The Textile Clothing and Footwear Union of Australia has launched legal action against 23 Australian fashion labels, claiming they are not protecting workers from exploitation.
AAP reports that the clothing companies in question include Drizabone, Arthur Galan, Kamakaze, Mariana Hardwick, Very Very and Arthur Galan.
The action will take place in the Federal Court in July. The court can impose fines of up to $51,000 for breaches.
According to Textile Clothing and Footwear Union of Australia secretary Michele O'Neil, most of the workers are employed through third parties. They are often female migrants and there is evidence that some are being paid as little as $5 dollars an hour.
Ms O’Neil told the ABC that worker exploitation happens here in Australia, not just overseas.
"Unfortunately it does happen in Australia that we still find every day workers working at home in atrocious conditions where they don't get the minimum wage, any super or annual leave or long service leave or even sick pay," she said.
"Without supply chain transparency, it is impossible to identify sweatshops and where outworkers are."
"It's a hidden problem, but it's not a new problem. I don't think there's any excuse for it in 2014. Companies have obligations to ensure their supply chains are properly regulated."
Council of Textile and Fashion Industries of Australia (TFIA) chief executive Kiri Delly told AAP that clothing manufacturers should obey the law.
She added that TIFA supports regulatory change to allow manufacturers in the industry to employ contractors.