30 July, 2018
“The question of whether I as a whistleblower should be pardoned is not for me to answer.”
Whistleblowing is a complicated and dark affair stemming from individuals manoeuvring the fine line of corporate social responsibility and the safety net of their jobs.
For organisations, however, it’s a behemoth task of balancing corporate interests, doing right by the whistleblower and complying with the legal requirements involved around the issue of whistleblowing, all while protecting their reputation and brand image.
The legal framework on whistleblowing in countries is usually in the form of identified issues which are considered breach of applicable legal requirements and are encouraged to be legally reported or disclosed such as bribery, unethical conduct, financial fraud, serious violations of laws etc.
Besides this, there may be laws specifically for whistleblowers, containing provisions on (i) protection against retaliation, wrongful dismissal and discharge, (ii) maintaining confidentiality, and (iii) outlining the layout and channel for reporting and handling of such incidents by the employers and concerned authorities.
Furthermore, legislations could also prescribe the requirement for organisations to formulate an internal whistleblowing policy/vigilance mechanism which facilitates a safe channel for internal whistleblowing by employees’ vis. a vis. an organisation.
In this context, it is interesting to note that the whistleblowing laws across jurisdictions have evolved in a distinct fashion. Laws have been gradually evolved in protecting whistleblowing done in good faith and with an element of public interest involved. The test of disinterested individual or observer which precludes the requirement of reportable issue to fall under the area of responsibility of whistleblower has evolved slowly, thereby increasing the ambit of who could qualify to be a whistle blower. Confidentiality of reporting has always been protected however anonymity in reporting has faced legislative resistance. As the laws evolved, they also mandated requirements to formulate an internal mechanism for whistleblowing by corporate entities.
WHISTLEBLOWING LAWS: INDIA AND COMPARSION WITH OTHER JURISIDCTIONS
In India, the Whistle Blowers Protection Act, 2011 (“WP Act”) governs the mechanism for making permitted public interest disclosures against allegation of corruption, misuse of power etc. by public servants(including former public servants).The whistleblower under this act could be any person including former or current employee, third party vendor, client or any unrelated party. However, the WP Act does not cover cases which involve only private persons or entities, without any wrong doing by a public servant.
Unlike the above, in USA, at the federal level, the Whistleblower Protection Act of 1989 offers a rather constricted approach of providing protection to only the federal employees (including former employees) as whistle blowers.
Further, laws such as the Sarbanes-Oxley Act of 2002 and Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd Frank Act”) cover private sector corporate employees working in publicly traded companies.
Although, certain laws in the US, do offer protection to employees working in a particular industry in the private sector while blowing the whistle on wrong doing within the private sector. For instance: the Occupational Safety and Health Act of 1970, protects employees who report any health or safety hazard in an organisation.
In UK, the Public Interest Disclosure Act, 1998, protects employees, working both in private and public sector and includes individuals engaged in the capacity of contractors and certain category of trainees besides the full time employees and complaints can be made against wrong doings of only private individuals.
Thus, as opposed to the Indian framework, the legislations in UK and to some extent in US provide an avenue for whistle blowing vis. a vis. reporting of allegations by a private person against another private person or entity.
While the WP Act in India has not yet been notified, its framework is used as a reference points by the Indian courts while deciding cases related to whistle blowers against public servants. The WP Act offers protection against victimisation and imputes an obligation of maintaining confidentiality of the whistle blower.
The laws in US also protect covered employees making lawful disclosures from retaliation from co-workers and adversarial modification of their terms of employment. US legislative framework goes a step ahead in so far as the Dodd Frank Act offers a mechanism for financially rewarding the whistleblowers for having made the relevant disclosure.
Similarly, the Public Interest Disclosure Act, 1998, in UK, protects against retaliation and even extends vicarious liability on the employer in the event the whistleblower is detrimentally treated by a co-worker.
