Tahir's Tips: Ethical fashion - what can the law do?

A Norwegian TV program recently took three young fashion bloggers and flew them to Cambodia to experience the horrors of life in a garment sweatshop. The result for the bloggers was the appalling realisation of dangerous and cruel conditions in factories where their favourite clothes come from. “I can’t take it anymore,” one of the bloggers says in the trailer “what sort of life is this?”

Unfortunately, it takes programs like this and recent tragedies such as the Rana Plaza building (pictured above) collapse to raise awareness of these issues – many consumers buy first and ask later. Of course, many brands now have commendable Corporate Social Responsibility (“CSR”) policies and supervision. However, there are still those brands that quite simply put profits first and there are some brands that lack the ability to supervise vast supply chains across the world.

From a legal perspective, there are two major problems which stop brands being compelled to halt such practices. Firstly is the legal relationship between supplier and brand. In the EU/UK when someone is employed to do work, they are given a range of rights such as the minimum wage, the working time directive and so on. However, the people in these factories are not employed by the brand; they are employed by the supplier. So under UK law, the brand has no “duty of care” to those people.  Secondly, there is a jurisdictional problem. A country like Cambodia will not have the same level of legislation to protect workers.

What pressure, other than the need to protect their brand image, do brands have to make them improve conditions in their supply chains?

Collective Industry Action

Brands and trade unions can join forces to create independently enforceable agreements. For example the “Accord on Fire and Building Safety” in Bangladesh was signed in response to the Rana Plaza disaster. The Accord is an independent, legally binding agreement between brands and trade unions designed to work towards a safe and healthy Bangladeshi garment industry. It concentrates on:

- independent inspection programs;

- public disclosure of all reports;

- commitments to ensure sufficient funding is available for remediation ;

- democratically elected health and safety committees; and

- empowering workers.

The Accord is a commendable agreement, however, the main problem with this is that it only applies to the brands that sign up, and it is obviously limited just to Bangladesh.  Agreements like these don’t seem to catch the worst offenders.

EU and UK Legislation

Modern Slavery Act 2015

The UK’s recently passed Modern Slavery Act 2015 requires companies to prepare (and publish on its website) a slavery and human trafficking statement for each financial year. A statement should list the steps taken by the organisation during the financial year to ensure that slavery and human trafficking is not taking place in any of its supply chains or parts of its business or a statement acknowledging  that it has taken no such steps. Not all companies will be required to do this, but the threshold of revenue required is yet to be decided.

Directors Duties

Under the Companies Act 2006 directors of companies have a duty to promote the success of the company. However, when considering the success of the company the director must take into account other factors such as the impact of the company's operations on the community and the environment. It will not be sufficient to pay lip service to such an impact, and, in many cases the directors will need to take action to comply with this aspect of the duty. However, the duty isn’t saying that directors should always do the “right thing” ethically, as there will be many competing factors that they need to think about.

UK Corporate Governance Code

For companies listed on the stock exchange, the UK Corporate Governance Code sets out standards of good practice in relation to board leadership and effectiveness, remuneration, accountability and relations with shareholders.  All companies with a premium listing of equity shares in the UK are required under the listing rules to report on how they have applied the Code in their annual report and accounts.

Although no part of the code explicitly deals with CSR, there is some recognition that a company’s duties extend beyond the shareholders. It states that “the board should set the company’s values and standards and ensure that its obligations to its shareholders and others are understood and met".

EU Non-Financial Reporting Directive

The EU Non-Financial Reporting Directive applies to companies with more than 500 employees. It requires companies to disclose in a management report their policies and assessment on risks for environmental, social and employee aspects and how they respect human rights.

Third Party Contractual Obligations

Although not based on legislation there are ways in which supply chain conditions could be ensured using contract law. Firstly, brand owners can themselves include provision in their supply agreements so that the suppliers have minimum standards to meet. Secondly, a "back door" way to achieve change in the industry in general would be for companies such as retailers to include CSR provisions in their distribution agreements with brands. For example, a retailer could adopt a standard reporting index and state that all brands must meet a minimum standard, otherwise the agreement can be terminated.

Summary

Ultimately, from a legal perspective it is currently up to the individual brand to police their supply chains and to create incentives in their supply agreements so that standards are kept high. Most legislation focuses on reporting of activity – not whether that activity actually takes place. We will have to wait for a more widespread legal framework – for example some have proposed a Global Garment Workers Minimum Wage – before brands are incentivised and punished on a large scale.

For more information on Industry member, Tahir, visit his personal partner page on the Sheridans website. To contact him directly, visit The Industry Directory, email [email protected] or telephone 020 7079 0103.