New laws proposed this week by the European Commission promise to improve protection for employees who expose corporate wrongdoing.
With final legislation unlikely to come into force until 2019 or later, we outline its likely impact on businesses across the EU.
Why has this law been proposed?
The European Commission’s decision follows numerous high-profile corporate scandals that were first revealed by internal sources.
These include the so-called Luxleaks, Panama Papers and Dieselgate scandals, followed more recently by revelations about Cambridge Analytica.
The Commission believes that whistleblowers have a key role to play in exposing unlawful activity, and that a failure to offer appropriate protection hinders the effective enforcement of EU law.
It is hoped the new measures will help both expose breaches of EU law that pose “serious harm to the public interest”, and deter perpetrators.
Will it apply to disclosures of all types?
Until the new laws are finalised, it’s difficult to say with certainty how far these protections will extend.
However, the European Commission has stated that protection is needed to “reinforce the enforcement of rules” specifically relating to:
- Public procurement
- Financial services, prevention of money laundering, and terrorist financing
- Product safety
- Transport safety
- Environmental protection
- Nuclear safety
- Food and feed safety, animal health and welfare
- Public health
- Consumer protection
- Protection of privacy and personal data and security of network and information systems
It is also implied that further areas, such as corporate tax avoidance and competition rules, will fall within its remit.
What steps should companies take now?
The proposals mark the first step in a legislative journey that could ultimately last several years.
However, it’s clear that legislation is coming. As with recent changes to data protection law, those companies already operating in line with new standards will find it easier to comply.
Here are a few steps companies can take now to begin preparing for the new legislation.
1. Revisit anti-retaliatory controls
The proposed laws are designed to strengthen protection of whistleblowers and prevent retaliation against them. In the words of the commission’s First Vice-President Frans Timmermans:
“…if we better protect whistleblowers, we can better detect and prevent harm to the public interest such as fraud, corruption, corporate tax avoidance or damage to people’s health and the environment. There should be no punishment for doing the right thing.”
It is expected that under the new rules, national courts will work on the assumption that negative acts against employees (eg. redundancy) are retaliatory – unless the employer can prove otherwise.
Companies should therefore review the anti-retaliation measures they already have in place. For instance:
- Do anti-retaliatory measures exist?
- Are they documented and publicised to employees?
- Are they enforced consistently?
- Can you evidence their effectiveness?
2. Introduce/review confidential whistleblowing system
Organisations with 50+ employees or turnover of €10m or more will need to set up an internal procedure for handling reports (if one does not already exist). According to the Commission’s early guidance, reporting procedures will need to comprise “clear reporting channels” that ensure confidentiality.
Companies without an existing whistleblowing system in place should therefore begin researching possible solutions.
“Where should I start?”
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Those with a system already in place might benefit from revisiting their procedures to ensure they offer:
- Confidential means of reporting
- A range of easily-accessible reporting channels
- Certified security standards
Under the proposed legislation, companies will also be obliged to follow up on reports and keep whistleblowers informed about their disclosure.
As such, it will be important to ensure any whistleblowing or Speak Up system includes feedback mechanisms that enable the organisation to communicate securely and efficiently with disclosers.
3. Advise leaders on impact of impending change
An impact assessment prepared by the Commission suggests that the private sector costs of complying with the new legislation will exceed €1bn annually.
Given the potential scale and impact of the proposed law, companies should begin discussing their response to it at the earliest opportunity in order to plan their resource and budget requirements.
Impact and resource considerations might include:
- Employee training
- Policy and procedure review
- Internal communication activity
- Additional staffing requirements
- Cost of external service provision
The proposed legislation will take a number of months to finalise, with adoption of the directive likely in early 2019 and subsequent adoption by member states up to three years later.
Companies likely to be affected by these changes should view the intervening period as an opportunity to prepare. Those with an established speak up procedure in place, coupled with robust anti-retaliation measures, will be well positioned for the changes when they do arrive.
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