Luxury brands, labour exploitation and sham subcontractors

This article was originally published by Cat Woods for LSJ Online (26 August 2025).

Dior, Valentino, Loro Piana and Armani are amongst the luxury brands that face allegations of labour exploitation in factories producing their goods. These factories are accused of hiring immigrant workers on extremely low wages and exposing them to poor working conditions.

Revelations by investigators and media have led to legal action and financial penalties for the luxury brands involved. As more brands are revealed to be – supposedly unknowingly – including illegal factories in their supply chain, the Milan courts are under pressure to respond.

The fifth and latest major luxury brand to face the wrath of the Italian Competition Authority (AGCM, Autorità Garante della Concorrenza e del Mercato) and the Milan Court over the past 18 months is Louis Vuitton Moet Hennessy (LVMH)-controlled Loro Piana, which has been placed under judicial administration for one year. The brand has a long history, part of its brand credentials, tracing back to Pietro Loro Piana’s wool trading in the Valsesia area of northern Italy through to the company supplying wool to haute couturiers in Paris in the 1950s. In 2013, LVMH bought an 80 per cent share (the remainder owned by the Loro Piana family) for €2 billion ($3.56 billion).

Following a worker complaint of physical abuse and exploitation, the Milan labour protection group, the labour crime unit of the Carabinieri military police, discovered 21 Chinese workers during an inspection of two factories manufacturing Loro Piana goods. Ten of those workers were working off the books and seven were illegal residents in Italy.

According to the investigation led by prosecutor Paolo Storari, the fashion house entrusted the production of garments to an external company, Evergreen which then subcontracted the work to Sor-Man snc of Nova Milanese. The latter, seemingly to cut production costs, then turned to the China-owned factories, which were subsequently closed by the police, and an owner was arrested in May this year.

Under organisational fault (colpa organizzativa), brands risk penalties under Article 603-bis of the Criminal Code which holds the brand responsible for both direct and indirect labour exploitation, including underpayment, excessive work hours, unsafe conditions, and intimidation, even when occurring through subcontracting. Penalties begin at 1000 Euros per worker.

Article 34 of Legislative Decree 159/2011 (also known as the Anti-Mafia Code) allows the preventive measure of judicial administration to be imposed on companies that facilitate criminal organisations or labour exploitation, especially where internal control systems have proven ineffective, or through negligence.

Loro Piana issued a statement to Fox Business, denying their awareness of the subcontractor’s arrangements:

“Loro Piana firmly condemns any illegal practices and reaffirms its unwavering commitment to upholding human rights and compliance with all applicable regulations throughout its supply chain. Loro Piana is committed to ensuring that all its suppliers comply with the Maison’s highest quality and ethical standards in line with its Code of Conduct. In this perspective, Loro Piana has been constantly reviewing and will continue to strengthen its control and audit activities.”

Loro Piana, favoured by celebrities, retails jackets for $US4,000 ($6,200). It is alleged by the owner of the subcontractor that it has produced 6,000 to 7,000 men’s jackets per year at prices between $US137 ($212) to $149 ($231).

The woes for the company extend beyond Italy. A Bloomberg investigation last year alleged problems in the supply chain for Loro Piana’s vicuña (a wool-producing South American camelid) by underpaying the Indigenous Peruvian workers who supply the fibre. The company issued a rejection of the allegations to Bloomberg.

Luxury losing its lustre globally

The timing couldn’t be worse for fashion’s finest. As reported by Forbes, US tariffs on European goods have dampened American consumers’ appetite for luxury spending, which is the major driver of the global luxury market. Prada, LVMH, and Hermès are looking at declining sales.

In separate cases, similar penalties had been imposed upon Armani Operations, Manufactures Dior, Alviero Martini, and Valentino Bags Lab Srl. All have been alleged to have outsourced production through multi-layered subcontracting arrangements, and to have concealed unlawful labour practices.

In June 2024, Dior SRL (owned by Christian Dior Italia SRL) was ordered into court administration for one year, which was lifted in late February this year owing to their compliance with the conditions on supplier procedures. In May, an Italian court placed Valentino Bags Lab Srl under judicial administration for a year, after finding worker abuse in its supply chain. Dior entities had been investigated following concerns that subcontracted manufacturers were engaging in exploitative labour practices, directly contradicting Dior’s sustainability claims, potentially constituting unfair commercial practices under Article 27 of the Italian Consumer Code (Codice del Consumo).

