Italian luxury fashion group Armani was put in receivership in a lawsuit accusing it of indirectly using Chinese companies that exploit workers as subcontractors.

The judges in Milan ordered a one-year receivership for Giorgio Armani Operations, described as an industrial arm of the Armani Group, according to a 31-page ruling seen by Reuters on Friday.

The company will continue operating under a court-appointed administrator during this period.

According to the ruling, Giorgio Armani Operations had outsourced the production of bags, belts, and leather goods to two firms, which in turn subcontracted the work to four Chinese companies whose workshops were located on the outskirts of Milan.

These companies paid people 2-3 euros ($2.16-3.25) per hour to work 10 hours per day on average, in some cases seven days a week, to make bags that were sold to Armani's subcontractors for 93 euros, re-sold to Armani for 250 euros, and put on the market for about 1,800 euros, investigators said.

Armani Group said in a statement that it had "always had control and prevention measures in place to minimize abuses in the supply chain," adding that it would work with the authorities to clarify its position.

The Milan public prosecutors' office has for years been investigating the outsourcing of production by large groups in fashion and other sectors to subcontractors who allegedly exploit workers.

The fashion company Alviero Martini, which made its bags in Chinese workshops, was recently also placed under judicial supervision.

Consulting firm Bain calculates that Italy is home to thousands of small manufacturers that account for 50%-55% of the global production of luxury clothing and leather goods, compared to 20%- 25% for the rest of Europe.

Workers forced to eat and sleep in factories

The Armani subcontracting went on from 2017 at least until February 2024, when police last raided the workshops, Milan judges wrote, noting that labor code breaches were an example of unfair business practices.

"The investigations uncovered irregular practices so deeply rooted and established that they can be considered part of a wider business growth strategy," judges said.

Police found Chinese and Pakistani migrants, often with no legal papers, forced to eat and sleep in the factories in degrading conditions and employed without any work contracts, they said.

Workers used machinery with safety devices "purposely and maliciously removed," were exposed to potentially dangerous chemical substances, and were denied medical examinations or training, the court ruling added.

The owners of the contracting and subcontracting companies are under investigation for exploiting workers and employing people off the books, while Armani Operations is not facing any probe.

The Armani unit was nevertheless placed under administration "for culpably failing to check the production chain and remaining inactive despite being aware of the outsourcing of production by the supplying companies."

Judicial papers indicated that the Chinese-owned workshops also produced goods for other fashion brands.

"This is the second measure of this kind against a fashion company. We need to sit down and discuss the operational problems of this market sector with authorities, which is so relevant for Italy," Milan Court President Fabio Roia said.