Protection of whistleblowers – new directive, new obligations

7 May 2019
 

The European Parliament adopted a directive on the protection of whistleblowers on 16 April 2019. The new regulation is intended to provide protection to persons reporting on breaches of Union law at their workplace. The directive will impose a number of additional obligations on enterprises.

Lack of sufficient protection

As the European Commission points out, only 10 Member States guarantee a comprehensive protection system to whistleblowers (Poland is not among them). In other countries this protection is fragmentary. The Act on Counteracting Money Laundering and Terrorism Financing (further AML) is the only piece of legislation in Poland that directly imposes the obligation to provide whistleblowers with a possibility to report irregularities. However, this obligation applies only to enterprises performing a specific type of activity listed directly in the Act (e.g. professional bookkeeping services, providing a registered office or address, or banking services). 

The issue of protecting whistleblowers is gaining importance in the light of scandals such as those related to LuxLeaks or Panama Papers. In addition, according to the European Commission’s data, the losses caused by the lack of adequate protection for whistleblowers in public procurement range from EUR 5.8 billion to as much as EUR 9.6 billion for the EU as a whole.

The aim of the directive is to create a comprehensive system of protection for whistleblowers, which will cover all EU Member States.

Obligations for enterprises

The obligations to protect whistleblowers will affect a much wider group of enterprises than before, including private legal entities with 50 or more employees. They will be required to set up adequately protected reporting channels for whistleblowers. Furthermore, they will be also obliged to put in place procedures for internal reporting and follow-up of reports. The directive gives national legislators an opportunity to extend these obligations to enterprises with less than 50 employees.

It also implies that the procedure mentioned above should include a designation of a person or department competent for following up on the reports. Therefore, the possibility of designating a person to act as a compliance officer or a dedicated unit will gain in importance. This solution is recommendable also in the context of other regulations that have recently been enacted or are currently in the process of being implemented (e.g. a bill on liability of collective entities for punishable offences).

It should be noted that not only employees but also persons having the status of self-employed, trainees or apprentices may be whistleblowers who should be granted protection. In addition to internal reporting, whistleblowers may also make external reports in which they notify competent authorities of a breach of law. Both types of reporting are linked to a prohibition of retaliation imposed on enterprises. The directive lists examples of actions that should be considered as retaliation against an employee: dismissal, suspension, demotion or withholding of promotion.

The new regulation also obligates Member States to ensure a system of penalties for enterprises which take any retaliatory actions against reporting persons (whistleblowers). However, the directive itself does not enumerate any specific sanctions. It only obligates national legislators to ensure that the penalties imposed by them are effective, proportionate and dissuasive.

Follow-up to the Directive

After the directive was adopted by the European Parliament, it will be then passed on to the Council of the European Union.  Once finally adopted, it will be implemented in the national legal systems.

For this reason, enterprises still have a relatively long time to prepare for the upcoming changes. However, due to the far-reaching nature of the changes, we recommend examining the directive carefully already at this point, although it is still difficult to tell if any significant modifications will be introduced. However, we could venture to say that the basic obligations to be imposed on enterprises (establishing channels for reporting irregularities and implementation of internal procedures) are unlikely to change.

It should be also pointed out that the directive sets only a minimum standard of protection for whistleblowers, leaving national legislators free to design specific solutions (in particular as regards the penalties for failure to fulfil their duties and imposing obligations on enterprises with less than 50 employees).

For many businesses, ensuring compliance with the standards set by the directive will pose a major challenge. This applies, in particular, to those which have not yet had any experience with the issue of compliance due to the nature of their activities. The said directive is another example (after AML) of the growing importance of compliance for businesses. The need to minimise the risk of irregularities is gradually becoming a universally binding obligation, irrespective of the type of activity carried out by enterprises.

We will keep you posted about further work on the directive and then on the regulations implementing the directive. If you have any questions, our experts will be glad to help.