Pushing Past the Roadblock Posed by Competition Law

Date: 06/07/2015

obst_competitionlawAt first glance, living wage discussions seem to have little to do with competition law. Yet garment brands’ concerns about potential violations of competition law have blocked efforts to collectively raise wages in factories that supply multiple brands. But the fact is, as long as companies take some key precautions, their efforts to raise wages collectively do not present a serious legal risk.

According to Mark Held, Executive Director of the European Outdoor Group and a member of FWF’s Board, ‘There is a conventional wisdom among outdoor and sports companies – and probably most garment companies – that you don’t go near anything that could be misconstrued as a violation of competition law.’

For those unfamiliar with competition law (or, in the US, anti-trust law), Wikipedia explains that this kind of law has 3 main elements:

  1. Prohibiting agreements or practices that restrict free trading or competition between businesses
  2. Banning behaviours that lead to a single firm dominating an entire market
  3. Supervising mergers and acquisitions of businesses that could threaten competition in the marketplace.
How does competition law apply to living wages in the garment industry?

The dominant model in today’s garment industry is for garment brands to source their collections from numerous factories – and for each factory to produce for various brands. This allows for specialisation in production (and therefore, as the theory goes, greater efficiency).

What this model of sourcing also means, however, is that most brands seeking living wages for workers cannot achieve this singlehandedly: they do not own the facilities where they produce, and most brands only make up a small proportion of production in the factories where they source.

According to Mark Held, ‘In many cases, brands producing in the same production facility would need to work together to ensure they have sufficient scale for the payment of fair wages.’

But fears about possible violations of competition law have slowed progress on living wages. As FWF’s advisor on living wages Anne Lally explains: ‘If a living wage project involves any discussion of financial details – even if the total price paid to the factory by each brand is never mentioned – it is unlikely brands will participate. They cite competition law risks as a major impediment.’

Does collaboration around wages actually present a legal risk to companies seeking to do the right thing?

As long as companies take some key precautions, their efforts to raise wages collectively do not present a serious risk with regard to competition law. That is the upshot of the advice that legal counsel from law firm Arnold & Porter LLP has offered FWF members.

Arnold & Porter, which has a global reputation on competition and anti-trust law, has taken FWF on as a pro bono client to help FWF develop guidance to help push past this major obstacle to action on living wages.

The low legal risk represented by such collective action is largely linked to the fact that wages make up a very small portion of most garment prices at retail, and even FOB pricing – so the impact on price competition is expected to be minimal.

FWF promotes the practice of labour minute pricing as an approach to living wage implementation. This approach allows divergences in pricing – at both the factory level and at retail – to remain intact. Such divergences promote competition and minimise the risk of legal action.

To support FWF members in their efforts to collaborate to raise wages in shared facilities, FWF has developed a short guidance document based on advice from Arnold & Porter.

Taken together, these tools represent a real step forward for all of us working on living wages for garment workers. For years, discussions about brand collaboration on wages have been overshadowed, even short-circuited, by anti-trust concerns. This guidance means we now know the rules of the game.  And what’s clear – and exciting – is there is real room for manoeuvre.

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