Legal Operations in Fashion Startups: Scaling Compliance and Risk Management

The fashion industry is renowned for its creativity, innovation, and rapid pace. For startups entering this dynamic space, the focus is often on design, marketing, and building a brand identity. However, as these businesses grow, the need for a robust legal operations framework becomes increasingly critical. Legal operations in fashion startups are not just about managing legal risks; they are about ensuring compliance, safeguarding intellectual property, and enabling sustainable growth.

Understanding the Unique Challenges in Fashion Startups

Fashion startups operate in a complex environment where legal risks are omnipresent. From intellectual property (IP) issues to supply chain management, labor laws, and international trade regulations, the legal landscape can be overwhelming. For many founders, legal considerations are secondary to creative and commercial concerns. However, neglecting these aspects can lead to significant risks that may jeopardize the business’s future.

1. Intellectual Property Protection: One of the most critical aspects for any fashion startup is protecting its IP. This includes trademarks, designs, and sometimes even trade secrets. Early-stage businesses often lack the resources to engage in lengthy legal battles, making proactive IP management essential. A comprehensive IP strategy can protect a brand from counterfeiters and ensure that the startup maintains its competitive edge.

2. Contracts and Agreements: Contracts are the glue that keeps fashion businesses and partnerships running smoothly. Whether it’s with suppliers, manufacturers, or designers, clear agreements ensure everyone knows their roles, timelines, and payments. For fashion startups, this means protecting your designs, ensuring quality control, and setting out terms in case something goes wrong. Having clauses for confidentiality and dispute resolution also means you’re protected from future headaches. Think of contracts as the guardrails that keep your business secure and growing while avoiding unexpected legal surprises.

3. Compliance with Labor Laws: The fashion industry is under increasing scrutiny for its labor practices. Startups must ensure that they comply with local and international labor laws, including fair wages, working conditions, and anti-discrimination policies. Non-compliance can lead to lawsuits, financial penalties, and reputational damage.

4. Tax and Financial Compliance: When scaling a fashion startup, navigating taxes and financial compliance is crucial. From sales tax to VAT/GST, startups must ensure they register and file accurately to avoid penalties. This also applies to import/export duties when sourcing or selling internationally. Beyond avoiding fines, staying compliant with financial regulations helps build investor trust and maintain smooth operations. Regular audits and transparent financial reporting not only help you avoid tax trouble but also keep your business healthy as it grows.

5. Supply Chain Management: With global supply chains, fashion startups must navigate a complex web of regulations. This includes ensuring compliance with environmental laws, sourcing ethically, and adhering to trade regulations. A failure in supply chain compliance can result in delayed shipments, fines, and a tarnished brand image.

6. Data Privacy and Security: As fashion startups increasingly rely on e-commerce and digital marketing, data privacy and security become paramount. Compliance with regulations like GDPR (General Data Protection Regulation) and CCPA (California Consumer Privacy Act) is not optional. A data breach or non-compliance can lead to severe financial and legal repercussions.

7. Branding, Marketing, and Advertising: Branding and marketing are crucial in fashion and for a fashion brand just starting up they need it more than anyone else, but they come with legal considerations. Fashion startups need to ensure their advertisements are truthful and comply with advertising laws, avoiding misleading claims or improper use of images. Whether partnering with influencers or running ad campaigns, contracts should clarify expectations, compensation, and timelines. Keeping branding aligned with legal protections ensures that their marketing efforts build business, not open it up to risks.

8. Crisis Management and Product Recalls: Crises can happen in fashion, from defective products to PR scandals. Having a plan in place ensures you can react swiftly and limit the damage. If a product recall is necessary, being prepared with clear legal steps can protect you from lawsuits and consumer backlash. Proper handling of customer complaints and clear communication can make all the difference in maintaining your brand’s reputation. A proactive crisis management strategy ensures your business stays resilient in tough times.

