Boohoo allegations highlight ‘bleak’ outlook on UK supply chain rules #NewsMarket

Welcome back. Brexit advocates have heavily promoted the idea that the UK economy’s liberation from onerous EU rules will unleash a new wave of dynamism. Others, to put it mildly, are not convinced.

Now some are worrying that the UK is falling behind the curve of regulation around business and human rights, as highlighted in the exclusive report below by FT supply chain reporter Oliver Telling.

The EU recently passed a landmark law that will hit companies with new levels of accountability for workers in their supply chains. The UK still has no corresponding legislation (although such a bill has been proposed by a member of the House of Lords). Light-touch regulation on these issues might be good news for low-cost retailers, but it may prove unhelpful for the UK’s long-term reputation. — Simon Mundy

human rights

Boohoo complaint puts UK rules in the spotlight

Are big brands responsible for their suppliers’ misdemeanours?

If these brands have substantial operations in the EU, the answer may be “yes”. Last month, the bloc brought into force its Corporate Sustainability Due Diligence Directive, which holds large businesses responsible for vetting potential abuses in their supply chain.

But human rights advocates are warning that an equivalent regulation does not exist in the post-Brexit UK. As investors and consumers globally call for companies to take greater responsibility for their supply chains following decades of outsourcing to cheap manufacturing centres, a regulatory gap between the UK and the EU could emerge.

A new complaint against UK clothing retailer Boohoo, reported for the first time here, highlights what this could mean in practice.

Three prospective claimants who say they were employed by factories supplying the fast-fashion company are seeking damages from London-listed Boohoo over allegedly underpaid wages, according to a letter seen by the Financial Times. The notification of claim was sent to Boohoo in April by the workers’ lawyers, Wilsons Solicitors, although the case is yet to be issued in court.

Wilsons has alleged that its clients, while making clothes in the English Midlands city of Leicester between 2017 and 2020, worked up to 12 hours a day and sometimes seven days a week — all for average pay that fell below the UK minimum wage. They highlighted that the threatened legal action follows an independent report that in 2020 found dangerous working conditions and underpayment of factory workers at Boohoo suppliers, which itself followed a widely reported scandal over the company’s supply chain in Leicester.

The EU’s CSDDD states that any non-EU businesses with net turnover in the bloc exceeding €450mn ($500mn) could be fined for failing to identify and address human rights risks infringements by suppliers including manufacturers. Boohoo appears to fall below this financial threshold, having reported sales totalling £168.5mn ($219mn) in Europe, excluding the UK, for the year to February.

The company said it took the allegations “very seriously” and that it took “immediate action” against suppliers who infringed its code of conduct, including by ending relationships. But it stressed that the prospective claimants “have had no employment history with Boohoo” itself, arguing that the claim that is yet to be filed formally “has no legal grounds”.

Wilsons admits there are obstacles to holding UK businesses to account. The firm said its clients were “vulnerable” and “fear repercussions” from their former employers, who are now insolvent or in the process of being dissolved, so it is seeking Boohoo’s commitment to protect their anonymity before taking the case to court.

The UK is “falling further behind” the EU in enforcing businesses’ due diligence responsibilities, said Wilsons partner Nusrat Uddin, adding that laws in the country are now “bleak in comparison” to those on the continent.

“Our clients are forced to build upon previous case law to seek to first establish a duty of care at court, between the company and the workers in the supply chain,” she said. “It’s a lengthy process and the burden falls on the victim.”

Wilsons is seeking to establish Boohoo’s “duty of care” to employees of its former suppliers by highlighting the retailer’s public commitments to protect welfare across its supply chain. It has highlighted the company’s statement on modern slavery, which set out its expectation for suppliers to pay the minimum wage and to avoid excessive working hours.

The UK’s Modern Slavery Act of 2015, which requires large businesses to publish statements on their commitment to preventing modern slavery across their supply chains, has long been criticised for failing to mobilise real-world change. An independent review advised the government in 2021 that the requirement to write statements was “not sufficient and it is time . . . to take tougher action to ensure companies are taking seriously their responsibilities”.

Wilsons claims its case “would be the first case seeking to use modern slavery statements to establish a duty of care” in this way. But only the courts can decide whether this offers a legal route for enforcing supply chain responsibility in the UK. (Oliver Telling)

Smart reads

• As a growing number of big companies rethink their sustainability commitments, Tufts University’s Ken Pucker makes a case for how they should move forward.

• Governments are starting to take action to protect employees’ “right to disconnect” from work. They should do so with caution, argues the FT editorial board.