Whistleblowing is an increasingly important and complex topic. In this note, we explain and simplify some of the key issues that companies need to be aware of as a result of recent societal, legal and regulatory developments, which we explored in our recent Informed Counsel conference.
Why is whistleblowing important now?
To quote a former U.S. Securities and Exchange Commission official, we now 'live in the age of the whistle-blower'. Whistleblowing has been on the increase since the 2008 financial crisis spurred on the need to crackdown on corporate wrongdoing. More recently, the speed of technological advances, the rise in data leaks and the use of social media to spread the message and globalise awareness (#me too, #times up anyone?) as well as the economic uncertainty, misinformation and resulting trust deficit brought on by Brexit all combine to create a fertile and empowering environment in which individuals feel more encouraged and able than ever before to speak up and raise concerns about the workplace.
In the legal world, a significant Court of Appeal decision in October 2018 (the Osipov case), has also made it much easier for individuals to bring whistleblowing claims against both companies and their directors or other employees. This is a legal game changer. (See further below under the heading 'Whistleblowing Basics-the Law').
In the regulatory sphere, the FCA has announced its planned overhaul of its whistleblowing approach which will be publicised later this year.
Whilst speaking out is becoming more normalised in the workplace, (strengthened by the law, regulators and society) are companies really ready and willing to 'listen up'? Companies need to adapt swiftly and be equipped to respond appropriately and effectively to this new cultural environment. Whistleblowing should be high on all boardroom agendas going forward.
Whistleblowing basics – the law
The law offers two levels of protection; the right not to be dismissed and the right not to subjected to a detriment (e.g. loss of pay, bonus, promotion prospects or disciplinary action) for making a 'protected disclosure'. A protected disclosure is where an individual discloses information which (s) he reasonably believes tends to show that one of the following has occurred, is occurring or is likely to occur:
- criminal offences
- breach of a legal obligation
- miscarriage of justice
- danger to health and safety
- damage to the environment
- deliberate concealment of information about any of the above categories of wrongdoing.
Protection is provided if the individual reasonably believes that the disclosure is in the public interest. The Court of Appeal has held that the disclosure does not need to be in the interests of the public as a whole; a relatively small group can be sufficient.
Nor does the individual need to prove that the facts or allegations disclosed are true; even if the belief subsequently turns out to be wrong or the alleged facts do not amount in law to the relevant failure, a claim can still be brought.
Whistleblowing claims are attractive for individuals, as there is no minimum length of service needed to bring a claim, (unlike the 2 year continuous service requirement to bring an ordinary unfair dismissal claim).
Nor is there a requirement to show that one is an 'employee' for detriment claims, meeting the lower threshold status of 'worker' is enough to bring a detriment claim and workers include LLP members and gig economy workers. In addition, the availability of unlimited compensation based on actual financial loss going forward (as opposed to the £85,000 cap for unfair dismissal compensation) if the claim is successful, is another appealing feature.
A change in the whistleblowing law in 2013 removed the previous requirement that a protected disclosure had to be made in 'good faith' and replaced it with the 'public interest' test, as it was somewhat ironic that disclosures under the Public Interest Disclosure Act did not until 2013 need to be made 'in the public interest.' This means that there is now less emphasis on the motivation of the individual making the protected disclosure (although the concept is still relevant to remedies and a finding of bad faith can reduce any award by up to 25%). This coupled with the fact that allegations of wrongdoing in business can attract unwanted adverse publicity can be used by individuals as leverage to persuade companies to make settlement offers before any whistleblowing claim is heard in the Employment Tribunal.
The Osipov case has also made it easier to pursue individuals for their part in the dismissal of a whistle-blower. In this case, the Court of Appeal upheld a decision that two non-executive directors were liable for their part in dismissing the CEO, who had raised corporate governance concerns. The NEDs were held to have subjected the CEO to a detriment by dismissing him and were therefore personally liable for post-dismissal losses on a joint and several basis with the employer, who had unfairly dismissed the Claimant by reason of whistleblowing. The case was unusual in that the company was insolvent and the NEDs had Directors and Officers' liability insurance. However, given the rise in claims following this decision, employers should use workplace training to highlight to managers, employees and other workers their potential personal liability in this regard.
The decision is important because companies can be held vicariously liable for the actions of their staff that dismiss others, unless they can satisfy a reasonable steps defence, similar to that available under discrimination law. It leaves non-director level employees who do not have the financial protection of directors and officers liability insurance financially exposed personally. A dismissing manager might be personally liable for injury to feelings awards arising out of their decision to dismiss, whereas the employer who unfairly dismisses them wouldn't be. This can create problems for employers who face opposition from a potential dismissing manager who might be concerned about their personal liability for injury to feelings awards arising out of their decision to dismiss. A request for an indemnity in the event of legal action against them is something that employers might expect to see in the future from dismissing officers who are senior managers below board level. Senior managers may also now be much more reluctant to conduct disciplinary hearings, where dismissal may be imposed as a disciplinary sanction. The insurance market may now need to consider either offering a product for senior managers, which is similar in scope to Directors and Officers Liability Insurance, or extending the scope D & O insurance to cover senior managers who make the decision to dismiss staff members.
