Originally posted in Mondaq
Specific considerations for European States implementing the EU Directive
On October 23, 2019, the European Union passed a Directive designed to protect citizens who report violations of law, i.e., whistleblowers. Pursuant to this mandate, twenty-seven countries must now adopt individual whistleblower protection laws fulfilling the Directive’s requirements by December 17, 2021. Therefore, right now, and throughout the remainder of 2020, each EU nation is debating the contents of a domestic whistleblower law that, at a minimum, implements the Directive. In order to provide guidance on how such national legislation should look, Part V of this series focuses on the most important special considerations for EU nations in this process, in order to ensure that these laws both successfully implement the framework provided by the Directive and sufficiently encourage and protect whistleblowers.
Article 6 (Anonymous Reporting)
Under Article 6 of the EU Directive, Member States have the discretion to implement rules for anonymous reporting. Anonymous reporting is an essential aspect of any successful whistleblower program. It allows employees to report wrongdoing with less fear of retaliation because if a wrongdoer does not know who reported them, they cannot retaliate. It also allows whistleblowers to remain on-the-job and act as a continuing source of crucial information for regulators and law enforcement if the wrongdoing they are reporting involves their employment.
Accordingly, a successful anonymous reporting program would permit a whistleblower to remain anonymous virtually indefinitely. The procedures created by the Securities and Exchange Commission (“SEC”) and the Commodity Futures Trading Commission (“CFTC”) (which have been utilized by international whistleblowers in thousands of cases), allow for such protections, are highly effective through the use of the following procedures, and could be easily replicated by Member States.
In order to submit anonymously, the whistleblower must hire an attorney. The attorney must verify the whistleblower’s identity and review the whistleblower’s allegations to ensure that they are not frivolous or otherwise improper. The attorney then submits the whistleblower’s tip, without revealing the whistleblower’s identity to the relevant regulator or law enforcement agency and certifies under oath that information provided is true and complete to the best of the attorney’s knowledge. The whistleblower separately signs a copy of the tip under the pains and penalties of perjury, which the attorney retains in confidence. The attorney then becomes the point of contact for the government in order to facilitate future cooperation.
If these steps are taken, the law must then require the government agency or office receiving the tip to maintain the complete confidentiality and anonymity of the whistleblower by (1) prohibiting the disclosure of any information that could potentially identify the whistleblower outside of the government; (2) prohibiting the use of any documents or other evidence that could identify the whistleblower without the whistleblower’s express permission (such information can be easily back sourced by regulators); and (3) prohibiting the disclosure of the identity of the whistleblower and the whistleblower’s attorney, including in legal discovery.
Article 7 (Internal Reporting)
Article 7 of the Directive requires Member States to “encourage reporting through internal reporting channels before reporting through external reporting channels, where the breach can be addressed effectively internally and where the reporting person considers that there is no risk of retaliation.” However, most retaliation cases are triggered by internal reporting and internal reporting rarely, if ever, bears “no risk of retaliation.” Therefore, states should include the following rules for corporations’ internal reporting requirements in any new whistleblower legislation:
- Internal whistleblower compliance programs must have strict confidentiality requirements including that:
- A violation of confidentiality must be viewed as an adverse employment action, and entitle the employee to significant damages, even if no other adverse action occurs. Indeed, case precedent under the U.S. Sarbanes-Oxley Act permits this (see Part IV of this series for further discussion).
- A violation of confidentiality and other procedural rights within an internal reporting program must be viewed as significant regulatory violations, subjecting a company or the offending individual to government sanctions (from which the whistleblower is entitled to receive damages) (see Part III of this series for further discussion).
- Internal whistleblower compliance programs may not be overseen or run by attorneys that represent the companyor managed in a manner that permits the cover-up of critical information.
- Internal whistleblower compliance programs must provide all whistleblowers with written guidelines that explain their rights, including their right to bypass the company’s chain of command and report directly to government officials.
