Regulating the fast fashion industry: what does the future hold?
On 24th September 2020 the Independent Review into the boohoo Group PLC’s[1] Leicester supply chain (‘the Boohoo Review’) was published. It was conducted by Alison Levitt QC, assisted by a team of barristers at 2 Hare Court, including James Buchanan, Grace Forbes and Hannah Thomas[2], instructed by Jason Cropper of TLT Solicitors.
The Boohoo Review was commissioned by the boohoo Group as a result of an article published by the Sunday Times on 5 July 2020, which made allegations about illegally poor working conditions in factories in Leicester supplying Boohoo and other fashion brands[3].
Allegations about Victorian working conditions and exploitative employment practices in garment factories in the fashion industry have been made for years. Many journalists and politicians considered them to be an open secret[4].
The first Fixing Fashion Report
In 2018 the Environmental Audit Committee (‘EAC’) conducted an Inquiry into the fast fashion industry, focusing on the sustainability of the industry and allegations about labour exploitation taking place within it. It published its report – Fixing Fashion: clothing consumption and sustainability – on 19 February 2019[5]. The report made various recommendations to the Government, which included:
- Publication of a list of retailers required to provide a ‘modern slavery statement’[6], to demonstrate steps taken to eradicate forced labour within the business;
- Amendment of statutes such as the Companies Act 2006 to include explicit reference to modern slavery and supply chains; and
- Strengthening the MSA so that it would require large companies to perform due diligence checks across their supply chains and ensure their materials and products are being produced without forced or child labour.
None of the recommendations of the report were accepted by the Government.
The Fixing Fashion: Follow-up Inquiry
The EAC, chaired by the Rt. Hon Phillip Dunne MP[7], is presently conducting a further Inquiry: Fixing Fashion: Follow up. A call for evidence[8] was issued, which received 49 written responses[9]. On 16 December 2020 oral evidence was taken in three sessions[10].
The questions which the EAC is considering are:
- What progress has been made in reducing the environmental and social impact of the fashion industry since the Fixing Fashion report came out?
- What impact has the pandemic had on fashion waste?
- What impact has the pandemic had on the relationship between fashion retailers and suppliers?
- How could employment law and payment of the minimum wage be more effectively enforced within the UK fashion industry?
- What are the pros and cons of proposals to license factories or more strongly regulate purchasing practices?
- What would be the most effective measures industry or Government could put in place to ensure that materials or products made with forced or prison camp labour are removed from the supply chain?
- How can any stimulus after the Coronavirus crisis be used to promote a more sustainable fashion industry?
- Is the Sustainable Clothing Action Plan adequate to address the environmental impact of the UK fashion industry? How ambitious should its targets be in its next phase?
- What actions could Government take to improve the collection of fashion waste?
- What actions could the Government take to incentivise the use of recycled or reused fibres and materials in the UK fashion industry?
- How could an Extended Producer Responsibility scheme for textiles be designed to incentive improvements in the sustainability of garments on sale in the UK?
It is clear that one focus of the inquiry is on increasing regulation of the fashion industry.
The present regulatory position
Large companies, including retailers, are required to take steps to ensure there is no forced labour or exploitation within their supply chains and each year certain companies[11] are required to produce an Annual Modern Slavery Statement setting out compliance with the MSA.
That being said, the fashion industry is largely unregulated with respect to the monitoring of conditions in supply chains. Many retail companies ‘audit’ their suppliers with spot-check audits to ensure compliance with their codes of conduct or any other set of principles to which they adhere (such as the Ethical Trading Initiative Base Code), but as the evidence to the Boohoo Review revealed, there are limits to the effectiveness of auditing when used as a stand-alone method of measuring compliance with the law.
Part of the problem stems from the fact that large retailers typically do not own the factories which produce the clothing they sell. Rather, they contract the work out to third party suppliers.
Suppliers themselves are required to comply with employment law, health and safety law and will be subject to the criminal law if they use forced or child labour, do not pay national minimum wage or falsify worker hours[12]. However, this does not usually fix the retailer with liability in the event of breach by a supplier.
What might increased regulation look like?
The proposals most often made during evidence to the EAC were:
(i) a ‘Fit to Trade’ licensing scheme for suppliers, and
(ii) the establishment of an independent regulator to monitor the relationship between retailers and suppliers.
(i) A ‘Fit to Trade’ licensing scheme
A ‘Fit to Trade’ licensing scheme would require all factories that manufacture garments to apply for a licence. To obtain such a licence, the factory would be assessed to ensure compliance with basic employment and health and safety law, such as payment of the national minimum wage, safe and suitable work premises and no forced or child labour. The licence would need to be renewed after a certain period of time.
Retailers would only be permitted to work with licensed factories and would face penalties if found to be working with unlicensed factories.
A key difficulty with such a licensing scheme is the lack of supply chain visibility that exists in the industry. During the Boohoo Review we found that traceability within large supply chains can be poor. It is common for suppliers to use unauthorised subcontractors and ‘cut, make and trim’ units (‘CMTs’) , the use of which may not be disclosed to the retailer and may not be easy for the retailer to trace. Many of the suppliers operate from small units in premises in multiple occupancy and can be difficult to locate. Therefore, it is quite possible that retailers, having contracted work to a licensed supplier, would be unwittingly using unlicensed CMTs they do not even know exist.
