What is the U.S. FABRIC Act?

(1) Garment Contractors (GCs)	(2) Garment Manufacturers (GMs)
Any person who, with the assistance of an employee, is primarily engaged in garment manufacturing(4) for another person (GM, Brand Guarantor, other GC...) and includes a subcontractor that is primarily engaged in garment manufacturing.	Any person engaged in garment manufacturing who is not a contractor.
(3) Brand Guarantors	(4) Garment Manufacturing
Any person contracting for the performance of garment manufacturing including through licensing of a brand or name, regardless if the manufacturing is made through subcontracting or through a direct contract.	Sewing, cutting, making, processing, repairing, finishing, assembling, pressing or dyeing a garment (or part of a garment), designed to be worn by an individual and offered for sale or resale. But also altering the design of a garment, affixing a label to it or other form of modification of a garment. It does not include single person businesses as well as cleaning and tailoring activities.

 

Annual Requirements 

From the effective date, all garment manufacturers (GMs) and garment contractors (GCs) shall register annually with the Secretary of Labor to engage in the garment industry.  

Registration requirements 

In order for a GM or GC to register, several elements have to be submitted:  

• A form containing the following information:  

  • If the entity is a GM or a GC, its legal entity and tax identification number.  

  • How long the GM or GC has been in business in the industry.  

  • Information about all production employees, owners and 10 largest shareholders of the GM or GC (name, residential address and phone number).  

  • Information about each person with a financial interest in the GM’s or GC’s business (name, residential address and social security number).  

  • Statement as to whether, within the past 3 years, the GM, GC or any related party (owners, officers and biggest shareholders) has been found by a court to have violated the Fair Labor Standards Act of 1938. If it is the case, the nature and date of the violation shall be disclosed.  

  • But also regarding shares quoting and existing contracts with Labor Organizations.  

• Photographic verification of the identify of the owners (officers if it is a corporation) and partners of the GM or GC.  

• Verification that the GM or GC has in effect a worker’s compensation insurance policy for all production employees.  

• Payment of a registration fee of $200 per year. 

Submission & Certificates  

• A GM or GC can name one of its divisions or subsidiaries to apply the requirements mentioned above.  

• The registration shall be filed within 6 months after enactment, after that, the Secretary will define a date at which the registration shall be sent.  

• Once the registration submitted and compliant with the requirements, the Secretary will issue a Certificate of Registration that will be available for a year and that can be suspended or revoked in case of failure to comply with the act or falsification of the registration information.  

National Domestic Garment Manufacturing Support Program  

The Secretary has $40M available to award grants (not higher than $5M), on a competitive basis, to eligible entities (6), in order to support garment manufacturing in the US. The rules of the program are the following :  

• Application: Eligible entities apply by submitting a form containing a description and an implementation plan of the project for which they will use the grant.  

• Awards: In awarding the grants, the Secretary shall give priority to entities with a workforce covered by a collective bargaining agreement, entities owned by minorities, women or veterans and entities that have been active in the industry for more than five years.  

• Use of funds: The funds shall be used for activities promoting health, safety and workforce development of the employees or to educate them about their rights under this act.  

• Report: 6 months after receiving the grant, the entity shall submit a report explaining the use of the funds.  

(6) Eligible entities: GM that is incorporated in and performs manufacturing within the US and nonprofits that provide workforce development opportunities with respect to the garment industries.  

Credit for insourcing expenses  

Expenses related to the insourcing of garment manufacturing activities to the US will benefit of a credit amounting to 30% of these expenses (under a specific taxable year).  

Eligible expenses: Expenses paid or incurred by the taxpayer that are related to the relocation of a business unit (7) outside of the United States in a HUBZone (8) or a LIC (9) in the United States. These expenses can either be related to the elimination of the business unit abroad or to the establishment of the US business unit.This credit does not cover operating expenses of a business unit.  

Increased domestic employment requirement: The credit shall only be allowed to manufacturers whose number of employee (in full-time equivalent) has increased between the year before and the year for which the credit is claimed.  

(7) Business unit : (A) Any trade or business within the garment industry and (B) any line of business or functional unit which is part of any trade or business described in (A).  

(8) HUBZone: The Historically Underutilized Business Zones (HUBZone) program helps small businesses in urban and rural communities gain preferential access to federal procurement opportunities. These preferences go to small businesses that obtain HUBZone certification in part by employing staff who live in a HUBZone. Read more here.  

(9) LIC = Low Income Community. Read the legal definition here.  

 

Consequences

Any person violating the wage rules shall be liable for such legal or equitable relief as may be appropriate to effectuate the purposes of these rules, including the payment of wages lost an an additional equal amount as liquidated damages. 

In case of non-compliance with the Registration requirements, the Secretary may impose to the responsible person a civil penalty up to $50M. While defining the penalty, the Secretary shall take into account the size of the business, the gravity of the violation, whether if it was committed in good faith and the history of the business.  

 

Risk Mitigation

To ensure compliance with the Act, fashion brands will have to build much closer and transparent relations with their manufacturing partners. Indeed, brands manufacturing in the US will be held responsible for wage theft and other labour right violations occurring in their supply chain. To mitigate this social risks, brands will have to build a comprehensive oversight and mapping of their suppliers to first identify the risk areas and second take the necessary actions to prevent labour right violations.

Further Reading on US Laws:

• New York State Fashion Sustainability and Social Accountability Act

• United States SEC Proposed Climate-Related Disclosure Rules

• Three Key US Regulations & What They Mean for Fashion

 

How TrusTrace can help?  

TrusTrace is a supply chain traceability solution for fashion brands that allows them to efficiently map suppliers, collect data about value processes, employees or location and create a communication channel with them. Implementing TrusTrace will enable brands to gain control on their supply chain and access evidence on demand to document due diligence and corrective actions are done to ensure goods are manufactured with respect to people and planet.

Curious to give TrusTrace a try? Book a consultation with one of our experts today.

Please note: At TrusTrace, we want to keep you informed on laws and regulations, but this information should not be considered or used as legal advice.