John Izzo, principal of La Rosa Izzo & Co in Potts Point, says “Judicial administration was [introduced] after the murder of judges Paolo Giovanni Borsellino and Giovanni Falcone in 1992 as an anti-mafia measure to protect brands from extortion and criminal interference. It is similar to a receivership and lasts for a year and can be extended up to a maximum of two years.”

According to Reuters, Milan prosecutors spent the past decade investigating companies that illegally employ workers to evade taxes, welfare and pension contributions. Previous investigations focused on service providers in logistics, transportation and cleaning, but the drive for luxury companies to cut costs has brought the spotlight onto their operations.

Is a memorandum of understanding enough?

In May 2025 the AGCM accepted proposed voluntary commitments put forward by Christian Dior, allowing the brand to avoid judicial administration. Dior committed €2 million over five years to combat worker exploitation and to more strictly monitor its supply chain.

Jason Sprague, partner at Bartier Perry, tells LSJ Online, “There is much more emphasis on labour issues now with the focus on modern slavery. However, one of the tenets when dealing with modern slavery / labour issues such as this, is not necessarily to simply terminate contracts and sue the contractor.

“The modern slavery approach is to engage with the contractor and see if you can work with them to facilitate change in the contractor organisation to improve worker conditions and rights. The view is termination may only exacerbate the plight of workers as the contractor moves on to another customer and the issue is not dealt with or becomes more hidden,” he says.

In June this year at the Palace of Justice in Milan, the non-binding “Memorandum of Understanding for the Legality of Procurement Contracts in the Fashion Production Supply Chains” was signed. The memorandum of understanding centres on the creation of a ‘Supply Chain Platform’, a database of brands’ suppliers and their workforces, which will be voluntarily updated every six months with tax, labour and social security compliance data.

Fabio Roia, the president of Milan’s court system, explained the scheme to Reuters:  “On Tuesday we sent the draft proposal to Milan’s police chief. Then Italy’s Chamber of Fashion and other associations as well as, eventually, every company in the sector will need to adopt it. We think we can make this happen before the summer break.”

He added, “When we step in, business owners always say it’s impossible to make checks on sub-contractors, but if that’s true one could for example insert a clause in a contract saying that direct suppliers can’t hand out the work further.”

Hard to buy the luxury margins

Last year, Italian police found that Armani bags that retail for €1,800 were being made by a Chinese subcontractor for €93 and then sold on to the group by an intermediary for €250 (as reported by the FT and the Guardian). A Dior subsidiary was sanctioned for paying approximately €53 for bags that retail for more than €2,000.

On August 1, the AGCM imposed a fine of 3.5 million euros ($6.2 million) on the two companies Giorgio Armani S.p.A. e G.A. Operations S.p.A. “for engaging in a misleading commercial practice under the Consumer Code, carried out from April 22, 2022, to February 18, 2025” according to a press statement.

The statement detailed that most of Armani’s leather bags are made in subcontractor factories, and “[a]t several of these subcontracting facilities, it was found safety devices had been removed from machinery in order to increase production capacity, thereby placing workers’ health and safety at serious risk. Furthermore, sanitary and hygiene conditions were inadequate, and workers were frequently employed either wholly or partially off the books.

“In this context, it is evident that the protection of workers’ rights and health did not align with the content of the ethical and social responsibility statements disseminated by Giorgio Armani S.p.A. e G.A. Operations S.p.A..”

Limited scope to address systemic problems

To date, the Milan prosecutor’s office has addressed the five luxury brands’ cases and overseen the memorandum of understanding. This limits the investigations and conditions to the Lombardy region, whereas Tuscany, Veneto, Campania and Emilia-Romagna have not faced the same scrutiny, despite being central to Italy’s fashion industry.

As luxury industry expert Susanna Nicoletti told Forbes, “[This] raises the question whether this is a reflection of the dynamism of the Milan prosecutor’s office or a matter that cuts across the whole of Italy.”

It’s not only luxury brands coming under greater scrutiny by the AGCM, which fined Chinese brand Shein 1 million euros ($1.79 million) on 4 August for “misleading and omissive claims” (per the AGCM press release) provided to customers about the environmental impact of its products.

The Italian authorities are likely to persevere with, and strengthen, investigations and audits ahead of the EU Forced Labour Regulation (EUFLR), which will apply from December 2027.