A clothing supplier to Primark is under investigation for allegedly using illegal workers and paying staff less than the minimum wage.

TNS Knitwear, which supplies 20,000 garments to Primark every week, has been accused of employing illegal immigrants from India, Pakistan and Afghanistan and paying its workers £3 per hour, just over half the minimum wage. Staff allegedly worked 12-hour days, seven days a week.

Primark, one of the few companies defying the economic gloom, said that it had begun an investigation into the allegations that TNS and its subcontractor Fashion Waves had breached employment and immigration law.

Breaches of the legislation could lead to fines of up to £10,000 for each illegal worker and potential prosecution for tax evasion and employment law abuses.

Maqbool Malik, from Malik Laws Solicitors, which represents Zahid Sarwar, the owner of TNS Knitwear, said that his client denied the allegations, made by The Observer, about breaches of employment and immigration laws. Mr Malik said: “The condition of the workers has been inspected, everything has been done according to the law. It is an allegation that nobody has proven.

“My client has not employed any illegal workers. There are a substantial number of people working here who can be checked from the PAYE records. Are they trying to make people lose their jobs?”

Mr Malik said that there had been allegations that Primark had obtained goods from manufacturers in developing countries that were using child labour. “At least there is nothing like that. We are being British and buying British,” he said.

He added that his client supplied other high street chains.

Discount fashion chains such as Primark are among the few companies defying the recession. Primark is planning to expand to Portugal, Germany and the Netherlands in 2009. The company, which already employs 25,000 people and operates 140 stores, is to open more outlets. Another discount fashion chain, Peacocks, announced last week a 22 per cent rise in sales and plans to open 50 more stores.

Primark agreed yesterday to remove all references to the Ethical Trading Initiative (ETI) from its website. The ETI is a collection of companies, trade unions and nongovernmental organisations that aim to maintain a certain standard of working conditions for workers in the food and clothing industry.

ETI said: “We are horrified at the allegations of workers’ rights abuses exposed by this investigation and we are particularly concerned that they involve an ETI member. We sincerely hope that we will be able to work with Primark to resolve these issues for the benefit of the workers who are making their products.”

A spokesman for the Trades Union Congress said: “It is not unknown for these kinds of things to happen in domestic supply chains. Other companies in the ETI have found this in their supply chain in the UK. It is incumbent on the large companies to work with these companies to ensure that workers are treated fairly.”

He said that they would not expect the larger companies to cancel their contracts, but rather to help to regularise the employment status of workers.

Primark said last night that it was “extremely concerned about the very serious allegations made against our supplier TNS Knitwear”. It said that it had handed material uncovered during the investigation to the UK Border Agency and was conducting its own investigation.

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