More harassment drama for American Apparel

Even as American Apparel (AMEX: APP) posts incredible sales numbers in an incredibly tough environment, the company can't seem to shake the scandals created by its eccentric CEO Dov Charney who was settled a sexual harassment claim involving one of his female employees earlier this year.

The Wall Street Journal reports (subscription required) that the company has agreed to pay the employee $1.3 million to settle the claim with one catch -- that she keep the settlement a secret "and instead participate in an arbitration proceeding, with a preordained outcome" so that Charney could publicly declare victory.

The woman refused to participate in the arbitration and the matter ended up in court. Last week, a three judge panel of California's Second Appellate District in Los Angeles said that the woman's alleged breach of the agreement should be reviewed by independent arbitrators.

However, the court added that it was concerned about the "potential illegality of the 'arbitration' clause ... with its goal of issuing a press release for the purpose of misleading journalists and the public."

With the appearance of efforts to mislead investors about the nature of the case, this fiasco moves beyond the realm of the hanky panky that has been part of Mr. Charney's behavior and his company since it went public. Now you have to wonder about integrity.