- All employees, including third-party contractors involved in internal compliance, must have a right to confidentially report any attempt to cover up or hinder their review of a whistleblower’s allegations. Any resulting adverse action by the company, including the cancelling of contracts, should be considered retaliation.
Article 11 (Whistleblower Office)
Article 11 of the Directive requires all EU nations to create an independent and autonomous government-run whistleblower program. For a centralized office to be successful, it must possess the following characteristics:
- A user-friendly and widely publicized website that includes user-friendly procedures for whistleblowers to file anonymous or confidential reports.
- Secure, anonymous, and confidential reporting channels not subject to legal discovery.
- The ability to make confidential referrals to the appropriate government enforcement agencies to investigate violations with procedural safeguards including that:
- When anonymous, the release of the whistleblower’s name outside the office to other law enforcement agencies can only be accomplished with the written consent of the whistleblower; and
- The information provided by the whistleblower may only be released to other appropriate law enforcement or regulatory agencies if:
- the whistleblower consents to its delivery; or
- the whistleblower’s identity is completely protected, no information that could indirectly identify the whistleblower is produced, and the agency obtaining the information will not disclose at any time the fact that any of its leads or information came from a whistleblower.
- The ability to intervene in any legal proceeding on behalf of a whistleblower, with the consent of the whistleblower.
- The ability to file claims against persons or companies that retaliate against a whistleblower.
- A policy of communicating with the whistleblower or the whistleblower’s attorney as to the status of the case.
Article 20 (Measures of Support)
Article 20 requires that Member States provide certain measures of support to whistleblowers. Should such support occur by allowing the newly-created whistleblower office or any other relevant government agency the ability to file lawsuits or intervene in cases on behalf of whistleblowers, the following safeguards should be required: (1) the governmental office may only participate in a whistleblower case with the consent of the whistleblower; and (2) even if the government initiates a case, or intervenes in a case, the whistleblower maintains the right to hire his or her own counsel and fully participate as a party to the proceeding.
Additionally, to fulfill the legal aid provisions of this article, attorneys who represent whistleblowers in retaliation cases should be entitled to collect fees from defendants at “market rates” if the whistleblower prevails in his or her case. Every major U.S. whistleblower anti-retaliation law requires that a company that is found to have engaged in retaliation against a whistleblower must pay all the whistleblower’s reasonable fees and costs. When determining the amount of attorney’s fees a whistleblower’s lawyer can obtain, the terms of a representation agreement should not be controlling. In this way, attorneys can be incentivized to undertake the representation of whistleblowers for free or at reduced hourly rates, but still be paid full market rates if they can demonstrate illegal retaliation, creating a system in which whistleblowers will receive high quality representation and which addresses some of the problems whistleblowers face under PIDA as discussed in Part I of this series.
In the United States, an entire body of law has been created for calculating attorney fees, including what can be compensated, when defendants can obtain fees, and the hourly rate paid to an attorney undertaking a whistleblower or public interest-covered case. These decisions should be carefully considered when drafting the attorney fees rules under the Directive.
