s deal with Prestige Products was still active in mid-October. Neither Goodwill nor Prestige will confirm or deny that.
Goodwill Omaha declined several interview requests and did not respond last week to specific questions about the Prestige contract.
But McGree and Joe Lempka, the chairman of Goodwill’s board of trustees, said in a joint statement last week: “Goodwill does not want to engage in protracted debate about claims from unidentified former employees who are not accountable for the comments they provide. Like all organizations, we have challenges and make mistakes, but we work proactively and diligently to address them.”
Prestige Products lists its headquarters at a residential address on the eastern edge of Council Bluffs. When I went there, Janet Mark said she was an owner of Prestige and that she had inherited the company from her late husband, Ray Mark. She repeatedly declined to comment. “We just aren’t going to say anything at this time,” she said.
Ex-employees say the repackaging deal seemed especially bothersome because of the people — the cheap and unsuspecting labor — Goodwill Omaha used to fulfill that contract.
Day 2: Monday
» Omaha charity takes a different approach from its regional counterparts in spending and serving the public.
» Interviews with former employees reveal frustration with what they see as a broken culture, Matthew Hansen writes.
Day 3: Tuesday
» County assessor and some County Board members say Omaha Goodwill’s tax exemptions may come under scrutiny.
» Columnist Matthew Hansen addresses some of the unanswered questions about Goodwill Omaha.
Sometimes, students in the Work Experience Program repackaged the hair rollers. These students are teens with disabilities who get job skills training at Goodwill while in a program that’s mostly paid for by Omaha Public Schools. Low-income Omahans often repackaged the hair rollers. They were at Goodwill as part of a program that allowed them to remain on food stamps so long as they did work at a nonprofit. And, at one point, so did people recently released from jail, who came to Goodwill as part of a temporary employment program.
All three programs are funded primarily by federal, state or local grants.
I talked to one Omaha woman who had packaged hair rollers for Goodwill in order to fulfill work requirements to keep her food stamps. She said she and others who repacked hair rollers knew they were made in China, because of the labeling on the boxes. But she said she didn’t realize the bag was stamped “Made in America.”
“We just did what they told us,” she said.
She had no idea that she was doing something that might violate federal law — a detail that infuriates ex-employees long bothered by the practice.
“We presented ourselves as this entity that served Omaha, particularly one that served Omaha’s less fortunate, when we were exploiting the free labor of Omaha’s less fortunate to deceive Omaha consumers so we could pad the pockets of some of Omaha’s best-paid executives,” says one ex-employee. “It was gross.”
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Goodwill Omaha executive pay: An investigative series