Whistleblowing basics - claims and remedies
The Achilles Heel for most claimants bringing whistleblowing claims is causation: the protected disclosure must have been the reason or principal reason for dismissal or the grounds on which they suffered detriment. Whistleblowing claims are hard to prove and many fail in the Employment Tribunal. This is where the real opportunity lies for employers and seeking legal advice on how best to defeat a claim is advisable given the complexities of the law, but having credible witness and documentary evidence of the mental processes for treating the individual in the way alleged or for dismissing them will be key.
Another distinguishing feature of whistleblowing claims is that Employment Tribunals can send details of the claim to a regulator (and regulatory investigations are independent of ET claims) but only where consent has been given by the claimant.
Employers should also be aware that it is not uncommon for an Employment Tribunal to find that the worker has been stigmatised or 'black-listed' in some way on the job market because of their protected disclosure and any consequent publicity. Substantial awards for future loss of earnings can be made, particularly for high earners in the City, on the basis that the worker may not realistically be able to find future employment in their industry, or at a similar level of seniority or remuneration.
Whistleblowing basics: the importance of good whistleblowing policies and practices
Most internal investigations start with a whistle blower coming forward. Companies should capitalise on this early intervention opportunity of using human intelligence to reveal critical information that would otherwise go undetected or to mitigate the effects of damage already done. However, there is still a lot of work to do to improve corporate cultures to encourage a genuine "speak up" environment. In the current climate of distrust in the political arena and economic uncertainty, employers need to work harder to show that they are not a reflection of what's happening in the wider public sphere and to support workers who might feel under pressure to cut corners or stay quiet due to under-resourcing issues or fear of job loss.
Top tips for improving your Whistleblowing policy
- Word whistleblowing policies carefully and foster a safe trusting environment and culture to encourage employees to make disclosures internally first. Fear of reprisal, harm to reputation, adverse effect on remuneration and career prospects are often the reasons for employees failing to come forward
- Ensure whistleblowing procedures work in practice and that employees understand how to use the procedure and have confidence in the way that reports are handled, so that employers retain control of the process
- Multi-national companies should operate a co-ordinated global whistleblowing policy where possible, as there will often be whistleblowing investigations being carried out in relation to the same matter in multiple jurisdictions
- Ensure that concerns are investigated on a confidential basis where possible and document the process to reduce the risk that a worker might be subject to victimisation or dismissal for having blown the whistle
- Employers should not guarantee that a whistle-blower's identity will remain secret
- Anonymous allegations should not be ignored and legal advice should be sought on how best to deal with them, as they can be tricky
- Consider making it a disciplinary offence to by-pass internal whistleblowing procedures and whistle blow via social media (If an employee makes a disclosure on a social media site, rather than following the employer's internal whistleblowing policy or by disclosing to a regulator, their actions are unlikely to be protected under the Public Interest Disclosure Act)
- Provide regular training to staff and managers to ensure that they understand that bullying and harassment and victimisation of whistle-blowers is unacceptable and can lead to personal liability and liability for the employer
- It is a good idea to issue your whistleblowing policy to all staff annually and get them to sign a declaration confirming that they have read the policy and will abide by its' terms
- Update your employment contracts to make it an express disciplinary offence to victimise whistle-blowers.
Whistleblowing in financial services: good practice of wider application to all sectors
In 2016, the PRA and FCA introduced a new package of whistleblowing rules for certain regulated firms in the financial services sector. They were designed to encourage a culture in which individuals feel able to raise concerns and challenge poor practice and behaviour without fear of reprisals.
Key changes included establishing and publicising internal whistleblowing channels and the appointment of a senior manager or director as the "whistle-blowers' champion", who would have responsibility for overseeing the effectiveness of internal whistleblowing policies and procedures and preparing an annual whistleblowing report to the board.
The FCA's commitment to whistle-blower protection was demonstrated in the case of Barclays CEO last year, who was fined £642,430 for trying to unmask the identity of an anonymous whistle-blower, who had made a complaint about him. The fine was 10% of his annual income. The FCA concluded that he had a conflict of interest and he should have distanced himself from the investigation, as there was a real risk that he would not be objective and that the compliance team should have retained control over the investigation.
The FCA recently published its findings of its review of banks' whistleblowing arrangements on 14 November 2018. The key areas for improvement which it highlighted (which are of general application to organisations in all sectors) are as follows:
- There should be (better) training for employees, managers and those responsible for operating the firm's internal whistleblowing arrangements; and
- Firms need to better document their whistleblowing investigation process and practical arrangements and processes for protecting whistle-blowers against victimisation.
The FCA is doing a lot of work in this sphere and shows no signs of slowing down.
Work to do going forward: employers
- Whistleblowing policies should cover breaches of professional conduct rules for regulated entities which may not amount to a qualifying disclosure legally
- Whistleblowing policies should encourage workers to raise concerns if they have a "reasonable suspicion" rather than a "reasonable belief" in the wrongdoing. This is a lower threshold to encourage a genuine speak up culture
- Take the whistle-blower seriously: entertain and investigate the disclosure fully and keep the whistle-blower updated as to progress, as far as is reasonably possible
- Consider the use of whistleblowing hotlines
- Allocate a person in HR to talk through concerns with staff and advise which route to follow – grievance or whistleblowing?
- Consider rewarding genuine whistle-blowers by promoting them or giving them a pay rise or one off bonus payment where justified, to show your gratitude to them
- If the whistle-blower has not requested anonymity and is happy for you to do so, hold them up as a role model who lives the Company's values and highlight what changes the Company has made as a result of the whistle-blower's disclosure to address their complaint.