Working conditions at Turkish yards and the Norwegian Transparency Act

According to Aftenposten/E24, a leading Norwegian newspaper, more than 100 Norwegian ferries and other vessels have been built in Turkey over the last 10 years. The costs of building vessels at Turkish yards are significantly lower than at Norwegian yards. 

Worrying media reports on working conditions

According to the newspaper, Turkish union leaders and yard employees are complaining over hazardous working conditions and low wages. Reportedly, the daily wage for a worker at a Turkish yard can be as low as NOK 350 (≈USD 35). Every year, a significant number of workers reportedly lose their lives at Turkish yards. Norwegian labour spokespersons have also criticized the HSE (health, safety and environment) culture at Turkish yards, alleging that shipowners prioritize profit over health and safety. Norwegian shipowners however underline that they place great emphasis on sound working conditions at the yards and note that that they have seen improvements in Turkey over time. 

The Norwegian Transparency Act

The Transparency Act, which entered into force on 1 July 2022, shall promote companies' respect for fundamental human rights and decent working conditions in connection with the production of goods and the provision of services. Furthermore, it shall ensure the general public access to information regarding how companies address adverse impacts on fundamental human rights and decent working conditions. 

It is estimated that around 9000 Norwegian companies are subject to provisions of the Act. Many Norwegian shipowners contracting with Turkish yards will belong to this group. The Act applies to "larger companies" covered by section 1-5 of the Accounting Act or those who exceed the threshold for two of the following three conditions: a sales revenue of NOK 70 million, a balance sheet total of at least NOK 35 million, or an average number of 50 full-time equivalent employees. Parent companies shall be considered "larger companies" if the conditions are met for the parent company and subsidiaries as a whole. 

Due diligence

If encompassed by the Act, shipowners are obliged to carry out human rights due diligence in accordance with the OECD Guidelines for Multinational Enterprises. Not only does section 4 of the Act require shipowners to embed reasonable business conduct into their polices, such as in their Code of Conduct, Supplier Code of Conduct and other internal policies and procedures. They shall also identify and assess adverse actual and potential impacts on human rights and decent working conditions; cease, prevent or mitigate such adverse impacts; track implementation and results of mitigating measures taken; communicate with affected stakeholders and provide for or co-operate in remediation and compensation where this is required. In simpler terms, companies must assess whether they impact people's basic rights negatively, and if so, consider which impact is the most severe and prioritize and enact suitable follow-up measures.

Generally, and in light of the risk that many foreign shipyards represent, it is necessary to follow up foreign yards closely before and during the building period. Relevant measures that shipowners should consider implementing in relation to shipbuilding contracts include:

• Before entering into the business relationship, conduct background checks of the potential shipyard with a view to identify and mitigate any risks relating to human rights and decent working conditions.
• Incorporate necessary contractual terms into the shipbuilding contract relating to human rights and decent working conditions, including granting shipowners access to relevant information and documentation, and a right to conduct a proper due diligence. This should include a right to conduct site visits or audits in order to review the working conditions for the workers at the yard. 
• Ensure that such contractual terms also extend to sub-suppliers.
• Given that workers are reported to receive very low daily wages, include measures to promote that workers receive a living wage for the work they conduct.
• Consider whether any of the shipowners own commercial demands could lead to a negative impact on human rights or decent working conditions, e.g. by setting unreasonably short deadlines for delivery, and adjust as needed.

In addition, shipowners should keep in mind that risk-based measures should also be implemented in relation to for example yards providing repair services or other services to their vessels. 

Time to review

According to the Transparency Act section 5, an account of the due diligence shall be published at least every year and at the latest within 30 June each year. The purpose is to ensure that the public has information on the due diligence and the results thereof, so the report must be made easily available on the shipowners' webpages. 

In this respect it is worth noting that the Norwegian Consumer Authority, through their controls relating to the Transparency Act, has found that several Transparency Act reports lack information about actual adverse impacts identified through the companies' human rights due diligence. The Transparency Act section 5 specifically requires companies to include information about actual adverse impacts and significant risks that they have identified. In light of the recent news articles referred to above, shipowners should pay particular attention to how to address issues relating to human rights and decent working conditions at relevant shipyards in the next version of their Transparency Act reports.

The Transparency Act also provides the public with a right to request information on how a company addresses actual and potential negative impact on human rights and decent working conditions. Shipowners must be prepared to receive requests for information on the situation at the yards building their vessels. As a starting point, such requests shall be responded to within three weeks of receipt.

Violations of the Act may result in prohibitions or orders being imposed by the Consumer Authority or the Norwegian Market Council. The Consumer Authority can also impose financial sanctions on companies for repeated infringements of the requirements relating to the Transparency Act reports and the rules on information requests, including fines of up to 4 percent of annual turnover or NOK 25 million, whichever is higher.

In light of the worrying allegations regarding Turkish yards in the recent media reports, shipowners wishing to ensure compliance with the Transparency Act and to protect their reputations would be well advised to re-evaluate if they have sufficient information on whether their suppliers and sub-contractors are respecting fundamental human rights and decent working conditions.