Scaling Compliance and Risk Management

Scaling compliance and risk management in fashion startups requires a strategic approach that integrates legal considerations into the business’s core operations. Here’s how startups can achieve this:

1. Establish a Legal Operations Framework: A legal operations framework should be established early in the startup’s lifecycle. This framework should include policies and procedures for contract management, compliance, risk assessment, and dispute resolution. By having a clear structure in place, startups can better manage legal risks as they scale.
2. Leverage Technology: Technology plays a crucial role in scaling legal operations. Contract lifecycle management (CLM) tools, compliance software, and IP management platforms can automate many of the processes that are typically time-consuming and prone to human error. For instance, a CLM system can streamline contract creation, negotiation, and execution, reducing the risk of non-compliance.
3. Engage with Legal Experts: Startups may not have the resources to hire an in-house legal team initially. However, engaging with legal experts who specialize in fashion law can provide valuable guidance. These experts can help navigate complex regulations, draft essential agreements, and represent the startup in legal matters.
4. Develop a Risk Management Strategy: A comprehensive risk management strategy is vital for identifying potential legal risks and mitigating them before they escalate. This strategy should include regular risk assessments, monitoring of regulatory changes, and a crisis management plan.
5. Educate and Train Staff: Compliance and risk management are not just the responsibility of the legal team. All employees should be aware of the startup’s legal obligations and how their roles contribute to compliance. Regular training sessions can help in building a culture of compliance within the organization.

The Role of Legal Operations in Sustainable Growth

Legal operations are not just about managing risks; they are about enabling growth. For fashion startups, having a strong legal operations function can provide a competitive advantage. It ensures that the business is not only compliant with laws and regulations but also prepared to navigate the challenges of a rapidly changing industry.

By integrating legal operations into the startup’s growth strategy, founders can focus on what they do best—creating innovative fashion products—while having the peace of mind that their business is legally protected and compliant. This proactive approach to legal management is essential for any fashion startup looking to scale successfully in today’s complex and highly regulated market. 

Conclusion

As fashion startups grow, the importance of legal operations cannot be overstated. From protecting intellectual property to ensuring compliance with labor laws and managing risks in the supply chain, a robust legal operations framework is critical. Establishing robust legal operations is crucial for minimizing legal exposure and managing growth effectively. A well-structured legal strategy not only protects the startup’s interests but also positions it for sustainable success in an increasingly competitive industry. By leveraging technology, engaging with legal experts, and developing a comprehensive risk management strategy, fashion startups can scale their operations while minimizing legal risks. In doing so, they can build a sustainable business that is not only innovative but also resilient in the face of legal challenges. 

About Authors: Raylene Proto and Anuj Kumar

Raylene Proto

With more than a decade of experience in legal operations, Raylene Proto has made her mark at Fortune 500 companies like Arbonne International and Philips Sonicare, specializing in mergers and acquisitions, intellectual property, brand protection, and compliance. Her career includes roles in the fashion industry as a Brand Manager at Michael Kors and Macy’s.

In 2016, Raylene took on the role of Manager of Legal Affairs at Tillys, where she demonstrated her ability to independently manage the legal department. Her leadership skills were further honed at 5.11 Tactical, where she tackled intellectual property management, anti-counterfeiting, retail compliance, and data security. In 2021, she made history as the first legal hire at a.k.a. Brands, where she led the way in streamlining contract management and spearheading the legal operations program.

Raylene holds a bachelor’s degree in Fashion Marketing and Management from The Art Institute of California – Hollywood and a legal education from Washington University in St. Louis School of Law. She also has a certificate in Fashion Law and Technology from Fordham Law School’s Fashion Law Institute.

Anuj Kumar:

Anuj is also Founder & editor-in-chief of Fashion Law Journal, an exclusive resource for legal issues involving the fashion industry. Anuj has been assisting fashion brands in Compliances required for Fashion Industry, the issues of Licensing, Merchandising, and protecting IP, Labour, and the Rights of stakeholders.

Anuj is also founder of Legal Desire Media (among leading legal industry insights media with over 3Million+ readership), having experience of 12 years in Publishing, Compliances, Business Development & Marketing, closely working with over 50+ global brands, influencers & law firms in various practices for comprehensive business development solutions, empowering small firms to successfully build their brands,  connect with consumers to grow their practice. Serving clients in brand setup, industry compliances, managing their digital properties, business Development goals & Corporate Communications, etc.

Additionally,  Anuj is associated with Niti Aayog, Govt of India as Mentor, Atal Innovation Mission (An Initiative to create and promote a culture of innovation and entrepreneurship across the length and breadth of India). Member of Editorial Board of International and National Journals.