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How G-Star Raw Lawsuit Could Rewrite CSR Policy

“The fashion industry is just one big David vs. Goliath struggle,” Kristen Fanarakis, founder of Senza Tempo, a luxury women’s wear label produced in Los Angeles, recently wrote on Twitter.

Nowhere was the extreme power imbalance inherent in the buyer-supplier relationship made more stark than at the start of the Covid-19 pandemic, when panicked brands abruptly canceled billions of dollars worth of finished and in-production orders, leaving the manufacturers they had squeezed for years, along with their workers, struggling to survive. With a few exceptions, factory owners are typically loathe to hit back. They fear that speaking out will jeopardize not only existing deals but future ones as well.

But the thing about the biblical David and Goliath battle is that David emerged the victor. And if an interim judgment that an Amsterdam court published earlier this month is any indication, so will Vietnamese outerwear supplier Vert Company in its legal brawl with Dutch denim maker G-Star Raw.

“It’s been the talk of the town,” said Olivia Windham Stewart, deputy director of the Responsible Contracting Project, an initiative, housed at the Center for Corporate Law and Governance at Rutgers Law School in New Jersey, that seeks to improve human rights in global supply chains through innovative contracting practices.

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Vert’s complaint goes back to 2018, when G-Star Raw allegedly pledged that the factory would exclusively produce its “Whistler” puffy jacket at a rate of 100,000 pieces a year for the next three years. As the manufacturer would describe it, the jean purveyor would renege on its deal in April 2020, shortly after the World Health Organization upgraded the novel coronavirus from a mere outbreak, by canceling some of the previously placed orders and scaling back on future ones.

G-Star Raw, Vert claimed, blamed the global health emergency, saying that it needed to consolidate production with fewer vendors to “optimize efficiency.” By August, all production for future “Whistler” orders was put on ice, triggering what the supplier said was the dismissal of its employees and the factory’s ultimate closure. By the time the Stephen Jones collaborator tried to intervene by reinstating some of the canceled orders, it was “too little, too late,” Vert said. And when G-Star Raw subsequently placed an order for 56,000 of the jackets with a manufacturer in Bangladesh, it was in “gross violation” of the three-year deal it had with Vert, it added, claiming that it’s owed more than $17 million in damages as a result.

When the Amsterdam court ultimately sided with Vert, part of its rationale was that G-star Raw has enshrined decent work in its code of conduct. It knew—or should have, at any rate—that since it filled almost all of Vert’s production capacity for years, withdrawing orders would have an “unusual blow” on the workforce, a large proportion of which toiled partly or wholly on a piece-rate basis that relies on a constant stream of orders. G-Star Raw, it said, was “obliged” to keep up its “Whistler” orders with Vert given its long-term relationship with the manufacturer, its own CSR policy and the fact that it made such a large commitment.

“The court is of the opinion that there is a causal connection between G-Star’s shortcomings and the damage that Vert claims to have suffered,” the decision said, though it did not specify how much G-Star Raw should be liable for.

The opinion, though specific to Dutch contract law, “slightly changes the game” in terms of how corporations should think about their CSR policies, Windham Stewart said.

“And it changes the dynamic, really, between the legal and the procurement and the CSR teams,” she said. “Because I think previously, the policy was kind of drafted and sent elsewhere, and then the legal team and procurement were going about their business, thinking that perhaps the CSR policy was not as consequential as it has obviously turned out to be in reality.”

But brands need to start viewing commitments as contractual provisions, instead of shifting them “sort of off the table” into policy, Windham Stewart said. And it’s interesting for consumers because if CSR policies carry more legal heft, then it would give them more confidence that the commitments that companies are “putting out into the world” are “being taken more seriously.”

A Pharrell Williams and G-Star RAW installation during New York Fashion Week – Spring/Summer 2018. Theo Wargo/Getty Images for G-Star RAW

Right now, there’s a “feeling that you can really put what you want in your CSR policy, and it’s a vague intention for which you won’t be held accountable,” she said. “What we’re trying to do with the Responsible Contracting Project is make sure that absolutely everything you put into your contract you act on the basis that you may be accountable for something because we think it will ultimately change the way that a company behaves and organizes its way of doing business.”

Whether the case will set a precedent that will change the supplier-buyer dynamic still remains to be seen, however. “I think we’re still at a very, very early stage of the game in that respect,” Windham Stewart said.

For Kenya Wiley, a policy counsel who serves on the faculty at Georgetown University and the Fashion Law Institute at Fordham Law School, Vert vs. G-Star Raw is part of a broader sea change.

“We’re starting to see more policymakers—at the state level, at federal agencies like the Federal Trade Commission and the Securities and Exchange Commission, and in Congress—focus on accountability across industries,” she said. “More government accountability will force brands to go beyond posting what they should do around CSR and ESG to take action on what they’re required to do for legal and compliance.”

Vert isn’t the only Vietnamese supplier turning the tables on a long-term buyer. In December, Gilimex, which manufactures storage structures, hit Amazon Robotics with a $280 million lawsuit citing “for negligent misrepresentation, unfair trade practices, breach of contract and breach of fiduciary duty” after the latter allegedly cut ties with the former without sufficient notice.

“Both cases show that suppliers are willing to stand up against larger brands—even when they’ve had long-term relationships,” Wiley said.

A spokesperson for G-Star Raw said the company could not comment on any specifics of the complaint while it’s awaiting a final judgment.

“It is our utmost priority to honor the relationships we have with our sourcing partners. If and when changes occur in our supply chain, we do all that we can to find a suitable arrangement,” the representative said. “We have been in close contact with Vert to come to a solution together. We deeply regret that Vert was unwilling to pursue these conversations and decided to take legal action instead.”

A lawyer for Vert declined to comment, citing the fact that the case is still sub judice.