Her Fashion Box – an ethical, legal and commercial disaster
The tale of Her Fashion Box Pty Ltd (HFB) is a 101 about how not to operate a fashion start-up, and, how not to treat employees.
Her Fashion Box Pty Ltd sold fashion and beauty accessories to consumers via an on-line subscription model. Early in its life it received an investment of $200,000 via the TV program Shark Tank.
HFB had three employees, all of which it underpaid by a total of $40,543. That underpayment no doubt helped its cash-flow and bottom line, at the expense of those employees. One of the employees was a graphic design graduate.
Young university graduates often face a job market where supply of graduates far outstrip available opportunities. These graduates are very motivated to get their foot in a door and gain some experience. That first step into their chosen industry and profession can often be the hardest to secure, but once obtained their career is off and running. Some may accept a sub-optimal role in order to do this.
Some employers, well aware of market dynamic, will blatantly take advantage of young graduates. This is true across many sectors, including the fashion industry. It was certainly true of HFB and its founder and sole director, Kath Purkis.
HFB offered the graduate an internship and she worked 2 days a week. She was not paid anything (but ultimately a $1,000 “Christmas bonus” was paid to her). The graduate did meaningful work for HFB.
The purpose of an internship is to provide an inexperienced, unemployed person an opportunity to learn, observe and develop skills, gain some experience and get a foot in the door to their industry. The hope is the internship will lead to a job, either with that or another brand. Internships are unpaid. An unpaid internship is only legitimate if either (1) when undertaken as part of a vocational placement related to the individual’s course of study or (2) in circumstances where an employment relationship does not exist. (This is elaborated on in my book Fashion Law: The Complete Guide at chapter 10). Here, the graphic designer had already graduated from her course of study. Also, she wasn’t just receiving training and exposure to real life work but doing what graphic designers do in their day to day jobs.
The Federal Circuit Court held that the graphic designer was an employee and had therefore been underpaid (as had the other two employees). The court ordered that all underpayments be paid to all three employees. The court also penalised HFB $274,278 pursuant to the Fair Work Act, finding its flagrant disregard of award rates particularly egregious. So, the fine was ultimately six times the original underpayment and was set because of the flagrant nature of the breaches and to act as a deterrent for others.
People typically trade via a company structure so that the risk of trading (and risk of breach of law) is the company’s, not the individuals behind it. However, the Court in HFB also issued a penalty order of $54,855against Kath Purkis personally.
Under the Fair Work Act (FW Act), a person who:
- has actual knowledge of, and was an intentional participant in;
- aids, abets, counsels or procures; or
- was, directly or indirectly, knowingly concerned in or a party to,
the breach of the FW Act by the employer, is a person involved in the employer’s contraventions of the FW Act and, therefore, is taken to have themselves engaged in the conduct that constituted the employer’s contravention of the FW Act.
So, Kath Purkis was personally liable for this fine. Carful structuring by trading as a company will not protect individuals who cause their company to deliberately breach such laws.
In keeping with this general approach of neither acting ethically or legally, HFB also failed to deliver subscriptions on time or at all and failed to respond to customers’ requests (including to cancel their subscription). HFB was ultimately the subject of a public warning to consumers not to deal with HFB by the NSW Office of Fair Trading.
With such an unethical and illegal approach to business, it is not surprising that HFB has gone out of business. It is also in the process of being struck off the register of companies by ASIC.