Whistleblower laws in Australia have been the subject of recent media and parliamentary scrutiny, with calls for greater protections for those who disclose wrongdoing.
As part of an agreement with Senator Nick Xenophon to get its industrial relations reforms through the Senate in November 2016, the Federal Government agreed to include enhanced protections to whistleblowers under the Fair Work (Registered Organisations) Amendment Act 2016 (Cth) (FWROA). Further, the Government agreed to review the protections for whistleblowers in the public and private sectors, and to expand them to at least the equivalent protections under the FWROA by mid-2018. At the same time, the Senate Standing Committee on Economics has recommended that the Government explore the introduction of a reward or bounty scheme to incentivise whistleblowers to come forward.
Now the Government has sought comments on wide-ranging changes to the whistleblower laws, including the possibility of the introduction of a US style reward scheme for corporate whistleblowers.
Review of tax and corporate whistleblower protections in Australia
As part of its commitment to review whistleblower protections, the Government initiated the Review of Tax and Corporate Whistleblower Protections in Australia in December 2016 (Whistleblower Review). A Parliamentary inquiry into whistleblower protections in the corporate, public and not for profit sectors has also been established.
Dwyer Harris made a detailed submission to the Whistleblower Review, which you can download here.
Enhancing protections for whistleblowers
As the Government has undertaken to give whistleblowers generally at least the same protections as in the FWROA, it is likely that amendments will be made to harmonise existing laws with the protections under the FWROA.
The FWROA expanded whistleblower protections by:
- extending protection beyond existing employees and officers to include former officers, employees and members of a union or an employer organisation, and contractors of such organisations;
- widening the scope of ‘disclosable conduct’ beyond contraventions of the Fair Work (Registered Organisations) Act 2009 (Cth) and the Fair Work Act 2009 (Cth), to include breaches of the Competition and Consumer Act 2010 (Cth) or offences against a law of the Commonwealth; and
- making available a wider range of remedies to whistleblowers to include orders granting injunctions, apologies, exemplary damages, or reinstatement to employment (where the whistleblower’s employment was terminated).
Whistleblower reward scheme
Perhaps the most controversial issue canvassed by the Whistleblower Review is whether Australia should introduce a reward scheme for whistleblowers.
Whistleblower rewards are used as an incentive to encourage whistleblowers to come forward with information.
In principle, we think that some form of whistleblower rewards scheme operating in Australia may be helpful to encourage whistleblowers to report misconduct, subject to safeguards and appropriate administration. However, in our view, further detailed analysis and consultation should be undertaken before any whistleblower reward scheme is implemented.
In our experience, there are generally three kinds of reward schemes:
- A discretionary award based on the value or quality of the information provided by a whistleblower. An example of this type of award program is the UK’s Office of Fair Trading (OFT) financial rewards scheme for information in relation to cartel conduct.
- A reward which references the monetary fine or penalties paid to the government as a result of information leading to a successful prosecution or settlement. An example of this is the SEC whistleblower program set up in the United States under the Dodd Frank Act. Under this program an eligible whistleblower is entitled to an award of between 10% and 30% of the monetary sanctions collected in actions brought by the SEC, or other related actions brought by regulatory and law enforcement agencies. The information provided by the whistleblower must lead to a successful SEC action resulting in an order of monetary sanctions exceeding US$1 million.
- A private regulator model. An example of this is qui tam actions, where the whistleblower is acting as a “private regulator” recovering money on behalf of a public entity, and receives a portion of the proceeds. The United States has a federal qui tam statute, the False Claims Act, and most US States have state-based counterpart legislation. The case against Lance Armstrong to recover sponsorship monies paid by the US Postal Service is a qui tam action commenced by his former teammate, Floyd Landis. Qui tam statutes are used to recover significant amounts of money owed to the government each year, particularly in relation to overcharging in the health and defence industries.
Whistleblower complaints and compensation
Another significant issue for the Whistleblower Review is how to deal with whistleblower complaints of retaliation or claims for compensation. The Whistleblower Review canvasses whether ASIC should be an advocate for whistleblowers and whether complaints could be dealt with by the existing financial ombudsman scheme. In our view, neither of these options are attractive.
If the Whistleblower Review recommends setting up a central office for dealing with whistleblower complaints, it should give consideration to locating an Office of the Whistleblower in the Fair Work Commission, which already indirectly deals with matters involving whistleblowers arising out of breaches of the general protections.
Subject matter disclosure
The Whistleblower Review canvasses whether government should implement expanded subject matter disclosure across a wide range of regulatory areas.
In our view, this should be assessed on a case by case basis in consultation with the relevant regulatory agency involved. For example, it would seem appropriate to expand the current whistleblower provisions of the Corporations Act to include disclosure under the National Consumer Credit Protection Act 2009 (Cth), which is a substantial part of ASIC regulatory remit.
The Whistleblower Review should also consider whether conduct, if disclosed, is serious enough to attract whistleblower protection – i.e. legal breaches or serious integrity issues, rather than employment related grievances.
“Good faith” requirement for disclosures
Currently, to attract whistleblower protection for disclosures made under the Corporations Act, the whistleblower must make the disclosure in good faith. We think that the “good faith” requirement should be removed and replaced by an objective standard of honest belief, on reasonable grounds, that the information disclosed shows or tends to show a contravention of the relevant legislation.
Good faith goes to the subjective motives of a person rather than to the importance and quality of the information disclosed.
The Corporations Act does not provide for anonymous disclosure. The Whistleblower Review has sought comments on whether anonymous disclosures should be allowed.
Anonymous reporting gives greater protections to the whistleblower and may result in more people disclosing than would otherwise be the case if identification was required. But anonymity can also encourage frivolous or unhelpful disclosures which drain agency resources.
On balance, we favour a system that requires limited disclosure of the identity of the whistleblower to the agency responsible, with appropriate safeguards against disclosure of the person’s name and identifying information to third parties. This can presently be done under section 127 of the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act) and via confidentiality orders if the matter is before the courts.
One option is third party disclosures through lawyer, as used in the United States under the Dodd Frank Act and False Claims Act processes. These allow a whistleblower to disclose anonymously through his or her lawyer, with the person’s identity not being disclosed until much later in the process.
Protected disclosure to third parties
The Whistleblower Review also seeks input on whether disclosures to the press and other named categories of people (for example, members of parliament) should be protected disclosures.
In our view, disclosure internally or to the relevant regulator should be the priority, and if the Whistleblower Review recommends protected disclosure to the media or other third parties, the protection should be delayed until the corporation internally and/or the relevant agency has had an appropriate opportunity to review and act upon the material.
Premature disclosure can jeopardise an ongoing investigation, and if the disclosure is inaccurate it can have an adverse impact not only for the individuals involved but also for employees and shareholders generally.
Requiring companies to report on whistleblower policies
The Whistleblower Review also asks whether companies should be required to have a formal internal whistleblowing policy and to report to ASIC on the operation of that policy. In our view, further measures are unnecessary, because existing regulation of corporations contains sufficient reporting on matters which would relate to conduct giving rise to a whistleblower disclosure.
The Parliamentary inquiry is due to report by 30 June 2017, with its recommendations for reform. We will be following developments, so watch this space for further updates.