Q&A: manufacturing and distribution of fashion items in Italy

Manufacturing and distribution

Manufacturing and supply chain

What legal framework governs the development, manufacturing and supply chain of fashion items? What are the usual contractual terms of these relationships?

The provisions of the Italian Civil Code apply to manufacturing agreements. Their main specificities are:

    • the contractor assumes the risk, organization and supervision related to the performance of the activity and the contract;
    • the brand, as principal, is jointly and severally liable for all wages, insurance, severance pay, etc. vis-à-vis the contracting party’s employees up to two years after the termination;
    • long-term agreements can be terminated at any time with reasonable notice;
    • warranty coverage lasts two years provided defects are notified within 60 days of detection; and
    • the brand is entitled to unilaterally terminate the contract, provided that it reimburses all costs and loss of profit.

When the entrepreneur manufactures goods for more than one brand, the production line, equipment and products for each brand are separated (to ensure brand protection).

Subcontracting agreements are specifically regulated by Law No. 192/1998, which imposes strict and mandatory requirements to ensure that the subcontractor does not become economically dependent on the brand. These include: payment terms cannot exceed 60 days; Intellectual property rights cannot be assigned to the brand for unreasonable consideration; and subcontractors cannot transfer more than 50% of the activities to third parties, unless authorized. Any breach is null and unenforceable against the subcontractor.

The supply of raw materials (e.g. silk or leather) and components (e.g. stones) is subject to the rules of the Italian Civil Code, with the exception of specific provisions on: exclusivity, to ensure that competitors do not will not take advantage of similar products or technologies; and right of first refusal in favor of the supplier, if the brand wishes to rely on the most economical or quality-competitive suppliers on the market.

Distribution and agency contracts

What legal framework governs distribution and agency contracts for fashion items?

For outsourced distribution and resale, brands may use selective distribution systems and franchise agreements.

Franchise agreements are preferred to ensure full brand integration and better control over the distribution chain. They are governed by Law No. 129/2004 and Ministerial Decree No. 204/2005.

No specific law governs sales agency contracts in the fashion and luxury sector: the Italian Civil Code and a national collective labor agreement apply. However, it is common to include additional tasks (eg provision of a showroom, marketing support, etc.) which are not necessarily specific to ordinary commercial agency contracts. The relationship of commercial agent with an individual triggers an independent employment relationship where, against the commitment of the agent to promote the business of the principal, the latter pays a commission on the business concluded thanks to the activity of the agent. . The contract may be executed for a fixed or indefinite period (in the latter case, each party may resign subject to minimum notice, unless the termination is motivated by serious misconduct by the other party).

What are the most commonly used distribution and agency structures for fashion items, and what terms and contract terms typically apply?

Franchise contracts, to be concluded in writing, must not have a duration of less than three years. Agreements with the franchisor (i.e. brand owner) usually include specific provisions on:

  • place of exercise of the activity;
  • management of intellectual property rights and know-how ensuring that franchisees (i.e. entities operating stores under the brand name) use intellectual property rights in accordance with brand policy;
  • the contributions of the parties to the creation of the business;
  • home decor and furniture store; and
  • inventory management and after-sales support services.

Distributor agreements are usually structured as master agreements disciplining the overall relationship between the brand and its distributors and by subsequent unique purchase orders. Typical layouts include:

  • stock arrangements, also in the event of termination of the contract;
  • minimum sales and performance requirements, including marketing activities;
  • after-sales support;
  • extended warranties; and often
  • exclusivity clauses in favor of brands.

Finally, agency contracts generally contain specific provisions concerning:

  • where to operate;
  • consideration to be paid to agents (usually a percentage of the value of the agreement obtained);
  • power to represent and bind, if necessary, the principal (i.e. the high-end brand);
  • exclusivity; and
  • indemnification clauses in the event of termination.

A non-competition obligation after termination is not mandatory but advisable. This obligation, to be agreed in writing, may last a maximum of two years after termination and must be adequately compensated.

Import and export

Do special import and export rules and restrictions apply to fashion items?

Italian legislation does not provide any special rules or restrictions for the import and export of fashion items.

Since these goods generally incorporate intellectual property rights, attention should be paid to the contractual terms of sale and the value of the goods for customs duty purposes. In accordance with the Union Customs Code, the main basis for determining the customs value of goods will be the transaction value (i.e. the price actually paid or payable for the goods when sold at export). However, if certain conditions are met, this transaction value will include royalties and license fees owed by the importer (and, if they are not duly included, the customs authorities will have the power to modify this value and increase tax base for customs duty purposes) .

Corporate social responsibility and sustainability

What are the corporate social responsibility and sustainability disclosure requirements and obligations for fashion and luxury brands in your jurisdiction? What due diligence in this regard is advised or required?

Although no law regulates sustainability with specific reference to fashion, Legislative Decree no. 500 employees and over €20 million in total assets or €40 million in net revenue from sales. If a brand falls within these limits, it must publish extra-financial information covering environmental and social aspects, including respect for human rights, environmental impact and the fight against corruption.

Due diligence on environmental, social and governance aspects is not required. Nevertheless, given the growing attention to sustainability and the number of global scandals involving fashion brands, it is quite common to adopt policies (and risk management) codes of conduct, compliance with which is controlled by audits.

What occupational health and safety laws should fashion companies be aware of in their supply chains?

Companies operating in the fashion industry must – like any other employer – strictly comply with the obligations in terms of occupational health and safety requirements mainly provided for by Legislative Decree No. 81/2008 (i.e. say, draft and periodically update a risk assessment, train staff, adopt any measure aimed at excluding or reducing risks for employees, etc.). In addition, specific anti-Coronavirus measures apply in the workplace.

Due to the complexity and technical nature of health and safety obligations, it is strongly advised to appoint an external consultant to support the employer in this obligation.

Date declared by law

Correct the

Indicate the date the above information is accurate.

February 9, 2022.