Further, France offered protection from victimisation, harassment and unfair modification of their terms of employment under its labour code, to employees, who made complaints regarding alleged corruption. In this regard, France has recently introduced legal framework to deal with corruption i.e. the “Loi Sapin II pour la transparence de la vie économique” (“SAPIN II”) which has penalties in place, in the event a whistleblower is prevented from making disclosures or if the confidential information related to the whistleblowers is revealed by an individual. SAPIN II provides that the whistleblowing mechanism shall aim to maintain strict confidentiality and anonymity of the whistleblower.
Presently, in India, since the WP Act has not been notified, there is a comparable mechanism to report, by any person, in the capacity of whistleblower, on any allegation of corruption or of misuse of office by a public servant (including an employee of a government company), to the Central Vigilance Commission, which is the designated agency to receive such complaints.
There is currently no restriction on the nature of disclosure which is permissible provided whistle blowing complaint is filed with all the supporting documents and is not anonymous.
Furthermore, in addition to the WP Act, the Companies Act, 2013, read with rules made thereunder provides that the listed companies, companies which accept deposits from the public and companies which have borrowed money from banks or public financial institutions in excess of INR 500,000,000 need to establish a vigil mechanism for their directors and employees to report their genuine concerns or grievances.
This mechanism is implemented by companies by formulating a standalone policy in this regard. The employees can make disclosures ranging from complaints on violation of code of ethics of company, conflict of interest, frauds, corruption and harassment. The Companies Act, 2013 does not expressly provide for protection of whistle blowers, the nature of complaints or process of disclosure. As a practice companies in their policies usually state that confidentiality of the whistleblower shall be maintained, there shall be no retaliation and complaints can or cannot be made anonymously.
Further, as per regulations prescribed by the Securities and Exchange Board of India, listed entities need to devise an effective whistle blower mechanism enabling stakeholders (including employees) to freely communicate their concerns about illegal or unethical practices. Under these regulations, the brief details of the complaints received from the stakeholder and the status and manner of resolution of these complaints should be outlined in the business responsibility report to be published by the listed companies in India.
In this context, it is pertinent to note that jurisdictions like the US and UK have stricter standards for what are deemed permitted disclosure and the threshold of reasonable belief, which needs to form the basis of the allegations being made.
For Instance: Disclosure under the Whistleblower Protection Act of 1989, in US, is protected if it is based on the reasonable belief of the whistleblower. This legislation uses the test of “disinterested observer” when ascertaining the reasonable belief of a whistleblower. Thus if in a given situation, a disinterested observer with knowledge of the essential facts known to and readily ascertainable by the employee or applicant would arrive at a similar conclusion as the whistleblower and conclude that the actions of the public officials evidence a violation of law, rule, regulation, gross mismanagement, a gross waste of funds, an abuse of authority, or a substantial and specific danger to public health or safety, then the reasonable belief of the whistleblower would not be ordinarily questioned.
Similarly, under the Public Interest Disclosure Act, 1988, in UK, qualified disclosures, which can be made under this law, range from episodes when a criminal offence has been / is being or is likely to be committed. It further includes reporting a miscarriage of justice or failure by an individual to comply with his or her legal obligation or in the event health or safety of any individual has been or is being or is likely to be endangered or damaged. However, the above issues relating to qualified disclosures will not be reportable if the reporting individual is also involved in the wrong doing or in breach of legal professional privilege. The threshold for a reportable issue to fall in the category of qualified disclosure is higher when such disclosure is made to an external prescribed authority or media as opposed to reporting internally within the organisation. Individuals are offered protection only if they make qualified disclosures in good faith and the whistleblower must objectively and reasonably believe that the issue falls under the category of qualified disclosure and it must be distinct from an allegation or opinion. The amendments to this act have introduced the requirement of public interest test to be met to validate the reasonableness of the disclosure. For disclosures made to the media, such disclosures should be substantially true and should fall within the reporting person’s ambit of responsibility.
