The recent high profile announcement that Tesco had overstated its first-half profits by around £250m has had a huge impact. A number of senior executives have been suspended; over £2bn has been wiped off its stock market value; its reputation has been severely damaged and the retailer has had to alert the Financial Conduct Authority, the City’s chief regulator, which has now launched a full investigation. What is less well known is that the crisis for Tesco was started on a Friday afternoon when a whistleblower alerted Tesco’s General Counsel to the overstatement.
Brian Palmer, a Partner in our Employment Team, explains how employers should best prepare themselves to deal with whistleblowing.
Whistleblowing and the law
“Whistleblowing” refers to the act of reporting or exposing wrongdoing, either within an organisation or externally, for example to a regulator or the press. Protection for whistleblowers was introduced by the Public Interest Disclosure Act 1998 (PIDA) following earlier scandals at BCCI, Maxwell, Barlow Clowes and Barings, among others.
Workers have a right not to be dismissed or suffer any detriment at work as a result of making a “protected disclosure”. To be protected the worker must reasonably believe that the information disclosed tends to show that one of the following has occurred, is occurring, or is likely to occur:
• A criminal offence.
• Breach of any legal obligation.
• Miscarriage of justice.
• Danger to the health and safety of any individual.
• Damage to the environment.
• The deliberate concealing of information about any of the above.
In addition, the worker must reasonably believe that the disclosure is “in the public interest”.
Whistleblowing cases are not subject to the usual qualifying period of employment for unfair dismissal claims or the usual statutory cap on unfair dismissal compensation. Awards of compensation can be considerable, especially as the individual making the protected disclosure may be a well-paid senior employee. Examples of Employment Tribunal awards include:
• Tamana v Fyshe Horton Finney, over £100,000 to a company CEO who raised concerns with the Financial Services Authority (FSA) (as it then was) about the company’s relationship with a firm in the United Arab Emirates.
• Best v Medical Marketing International Group plc (in voluntary liquidation) one of the largest ever Tribunal awards (£3.4m) to a company director who was automatically unfairly dismissed for raising concerns about his fellow directors’ activities.
Cases can involve significant management time and legal costs, which are usually not recoverable.
Why have a whistleblowing policy?
While PIDA imposes no positive obligations on employers to encourage whistleblowing or to implement a whistleblowing policy, there are good business reasons to have a written policy.
Compliance and internal control
Encouraging a culture where concerns are reported internally at an early stage allows management to address those concerns more easily and avoid more serious regulatory breaches or reputational damage. Employers have an obvious interest in uncovering wrongdoing or dangerous practices within their organisations, while also managing what (if any) information reaches the outside world. Encouraging the reporting of these matters through internal channels may help avoid serious accidents, fraud, regulatory breaches or financial scandals.
Avoid external disclosures
An effective policy encourages early internal whistleblowing making it less likely that a worker will report their concerns externally to the press or other third parties. If the worker does go straight to the press, their failure to follow the procedure means their disclosure is less likely to be protected.
Reputational damage, staff morale and customer confidence
An external disclosure of suspected malpractice, especially to the press, will lead to negative publicity for the employer, damage staff morale and customer confidence. Any claim brought by a whistleblower, who believes they have suffered reprisals, is likely to have a similar effect.
Referrals to the Regulator
When a whistleblowing claim is lodged with an Employment Tribunal, the relevant regulator will be notified. This is likely to lead to a level of regulatory scrutiny of allegations made.
Employers who can point to a clear and well-publicised process available to enable genuine whistleblowers in order to raise concerns will be better equipped to deal with such scrutiny than those who do not.
Minimise litigation risk
By helping to protect whistleblowers, a clear message is sent to staff and management about the importance of whistleblowing, minimising the risk that whistleblowers will be dismissed or suffer a detriment, which could lead to litigation under the whistleblowing legislation.
Avoiding criminal liability for bribery
The Bribery Act 2010 created a strict liability corporate offence that applies where an organisation fails to prevent bribery by a person “associated” with it. It is a defence is to show that the organisation had in place “adequate procedures” designed to prevent bribery. The government Guidance stresses that it is important for organisations to have in place effective whistleblowing policies and procedures that encourage employees to report bribery.
Public bodies
The Government expects all public bodies to have written policies. The whistleblowing arrangements in local authorities and NHS bodies are assessed as part of their annual audit process.
Listed companies
The UK Corporate Governance Code requires UK listed companies to have written whistleblowing arrangements or to explain why they do not. The company’s audit committee is responsible for keeping them under review.
Drawing up a whistleblowing policy
The principal objectives of a whistleblowing policy and procedure should be to:
• Convey the seriousness and importance that the employer attaches to identifying and remedying wrongdoing.
• Encourage workers to raise concerns internally as soon as possible and to give them the confidence to do so.
• Remind workers (often by cross-referring to other policies and codes of conduct) of the standards of behaviour expected of them.
• Ensure workers know whom to approach with a concern and to enable them to bypass the person, management level or part of the organisation to which the concern relates.
• Outline the procedures for investigating disclosures and what steps might be taken if wrongdoing is uncovered.
• Make it clear that those who victimise genuine whistleblowers or abuse the system by making malicious allegations will be open to disciplinary action. (Since 25 June 2013, the act of a worker in subjecting a whistleblower to a detriment is now being treated as having been done by the employer. The employer will have a defence if it took all reasonable steps to prevent the detrimental treatment.)
