Judicial administration and the '231 System': operational insights from recent measures in the luxury sector

by Marta Vignati

A recent judicial administration measure that has affected another fashion company due to irregularities in the working conditions of employees in subcontracting factories where situations of exploitation occurred was issued. 

Our Osservatorio 231 has already focused on the issue of judicial administration provisions in the luxury sector, analyzing the grounds of the decisions and the specific characteristics of the provision referred to in Article 34 of Legislative Decree 159/2011. 

Prevention systems play a central role in the decisions of the Prevention Measures Section of the Court of Milan: contracting companies are required to implement compliance systems capable of preventing what the Public Prosecutor's Office and the Court define as “a culpable failure to supervise suppliers,” which may allow contractors and subcontractors to commit labor law violations.

It is therefore necessary to answer this question: what are the preventive measures to be adopted in light of the Judicial Administration provisions? 

These measures can be identified within the so called “231 system”.

Among these are:

  • Organizational Models, not only as a remediation instrument, but also as a preventive tool that is able to minimize the risk of crime. It is therefore essential to identify an adequate control system on third parties and, in particular, on suppliers, especially those that are strategic and provide activities that are not highly specialized (these being the areas in which there is a greater risk of committing crimes related to the exploitation of labor); 
  • The implementation of a policy for the selection and monitoring of suppliers that defines the selection criteria of the suppliers themselves, starting from the examination of the different types of suppliers and the analysis of their economic and business impact; 
  • The creation of a structured and updated register of suppliers; 
  • The request to third parties during the selection and monitoring phase for specific documentation (not only that required by law), including 231 Models, Codes of Ethics, self-declarations with which the supplier is committed to acting legally and ethically; 
  • The contractual clauses of compliance with the Code of Ethics and the General Part of the 231 Model of the contracting company that the supplier is required to sign; 
  • Audits on third parties carried out by the client at the supplier's workplaces that allow verification of compliance with the law, including in particular health and safety at work, environmental issues and labor law. 

It is evident that these controls, audits, and requests for documentation must be evaluated based on criteria such as the type of supplier, the value of the order(s), and strategic importance. 

Furthermore, as highlighted by the cases of judicial administration analyzed, attention must be paid to the outsourcing of services provided by low-skilled labor. 

Finally, it should be noted that, considering the various provisions on judicial administration that have affected the luxury sector, a Protocol to prevent illegal hiring and exploitation of workers in the fashion industry is currently being approved. 

The document, promoted by the Prefecture and the Court of Milan, aims to achieve virtuous supply chains and is based on the principle of transparency throughout the production chain. 
It is therefore essential for contracting companies to adopt the preventive measures required by the judicial decisions in question in order to equip themselves with an efficient "231 system" that guarantees benefits in terms of productivity and protects companies from claims. 

Finally, it should be noted that the issue of control over the supplier chain is not only of interest to companies operating in the fashion sector. 

In fact, all business sectors that use complex supply chains should understand the benefits that a well-structured and effective preventive system can guarantee, both in economic and reputational terms.