Are Luxury Brands Responsible for What Happens in Their Supply Chains?

Business of Fashion

3 days ago

Until the end of 2023, Z Production, a leather goods factory located in an industrial suburb of Florence, made bags and backpacks for Richemont-owned luxury pen and leather goods maker Montblanc.
The items were made by workers who earned as little as $3 an hour, working 12 hours a day, six days a week, according to local union Sudd Cobas, which led a months-long campaign of strikes that succeeded in securing better hours and wages at the factory for its members in early 2023.
Within weeks of the agreement, Richemont's local manufacturing unit announced plans to terminate its contract with Z Production, pointing to consistent infractions against its code of conduct.
Sudd Cobas alleges the move amounted to a form of union busting and ultimately led to the dismissal of six of its members in October last year. Now it is helping the workers take the Richemont unit to court, hoping to hold the luxury giant legally accountable for damages to workers in its supply chain.
Montblanc contests the claims laid out in the case and is separately suing the union for defamation. The company said the manufacturing unit ended its relationship with Z Production after audits turned up persistent issues, including a case of unauthorised subcontracting. Any dismissals took place months after its contract with the supplier ended and its inspections uncovered no evidence of the kinds of labour abuses alleged by Sudd Cobas, it added.
'We categorically reject these unfounded and defamatory accusations,' Montblanc said in an emailed statement. 'The termination of the supply relationship with Z Production has, for months, been extensively exploited… based on numerous inaccuracies, falsehoods and conjectures.'
The litigation is the latest move in a high-stakes debate over how much responsibility big brands should have for what happens in their supply chains. With the case, Sudd Cobas is aiming to set a new legal precedent in Italy, where roughly half of the world's luxury goods are made.
If successful, 'the ruling could represent a turning point for thousands of exploited workers across the 'Made in Italy' supply chains,' Sudd Cobas said in a press release it jointly issued with Abiti Puliti, the Italian branch of labour rights campaign group Clean Clothes Campaign, earlier this month. 'It would be the first time a fashion brand is held directly responsible for working conditions within its supply chain.' Limited Liability Business Models
Most fashion companies — even high-end, luxury labels — don't make their own products. Instead they outsource production to a complex and often opaque network of third-party suppliers.
That means they don't have direct control, or even real visibility, over working conditions. Critics argue it also allows them to sidestep legal liability when things go wrong.
Labour rights advocates have pushed against this framing for decades, campaigning to bring more accountability to a system that they argue is deeply flawed and ultimately exists to boost the profits of big, multinational corporations. It's the constant pressure big brands place on manufacturers with much tighter margins to provide cheaper, faster, more flexible production that ultimately leads to cut corners and labour exploitation, they say.
Brands use 'these subcontracting companies to save money on production,' said Francesca Ciuffi, an organiser with the Sudd Cobas union. 'They externalise everything.'
Regulators have flip flopped on the issue. Over the last decade governments around the world have introduced a number of policies that require companies to get a better handle on where and how their products are made, often in response to scandals like the Rana Plaza disaster in Bangladesh and an alleged government-backed scheme of forced labour in China's cotton-producing region of Xinjiang. But often these measures have lacked teeth or been weakly enforced. Shifting political winds mean some of the most progressive rules on the table now look likely to get drastically pushed back.
Litigation is seen by labour and human rights advocates as one tool to help shift the paradigm, moving the pressure on brands from one of moral accountability that impacts their reputations to one of concrete, legal consequence. Climate and human rights cases against big companies have increased alongside regulatory changes and growing investor engagement with environmental, social and governance issues.
Often such cases take years and may not result in a straight win for either party. But the attention they bring to the issues and even incremental changes to the way the law is applied can make a significant difference, advocates say.
'These cases are very robustly fought by brands. Very rarely do they resolve quickly, they're always heavily contested,' said Oliver Holland, a partner at UK-based law firm Leigh Day who specialises in corporate accountability litigation. 'As cases become more common won't take as long and won't be as difficult.' Luxury Exceptionalism
The case supported by Sudd Cobas comes as luxury's supply chains are facing unprecedented scrutiny.
For decades, the sector has tried to pass off reports of labour abuses in apparel and leather goods factories as a fast-fashion problem, isolated to far-flung manufacturing hubs with weak worker protections. Steep prices and 'Made in Italy' labels are wielded as tools in this narrative, designed to signal to consumers that luxury products were made in tightly regulated labour markets by well-paid and highly skilled artisans. And previous scandals largely came and went, without damaging brands.
But over the last 18 months, an ongoing investigation into labour exploitation in fashion workshops near Milan has exposed major issues at many of luxury's most established brands. Regional prosecutors have linked companies including Dior, Armani, Valentino and Loro Piana to local sweatshops. (The brands say that they are committed to upholding high ethical standards and the incidents don't reflect the way they operate).
The scandal has proved reputationally bruising. And it's landed at a particularly unhelpful moment, when luxury's biggest players are already grappling with a downturn in consumer spending, linked in part to growing criticism of declining quality and rising prices playing out in viral posts on social media platforms. Still, the material impact has thus far been limited,
While the court in Milan has been critical, arguing that luxury's links to sweatshops are the result of an entrenched operating model that ignores labour risks in order to maximise profits, sanctions against brands have focused on alleged failings in their monitoring systems and have not held them legally responsible for the way workers were treated at suppliers and subcontractors.
Political efforts to address the issues have focused on developing certification programmes companies can use to prevent exposure to illicit actors. A new scheme in Milan aims to establish a database of 'good' suppliers, based on voluntary disclosures and participation.
Last week, Italy's Ministry of Enterprise and Made in Italy announced plans to introduce a new law that would ensure the sustainability and legality of companies operating in the sector. Its aim is 'to combat the illicit labour practices of a few, which can compromise the reputation of the entire sector,' the ministry said in a statement, adding that the law would protect brands that have carried out preventative checks on their suppliers from liability.
Critics argue such measures fail to address the underlying business practices that they say ultimately lead to exploitation.
'Brand reputations are safeguarded — not workers' rights — by the ethical codes published on corporate websites and the so-called system of 'audits,'' Sudd Cobas and Abiti Puliti said in their statement earlier this month. 'The conflict of interest is clear, and it offers no real accountability to those employed along the production chains.' Who Pays?
With the case in Tuscany, Sudd Cobas is seeking to shift this paradigm.
According to the argument put forward by the workers' lawyers, Richemont's local subsidiary was Z Production's only client and had active involvement in its day-to-day operations. The factory was in effect an 'empty vessel' for Richemont's Montblanc manufacturing business, making the luxury giant the ultimate responsible employer, the case claims.
It alleges the Richemont unit cancelled its contract with Z Production because output dropped after working hours were regularised for union members. The lawsuit seeks to restore jobs and secure at least five months' salary as compensation for the six plaintiffs, who it claims ultimately lost their jobs as a result of the luxury company's actions.
Montblanc said the case mischaracterises its manufacturing division's relationship with Z Production and that the six workers involved in the case were dismissed 18 months after the unit announced plans to terminate its contract, and 10 months after it stopped working with the supplier.
Its decision to end the relationship was made after audits turned up 'persistent incidents of non-compliance' with the company's code of conduct, including unauthorised subcontracting, Montblanc said, adding that neither its own inspections, nor a third-party forensic audit conducted in early 2023 found evidence of working conditions like those alleged by Sudd Cobas.
A judge in Florence's labour court consented to hear arguments in July. The next court date is set for December.
Simone Stern Carbone contributed to this story.