Article 21 (Measures for Protection Against Retaliation)
This article requires Member States to ensure that persons who suffer retaliation obtain full compensation and remedies. In addition to the measures of support discussed above, effective remedies for retaliation employed in the United States and other countries that states can incorporate in whistleblower legislation include:
- Back pay
- Front pay (if reinstatement is not practical)
- Restoration of all benefits and restoration of all privileges of employment
- Compensatory damages for extreme emotional distress or loss of professional reputation
- Injunctive relief, such as demands to cease and desist damaging the whistleblower’s reputation, or the provision of a recommendation if reinstatement is not possible
- Punitive damages
Allocating attorney’s fees and costs should be also carefully considered. Although a whistleblower should be entitled to fees in a retaliation case if they win, if a whistleblower is forced to pay the fees and costs of a defendant (if the whistleblower does not prevail in a case), the goals of the Directive will be perverted. No responsible attorney would recommend that a whistleblower participate in a proceeding in which, if unsuccessful, he or she could go bankrupt or lose thousands of dollars, especially true if opposing a high-powered corporate defendant. Thus, the payment of reverse fees should be extremely limited or even prohibited. For example, the following U.S. whistleblower laws only permit whistleblowers who win their cases to collect fees: Energy Reorganization Act; Pipeline Safety Act (49 U.S.C. § 60129(b)(3)(B)(iii)); Airline Safety Whistleblower Law; Railway Safety Act; Tax Whistleblower Law; Consumer Financial Protection Act; Consumer Product Safety Act; Sarbanes-Oxley Act (18 U.S.C. § 1514A(c)); and Surface Transportation Act. The False Claims Act only permits whistleblowers to be charged with a defendant’s attorney’s fees if the defendant can meet a high burden of proof.
Article 22 (Measures for the Protection of Persons Concerned)
Article 22 provides for the “protection of persons concerned.” Because “persons concerned” includes both legal and natural persons, all corporations, banks, partnerships, or individuals accused by a whistleblower of wrongdoing are afforded the rights under this Article, namely, “the right to an effective remedy and to a fair trial, as well as the presumption of innocence and the rights of defense, including the right to be heard and the right to access their file” as enshrined in the EU Charter. Because the plain language of this provision alone might chill an uninformed whistleblower, states should make it abundantly clear that this provision does not confer any new or additional rights upon wrongdoers.
To achieve this goal, the following safeguards should be included in any new whistleblower legislation, effectively effectuating the intent behind the Directive and preventing abusive complaints by wealthy or powerful wrongdoers against individual whistleblowers:
The right of persons to access their file does not include the confidential identity of the whistleblower or materials provided by the whistleblower unless strictly required by a nation’s constitution. If a “concerned person” requests to see their “file,” the identity of the whistleblower must be withheld, unless the whistleblower waives his or her right to confidentiality. This interpretation is consistent with the Charter of Fundamental Rights of the European Union, which states that the right of persons to access their files is subject to legitimate interests of confidentiality.
In line with the other articles of the Directive (namely the Preamble ¶ 30 and Article 21), whistleblowers who provide information confidentially to law enforcement should have complete immunity from liability under this provision, including confidential informants, persons paid by the government for information, and/or persons who participate in reward programs.
Similarly, whistleblowers who testify in courts of law, administrative proceedings, or before governmental/parliamentary bodies may not be sued for such public disclosures (which is consistent with Articles 15 and 21). If a whistleblower’s identity is required to be released due to his or her participation as a witness for the government in a criminal proceeding, that whistleblower must be immune from liability (although, this immunity would not cover perjury).
Lastly, counterclaims against a whistleblower resulting from the disclosure of a whistleblower’s identity should be capped. In the United States, the following laws cap the damages a whistleblower can be charged at $1,000 USD, and are only available if the whistleblower is found to have filed a “bad faith” or “frivolous” complaint: the Consumer Financial Whistleblower Law; the Food Safety Whistleblower Law; the Pipeline Safety Whistleblower Law; and the Auto Safety Whistleblower Law. A cap on damages in the EU context would provide “persons concerned” an effective remedy under Article 22 of the Directive, without creating a chilling effect on whistleblowing.
Although there are many more complexities to establishing a successful whistleblower regime that benefits whistleblowers, the government, victims, and society at large, particularly in the European context, implementation of the recommendations put forth herein would constitute a substantial step in the right direction for the EU and indeed most of the world. In order to have a healthy, economically stable nation, whistleblowers must be encouraged and protected. They are the only consistent and proven way to uncover fraud, corruption, human rights violations, and environmental and health calamities covered up by powerful interests, particularly in a time where crime and malfeasance more often than not crosses borders.
For further information or inquiries, please contact the authors of this piece at www.kkc.com or review Parts I-IV of this series.