• Provide access to further sources of advice and guidance on whistleblowing.
A whistleblowing policy in practice
Overall responsibility
Overall responsibility for whistleblowing can rest with the board, CEO, company/group secretary, legal or finance functions. Day-to-day responsibility can be delegated to the HR, internal audit or compliance functions. It may be best to appoint a specified individual or individuals to whom people can report their concerns, such as a designated Whistleblowing Officer.
Who should handle disclosures?
Select personnel to encourage and facilitate internal disclosure and in whom staff will have confidence.
Role of management
While workers should be provided with a route other than direct line management through which to raise concerns under the policy, take care not to alienate line managers. They will usually have a valuable part to play. A policy which excludes line management altogether is likely to be impractical and bureaucratic.
Set the right tone
All employee policies and procedures should be easy to understand and operate. It is unlikely workers will have the confidence to come forward with their concerns if the policy is complex, unclear or full of legal jargon.
What disclosures should be covered?
To obtain protection under PIDA whistleblowers need to have a “reasonable belief” before they come forward. However, employers may want to know about issues which do not necessarily fall within the concept of a qualifying disclosure, such as conduct which is unethical or a breach of professional conduct rules or internal procedures that do not have the force of law. The policy may also encourage staff to raise issues or ask questions where they are unsure if their concern technically qualifies as whistleblowing. Otherwise workers may feel that they need to gather evidence to safeguard their position or simply in order to be believed. Furthermore, the worker’s perceived need to protect his or her position may delay the disclosure (and the employer’s own investigation) or worse, deter the worker from raising the matter at all.
To encourage whistleblowers to come forward as early as possible, for example, employers may simply require a “reasonable suspicion” or even just a “concern” about suspected wrongdoing.
Records of the disclosure
Employers should usually make a written record of the key points of concerns raised under a whistleblowing policy. It may be helpful for the employer to have a pro-forma record to ensure consistency of approach, including such detail as the substance of the concern, the types of risk involved, any action already taken or agreed to be taken and whether the worker has requested confidentiality.
Investigations
Complaints should be investigated promptly so that any delay does not create further grounds for complaint and to ensure that relevant evidence is collected before it is destroyed. An employer’s delay or inaction can appear suspicious to a worker who already suspects malpractice. If the worker believes that the matter is not being dealt with or, especially, if evidence is being covered up or destroyed, the worker is more likely to go to a regulator or other external agency.
The Whistleblowing Officer (if there is one) or other responsible person will need to determine the level of investigation required. If the matter needs further investigation, the Whistleblowing Officer should usually appoint an investigator or team of investigators.
The investigators will be responsible not only for looking into the truth of the allegations but also making recommendations for disciplinary action against any wrongdoer and wider change within the organisation.
It may be appropriate to investigate in two stages. Firstly, to determine whether there is prima facie evidence of the alleged wrongdoing (without focusing on individual responsibility). Secondly, to investigate the people involved to determine who is responsible.
Inevitably there may be occasions when a worker has simply misunderstood the circumstances or is motivated by a personal grievance against a colleague (whether maliciously or otherwise). In these cases, the investigator may be able to curtail the requirement for a lengthy investigation through a sympathetic meeting at which the worker’s concerns are put in context. This could dissipate any personal antagonism but, if it does not or the worker is not happy with the explanation provided, the investigator should consider whether further investigation is warranted. The worker should still have the right to raise their concern with a higher level of management.
What other actions should an employer take?
• Review any existing policies, procedures, codes and rules, such as those in contracts of employment, staff handbooks and intranets to ensure they are consistent with the whistleblowing policy.
• Consider the interaction with grievance procedures. While it is usually wise to separate the grievance and whistleblowing policies, the issues often overlap. Provide workers with guidance on which procedure to use.
• Take professional advice at an early stage, in view of the complexity and risk involved.
Pitfalls
Avoid imposing a legal duty on workers to blow the whistle. This is unlikely to inspire confidence and may lead to a number of practical difficulties.
The policy should not be unduly legalistic. Closely following the statutory language is unlikely to encourage a culture of openness. Employers may be worried that too broad a policy will become a “troublemaker’s charter”. However, a legalistic policy will not deter troublemakers and may even encourage them by giving the impression that one of its purposes is to give workers grounds to sue
The policy should not be used for bullying or harassment complaints or other individual grievances.
While it is important to enable workers to report concerns outside the normal management structure, this does not mean that workers should never go to their line manager. This would be both impractical and likely to alienate managers.
Do not overreact to disclosures made where they seem mistaken, there is an appearance of bad faith or where they are external – investigate thoroughly and make extra efforts to prevent victimisation.
Do not rely on confidentiality clauses to prevent external disclosures, as they are unenforceable if the disclosure is protected. Taking action against a whistleblower for breach of confidence may amount to unlawful detriment.
Ensure any existing policy has been updated from 25 June 2013 to:
• cover protected disclosures made “in the public interest”
• remove the requirement that disclosures must be made “in good faith”
• clarify that complaints about breaches of employees’ own contracts of employment should now be raised as a grievance
Where does this leave employers?
Whistleblowing is something which cuts across every business, from bribery and corruption issues to health and safety concerns as well as financial wrongdoing. By putting in place an effective framework, an organisation will be in a good position to avoid incidents of whistleblowing arising in the first place and to manage effectively the consequences of any allegations which are made.
