Insights

Whistleblower

Whistleblower Laws Add to Corporate Risk, The Australian

Jones Day Partner Adam Salter, Partner-in-Charge of Jones Day's Perth Office who focuses his practice on Labor & Employment matters, outlines the challenges companies now face after sweeping changes to Australia's corporate whistleblower laws went into effect in July, and the ways to protect companies' interests while managing competing obligations.

 Anyone familiar with Matt Damon's performance in 'The Informant' will know how challenging it can be to navigate the murky waters of whistleblower protections. Whistleblowers often fear they will become a target of retaliation, and equally, it can be difficult for companies to ensure internal investigations are held in a way that is procedurally fair and free from bias.

Sweeping changes to Australia's corporate whistleblowing laws came into effect on July 1, 2019, and while the reforms strengthen the protection offered to whistleblowers through a range of additional measures, the complexity of the new system comes with fresh challenges for corporate Australia.

The first, and arguably most significant, relates to internal investigations. If a whistleblower raises a complaint within a company that qualifies for protection, the reforms impose strict anonymity obligations on any person who directly or indirectly comes to know the identity of (or identifying information about) the whistleblower as a result of the complaint. Disclosing identifying information about the whistleblower in such circumstances is now a criminal offence and also can attract hefty civil penalties.

The anonymity obligation makes it particularly difficult for companies to effectively investigate, or report on, whistleblower complaints. For example, assume a senior manager receives an internal complaint that qualifies for whistleblower protection. If the circumstances involve a high risk of the whistleblower being identified (for instance, where the whistleblower raises concerns about someone in their direct reporting line or about matters that only a few people are privy to in the company), the senior manager's ability to report to the board on the nature and content of the complaint may be restricted. Likewise, any internal investigations now will need to be handled carefully in a way that does not blow a whistleblower's 'cover'.

Corporations in the United States are generally well ahead of the curve when it comes to the protection of whistleblowers, having developed sophisticated methods for dealing with similar anonymity obligations. A common method is the formation of a separate internal investigations group within the company's legal and risk departments to review allegations of misconduct by whistleblowers and others. Keeping the group independent of other corporate functions with robust procedures in place to maintain whistleblower confidentiality serves to minimise risks of retaliation, guards against perceptions of bias and enables boards to stand at arm's length with the confidence that any investigation is being handled effectively. Many US corporations have also implemented anonymous reporting phone lines allowing whistleblowers to register complaints on an anonymous basis, but with enough information to enable a proper investigation to be conducted.

Australian employment laws also make life difficult for employers responding to whistleblower complaints. There is an inherent tension between the new right of whistleblowers to anonymity and procedural fairness obligations embedded under Australian employment law (by virtue of unfair dismissal and general protections laws and through contractually binding company disciplinary/termination policies).

Generally speaking, procedural fairness requires a company to put any allegations of misconduct to employees, and provide them with a reasonable opportunity to respond, before taking any serious disciplinary action such as dismissal. If the allegations stem from a whistleblower complaint, one can  see how a company could be severely limited, or even prohibited, from putting allegations of misconduct to an employee where doing so would reveal the identity of the whistleblower.

Managing these competing obligations will need to be handled on a case-by-case basis. However, there are steps boards and senior management can take to make life easier if such a situation does arise. Arming a team with the authority to undertake comprehensive and independent investigations is key. That way, if an investigation reveals evidence corroborating the whistleblower complaint, the company can then put that information to any employees accused of misconduct in a way that avoids breaching the company's anonymity and procedural fairness obligations.

To date, Australian boards have been slow to establish truly independent investigation groups, meaning the difficult task of investigating a sensitive complaint often falls to HR departments which are more susceptible to allegations of bias. However, with a renewed focus on corporate accountability in the wake of the financial services royal commission, the new whistleblower reforms may prove to be the catalyst for Australian corporations embracing the use of autonomous internal investigation groups much like their counterparts in the United States.

Reprinted with permission from the August 9, 2019 issue of The Australian (subscription required). Further duplication without permission is prohibited. All rights reserved.

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