Key issues in whistleblowing reform

Posted by on 07/02/2017

The key issues that will be the subject of stakeholder comment in the consultation being undertaken by the government at present include expanding the categories of whistleblower; extending the scope of information to be disclosed; replacing the ‘good faith’ requirement by an objective test requiring the disclosure be made on ‘reasonable grounds’; and whether anonymous disclosures should be protected. The other key issue is compensation for whistleblowers.

The Fair Work (Registered Organisations) Amendment Act 2016 has already addressed many of these issues, and is considered a guide to where the reform process is likely to go. There is widespread agreement that the current provisions in the Corporations Act 2001 are very narrowly focused and expect an unrealistic level of sophistication on the part of whistleblowers in relation to their ability to understand which legislation and which regulator covers corporate misconduct. A whistleblower should not have to ponder if misconduct by a senior executive or other staff members is a breach of the Corporations Act, or the Competition and Consumer Act, or taxation legislation etc before bringing the misconduct to the attention of a regulator or the company.

A comprehensive approach to corporate and private sector whistleblower protection is needed and this consultation appears likely to finally deliver.

Expanding the categories of whistleblower

There is considerable support for expanding the categories of whistleblower and access to protection to former employees, former officers, contractors, financial services providers, accountants, auditors, unpaid workers and business partners. Access to protection could also be extended to suppliers, although care would need to be taken to ensure that such protection was not misused for commercial advantage.

One example of the limitations of the current provisions in the Corporations Act is that an employee of one company in a corporate group who makes a disclosure concerning misconduct in a related body corporate in the group does not qualify for protection. Another example would be the case of a whistleblower individual who is a casual employee. It is becoming increasingly common for companies to use casual employees. Often, such persons are employees of a third-party employment services or contracting company, and whistleblower protection should not hinge on the technicalities of an employment arrangement.

Extending the scope of information to be disclosed

Ensuring there is an avenue for disclosing wrongdoing that is not being addressed by the company, whether it be bribery, procurement processes, financial misconduct, bullying, environmental harm, taxation avoidance etc is considered essential by many stakeholder. This could best be done by extending the discloseable conduct to conduct contravening a law of the Commonwealth, a state or territory, as this will facilitate disclosure of a broader range of misconduct including fraud, environmental harm and workplace health and safety among other issues.

Expanding the scope of the subject matter requirements may have the consequence that personal greivances and human resources matters are caught up in the whistleblower process. Consideration is being given to the Public Interest Disclosure Act 2013 (Cth) — governing public sector whistleblowing — which excludes matters relating solely to personal employment-related grievances in the relevant provision governing discloseable conduct, given that these are better dealt with through existing processes.

Should the ‘good faith’ requirement be replaced requiring a disclosure to be on ‘reasonable grounds’?

There is an argument that the term ‘good faith’ could be read as implying that the whistleblower themselves needs to be free of any secondary motive before being able to make a disclosure.

The good faith concept is meant to address the genuineness of the belief in the information being disclosed and not the motive for making such a disclosure. If there is a genuine belief in the veracity of the information, despite any secondary motive held by the discloser, then protection should be available.

For example, an individual could make a disclosure concerning illegal activity being undertaken by a senior executive who is conducting an affair with the discloser’s spouse. The disclosure could be prompted by a strong emotional response to discovery of the affair, but if there is a genuine belief in the integrity of the information concerning the illegal activity then the disclosure should be considered to be made in good faith. The motive for making the disclosure is irrelevant.

Stakeholders are considering whether the term ‘on reasonable grounds’ could assist in clarifying that the emphasis is on the genuineness of the belief in the information being disclosed and not the motive for making such a disclosure. This is the approach taken by best practice legislation including the Public Interest Disclosure Act 2013 (Cth).

Protection of anonymous disclosures

It is now standard in Australian public sector whistleblowing legislation, and international principles, that disclosures made anonymously should also attract the legal protections – as an important means of encouraging disclosures. Currently, a whistleblower is only protected if they identify themselves. 

There is a strong push to provide protection of anonymous disclosures. Practically, it is not possible to offer protection to an unknown person — protection can only apply once the whistleblower has identified him or herself, or their identity has otherwise been ascertained. The important aspect is that the order of disclosure of the information concerning illegal activity and the determination of identity should not determine whether an individual is afforded protection. That is, a whistleblower may make an anonymous disclosure and only later reveal their identity or it becomes obvious, but they should not be denied protection because their identity was revealed after the disclosure of misconduct, rather than before it.

Compensation

Whistleblowers can find it very difficult to secure employment after they leave the employer where they blew the whistle, and therefore a secure source of income can prove elusive. Suffering financial and career penalties for whistleblowing clearly is a high price to pay and potentially a strong deterrent to whistleblowers coming forward.

Where laws do protect whistleblowers, they tend to criminalise reprisals (for example, the Life Insurance Act 1995). This creates a very high legal bar before anyone is prepared to accept that an employee deserves apologies, compensation or restitution for any victimisation suffered. That is, a whistleblower can only access compensation if a criminal reprisal against them is first proven, which is extremely difficult.

The Fair Work (Registered Organisations) Amendment Act 2016 provides that whistleblowers would be able to apply for penalties if they have been financially harmed by their disclosures. Under consideration, therefore, is a similar model, with whistleblowers able to seek penalties to cover any financial loss or damage, including lost opportunity, and mental suffering arising from their disclosures.

There has been significant discussion of providing financial rewards to whistleblowers, with reference frequently made to the USA where such rewards exist. However, there is a difference between compensation for loss or damage suffered and a bounty or reward scheme, where whistleblowers are incentivised to reveal wrongdoing by taking or initiating actions which lead to them recovering a percentage of the fraud revealed, or of the penalties imposed.

Critics of bounty schemes note that they can open avenues for the exploitation of whistleblowing for financial gain rather than to address perceived or actual wrongdoing. In the US, some rewards have been as high as US$20 million and US$30 million, which could lead people to view these schemes as ‘get rich quick’ schemes. The other concern expressed is that a bounty system could maximise the use of whistleblowing rather than the use of internal controls and processes within companies to detect and prevent misconduct and illegal activity. The ultimate aim is to ensure that organisations put in place effective internal controls and processes, so that the culture of the organisation works against misconduct.

Return to News & updates


Calendar

View our calendar of events and short courses

Need to know more as soon as possible?

Acquire knowledge and skills


Resource

Access our publications and guides on governance and risk management issues

Interested in more detailed information?

Guidance from the leaders in governance


Become a subscriber

How will reform proposals affect your organisation?

Read the latest commentary on governance and risk management in Governance Institute’s journal