Additionally, inspections or audits that would be required to approve a licence only provide a ‘snapshot’ view. One of the most surprising facts uncovered by the Boohoo Review was that most of the suppliers with serious non-compliance in fundamental areas such as fire safety and payment of the national minimum wage were being audited regularly. This demonstrates the limits to the efficacy of auditing, which is a useful tool but only when it forms part of a suite of compliance measures.
The position was aptly described by Matthew Taylor, Director of Labour Market Enforcement, HM Government, in his evidence to the EAC, when he said that a licensing scheme may provide a “false sense of security”[13].
(ii) An independent regulator for the fashion industry
Many attribute the problem of underpayment of wages and poor working conditions to the buying practices of large retailers, often described as a ‘race to the bottom’[14]: retailers want to sell products for the cheapest possible price, which in some cases may affect the price they are willing to pay their suppliers. The theory is that if the buyer-supplier relationship was regulated, the race would be slowed.
The suggestion made is for an independent regulator for the fashion industry, modelled on the Groceries Code Adjudicator (‘GCA’)[15]. The GCA was established by the Groceries Code Adjudicator Act 2013 and enforces compliance of ‘designated retailers’[16] with the Groceries Supply Code of Practice (‘the Code’) [17]. It investigates and adjudicates upon breaches of the Code and has enforcement powers, which include the making of recommendations, requiring information to be published and imposing financial penalties[18]. Since April 2015 this has included fines of up to 1% of the annual turnover of the regulated retailer[19]
The proposal is that there could be a similar independent adjudicator for large fashion retailers in the UK which would monitor the relationship between the retailer and their suppliers.
The difficulties with an independent regulator are twofold. First, the establishment and implementation of a regulator would require significant resource. Secondly, the regulator would only tackle the problem from the top, when in reality the issue lies with unacceptable working practices lower down the chain. As Peter Andrews (Head of Sustainability at the British Retail Consortium) put it in his evidence to the EAC; it doesn’t get to the “heart of” the problem[20].
What does the future hold?
It is clear that the task of regulating the fast fashion industry is daunting in its scale. It should not be forgotten that the industry provides many jobs in the UK. It also democratises fashion, making clothes available to the young who are often on modest incomes. The challenge is to ensure that the real cost is not too high, particularly in terms of the treatment of textile workers, who may be some of our most vulnerable citizens.
Neither of the above proposals provide a perfect solution but, given that licensing would address the problem from the bottom and a regulator would tackle the problem from the top, the EAC may find that meeting in the middle with a combined approach would be most effective.
Part of the problem stems from the fact that there is a lack of transparency within supply chains. This was the focus of a recommendation of the Boohoo Review, namely that the company should publish a list of the Tier 1 (supplier) and Tier 2 (subcontractors / CMTs) companies it uses to manufacture its products. This goes some way to addressing transparency by mapping the supply chain that needs to be licensed and regulated.
This approach was discussed during the EAC oral evidence session with some degree of enthusiasm[21], and is already the practice of some large companies, although the willingness of all companies to engage remains to be seen.
Crucially, whatever regulatory mechanism is recommended must be sufficiently resourced and enforced, otherwise it is doomed to fail. As was concluded in the Boohoo Review, if the law is not enforced, it sends a clear message that the violations are not important and the people affected do not matter[22].
Conclusion
We await the publication of the EAC’s report to see what the future holds for the regulation of the fashion industry, but it is clear that the task is one that cannot be effected without robust financial and legal underpinning.
Alison Levitt QC, James Buchanan, Grace Forbes and Hannah Thomas
[1] Hereafter, ‘Boohoo’, for convenience
[2] And others who assisted on an ad hoc basis
[3] https://www.thetimes.co.uk/article/boohoo-fashion-giant-faces-slavery-investigation-57s3hxcth
[4] See, for example, https://www.ft.com/content/e427327e-5892-11e8-b8b2-d6ceb45fa9d0
[5] The evidence related to both the environmental impact of the fast fashion industry and also to the issue of labour exploitation of the workforce. This article focuses solely on the latter.
[6] A statement required under the Modern Slavery Act 2015 (‘MSA’)
[7] Mary Creagh MP chaired the first inquiry
[8] https://committees.parliament.uk/call-for-evidence/266/fixing-fashion-follow-up/
[9] See all written responses here
[10] See the full video recording of the evidence here and read the transcript here
[11] Typically those with a turnover of over £36 million per year
[12] By way of example
[13] Q38 of the transcript https://committees.parliament.uk/oralevidence/1442/pdf/
[14] See Fiona Gooch, Senior Policy Advisor at Traidcraft, at Q2
[15] https://www.gov.uk/government/organisations/groceries-code-adjudicator
[16] Listed in Schedule 2 to the Groceries (Supply Chain Practices) Market Investigation Order 2009) – typically grocery retailers with a turnover of more than £1 billion with respect to retail supply of groceries in the UK
[17] Put in place by the Competition Commission: https://webarchive.nationalarchives.gov.uk/20111108222700/http://www.competition-commission.org.uk/inquiries/ref2006/grocery/pdf/revised_gscop_order.pdf
[18] Groceries Code Adjudicator Act 2013, section 6
[19] Groceries Code Adjudicator (Permitted Maximum Financial Penalty) Order 2015
[20] Q24 of the transcript
[21] See question from John McNally, EAC member, at Q90
[22] Page 9 of the Boohoo Review
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