At the start of July, shares in online fast-fashion retailer Boohoo.com were trading comfortably above 400p. By mid-July, they were down to 220p. And by the end of the month—well, who knows?
The reason isn’t difficult to discern: a Sunday Times exposé, critical of the working conditions and wage rates in Boohoo’s extensive Leicester-based supply chain. The charge: in cramped workshops, with scant attention paid to social distancing, workers were toiling for £3.50 an hour—well below the minimum wage.
Other retailers, such as Next and Asos, quickly withdrew Boohoo’s products from sale. Major shareholder Aberdeen Standard sold its shares, cutting its link to the firm.
As mentioned in the expose, Boohoo protested in vain that the firm at the heart of the allegations wasn’t one of its listed suppliers. But it seems it was a supplier, albeit one that appeared to have been subcontracted to produce Boohoo garments by one or more actual listed suppliers.
Abusive labour practices
The taint of reputational damage lingers for years—just ask Nike, Tesco, Apple, and many other high-profile names.
There’s a reason why such firms go to considerable length to police their supply chains: they’ve seen at first hand the damage to their brand—and their share price—that can be wrought by news stories critical of labour practices in factories that might supply to them.
Even so, on the basis of what has been reported in the Sunday Times, the Financial Times, and elsewhere, the abusive labour practices in Leicester’s mass of small garment factories seem particularly egregious.
For the owners of such factories, the evidence points to non-compliance with health and safety legislation, as well as breaches of the National Minimum Wage Act 1998 and the Employment Act 2008.
For the customers of such factories, a different set of compliance issues come into question. Because with workers routinely told to under-report their actual working hours, and claim from the benefit system to make up their wages, it’s not just legislation such as the Modern Slavery Act 2015 that seems pertinent—the Criminal Finances Act 2017 would also appear relevant, given that it if proven it amounts to tax evasion in the supply chain.
Compliance isn’t optional
But how do Boohoo’s present difficulties relate to your business?
The answer should be obvious. Business owners and company directors are increasingly being held legally liable for practices taking place in their supply chains. It’s not enough to simply say “We didn’t know”. As business owners and company directors, you are supposed to know, and are supposed to be taking reasonable steps in terms of monitoring and policing such matters.
Put another way, the Modern Slavery Statement on your website can’t just be an empty statement: compliance also requires appropriate governance and monitoring.
Governance and monitoring that may seem onerous and unnecessary, will undoubtedly help to protect your business from the legal and reputational fallout that can come from non-compliance.
Three areas of focus
With Boohoo’s present difficulties serving as an object lesson, here are three questions that we think that business owners and company directors should ask themselves.
- Are our suppliers compliant with the Modern Slavery Act—and how do we know this?
- Are our suppliers compliant with the Criminal Finances Act—and how do we know this?
- Do our contracts with suppliers provide adequate transparency and control with regards to subcontracting—in other words, who is actually manufacturing our products?
Of course, firms that are on top of their compliance obligations will find obtaining such reassurance relatively straightforward.
But here at The Legal Director, we know that many firms are not as on top of their compliance obligations as they ought to be—with compliance with the Criminal Finances Act, in particular, being an area of weakness.
If so, one of our part-time Client Legal Directors—with whom you may already have a relationship, of course—will be only too pleased to advise.
So if we can help, don’t hesitate to reach out.