In France, previously, the protection offered to whistleblower was contingent on existence of sufficient evidence vis-a-vis the disclosure. With the advent of SAPIN II, the scope of disclosure is extended by providing that disinterested individuals can also report provided the disclosure is made in good faith.
With respect to entertaining of anonymous complaints, certain statutes in US protect anonymous whistle blowing but in UK the legislation protects confidential reporting rather than anonymous reporting.
THE DYNAMICS AND DILEMMA AROUND WHISTLEBLOWING MECHANISM IN INDIA FOR PRIVATE ENTITIES
Issue of extraterritorial application of laws
In India, laws on whistleblowing primarily revolve around allegations where a public servant is involved with a private entity in capacity of a client, vendor or the concerned authority in relation to compliance of applicable laws by such an entity. However, legislations like Companies Act, 2013 and regulations prescribed by the Securities and Exchange Board of India; mandate certain companies to formulate a robust internal mechanism for whistle blowing.
Even in the absence of such a mandatory requirement, employers generally have in place whistleblowing policies which provide an avenue for the employees to raise concerns on any violations of legal or regulatory requirements or the employer’s internal code of conduct.
To this end, a whistleblowing policy generally includes provisions relating to reportable issues, protection of whistleblowers, reporting procedures, process of handling disclosures, accountability of whistleblower in case of false disclosure, retention of records etc. Preferably, a whistleblowing policy also provides for reporting of unethical or improper practice and violations of the employer’s internal code of conduct (not necessarily being a violation of law).
The policies by such private entities can borrow the tests of “good faith”, “public interest”, “reasonable belief”, “disinterested observer” etc. , which feature in laws of other jurisdictions, while defining the scope of permitted disclosures under their policies.
This voluntary approach by the employers reinforces their commitment under the Companies Act, 2013, which requires the directors’ to include a business responsibility statement with the director’s report stating that the directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.
Besides such voluntarily formulation of a robust mechanism, there is also an urgent need to assess the extra territorial application of certain laws such as the anti-corruption laws, data privacy laws for companies operating in multiple jurisdictions and engaging in cross border transactions, to ensure that their internal mechanism for whistleblowing is compliant with such laws. The extra territorial application of anti-corruption laws, data privacy laws also affect the whistleblowing procedures and policies adopted by multinational companies across jurisdictions, for instance a parent entity becoming liable in the home country, for the breaches or lapses of a subsidiary, affiliate or group company in foreign jurisdictions.
Therefore, for Indian companies which are part of multinational group it becomes essential to ensure that policies and internal compliance systems of the Indian entity are aligned with foreign laws, where applicable.
For instance: Since the applicability of the French Law, SAPIN II, extends to subsidiaries of and companies controlled by the parent company, to whom SAPIN II is applicable, it would be essential for such Indian entities to ensure that their internal compliance mechanism envisages the requirements set out under this law including the anti-corruption policies and channel for reporting and protection for the whistle blowers.
Overlap with other procedures/policies in the organisation
While the whistleblowing mechanism sets out the framework for making disclosures regarding legal and ethical indiscretions which may be present in an organisation, it is essential that there are in place other policies which define the scope and ambit of these reportable indiscretions such as policy on anti-corruption, sexual harassment, gifts and gratuities, charitable contributions, conflict of interest, policy against receiving commissions or kickbacks, ethics code etc.
Additionally, the incidents relating to whistleblowing often result in initiation of disciplinary proceedings against the delinquent employees, even leading up to invoking legal action in cases of serious breach. If the whistle blower is also a witness to the alleged incident of misconduct then often a conflict arises between protecting the identity of the whistle blower vis. a vis. the respondent’s right to know and examine the witness.
While the complications which arise in a whistleblower incident are inevitable, however clarity in protocols, a sound understanding of applicable laws, their overlap with other policies and careful handling of such incidents can help employers navigate through conflicting interests and protect the organisation.
For further information, please contact:
Priyanka Anand, Associate Partner, Clasis Law
Saumya Dev, Clasis Law