American Apparel founder in 260m legal battle

Dov Charney, the American Apparel founder, is in a legal battle with a former employee, who is seeking 260 million in damages for sexual harassment. Responding to the lawsuit filed by Irene Morales in Brooklyn, American Apparel said in a statement the

company would be taking legal action against Morales and her lawyers for breaching a severance agreement she had signed on leaving the company.

"Upon her resignation, [Morales] acknowledged in writing that she had no pending claims against the company and signed a severance agreement which included a full release of claims and an agreement to submit any future claims to confidential binding arbitration," the statement said.

"All American Apparel's employees are subject to the same confidential arbitration agreement signed by [Morales] in order to protect the privacy interests of employees and former employees, and to prevent predatory plaintiffs and their attorneys from attempting to use the media to extort the company. Such an arbitration process was initiated by the company against [Morales] several weeks ago."

Charney himself has not commented on the charges. But the 42-year-old has publicly dismissed previous claims of harassment as "sexual shame tactics".

Morales told the New York Daily News that she was "devastated" by her treatment at the hands of Charney, with her lawyer explaining to the newspaper why she didn't resign earlier: "She was young. She needed the job."

The lawsuit comes at a bad time for both Charney and the fashion chain he launched in 1989 and has seen grow into one of the US's largest domestic clothing manufacturers.

After expanding rapidly in the boom years last decade, American Apparel's sales and share price plunged recently as changing fashion trends and the economic downturn meant that consumers were less likely to pay $30 for a plain T-shirt.

Image: Dov Charney