Big business should be aware of mandatory publishing requirements for whistleblower policies and a reverse onus of proof for compensation, which is among a raft of whistleblower reforms contained in draft legislation released following a Senate inquiry report. Partner Rachel Nicolson and Associate Katie Gardiner analyse some of the proposals.
Draft legislation creating a consolidated whistleblower protection regime for corporate misconduct in the Corporations Act 2001 (Cth), as well as a broadly equivalent taxation whistleblower protection regime in the Taxation Administration Act, has been released for public consultation. This follows the Whistleblower Protections Report published by the Joint Parliamentary Committee on Corporations and Financial Services in September (the Report).
While the draft legislation adopts some, but not all, of the Report's recommendations, it also places additional obligations on companies not contained in the Report's recommendations, including:
- a strict liability offence for public companies and large proprietary companies who do not have a whistleblower policy in place and who do not make that policy available to people who may be eligible whistleblowers; and
- a reverse onus of proof in relation to compensation for victimisation, which means that, so long as the victim can prove that he or she suffered damage because of the first person's conduct, the person accused of victimisation must prove that a disclosure was not in any part a reason for their conduct.
Currently, Australian whistleblowing law lags behind other key jurisdictions such as the UK and USA and there are significant gaps in the legal framework, which spans across multiple statutes. These laws are rarely utilised. By way of example, whistleblowing protections in the Corporations Act are restricted to current employees who make disclosures in relation to misconduct that occurs in breach of that Act only. If an employee is fired prior to blowing the whistle, or if the misconduct concerns a breach of legislation that does not contain whistleblowing protections (such as tax offences that occur under relevant tax legislation), the whistleblower is not afforded this statutory protection. In relation to compensation for retaliation, victimisers will face either jail (being very unlikely in the context of corporations), a very low financial penalty of $5250 and/or damages to the whistleblower.
The Report did not pull any punches in evaluating the current state of the Australian law, describing it of 'little practical effect'. The draft legislation has picked up on many of the Report's recommendations and, if enacted, will change the whistleblowing landscape in Australia and put them on par with the UK and USA.
We have already covered the Report's recommendations here. Many of these recommendations have been picked up by the draft legislation, including:
- expanding the definition of whistleblower to include past and present employees, suppliers of goods and services and their employees, individual associates, as well as spouses, children or dependents of any of these people;
- expanding the type of conduct covered by whistleblower protections to include:
- 'misconduct, or an improper state of affairs or circumstances' in relation to a whistleblower regulated entity (which is defined to include companies, Authorised Deposit-taking Institutions, general insurers and superannuation entities); and
- where a whistleblower regulated entity, or an officer or employee, or related body corporate (or an officer or employee of the related body corporate) has:
- committed an offence under a number of prescribed Acts including the:
- Corporations Act;
- ASIC Act;
- Banking Act;
- Insurance Act; and
- National Consumer Credit Protection Act,
- committed an offence under any other Commonwealth law that is punishable by 12 months or more of imprisonment; or
- 'represents a danger to the public or financial system'.
- committed an offence under a number of prescribed Acts including the:
- abolishing the 'good faith' requirement, which currently requires a whistleblower to prove that they made allegations of misconduct in good faith. Good faith requires a consideration of the honesty of the applicant's purpose, motive or intention and places a significant burden on the whistleblower to discharge. The proposed law no longer requires a whistleblower to prove good faith but still requires the eligible whistleblower to have 'reasonable grounds to suspect' that misconduct has occurred;
- protecting the anonymity of the whistleblower by making it an offence for a person to disclose a whistleblower's identity or information likely to lead to the identification of the discloser (unless that information is given to ASIC, APRA, a member of the Australian Federal Police or someone else with the consent of the discloser);
- establishing immunity for whistleblowers in respect of information disclosed;
- expanding the range of persons to whom whistleblowers can make a protected disclosure (including, in some prescribed circumstances (set out below), a journalist or politician);
- expanding protections and redress available for whistleblowers who suffer retaliation; and
- improving access to compensation, including by expanding the protections beyond whistleblowers to those associated with a whistleblower, protecting the confidentiality of a whistleblower's identity during proceedings and prohibiting victims from costs orders except in special circumstances.
In relation to corporate and financial sector whistleblowing, the approach proposed is to repeal whistleblowing provisions contained in a number of acts and consolidate them into the Corporations Act.
The tax whistleblower provisions, which are to be inserted into the Taxation Administration Act, are broadly equivalent to the corporations whistleblower protections highlighted above. One major difference is that the tax whistleblower provisions do not provide for disclosures to be made to journalists or politicians. Under the Corporations Act provisions, if after a 'reasonable time' the information hasn't been acted upon and is of an urgent nature, a whistleblower is allowed to approach the media or a politician. This form of protected disclosure is not provided for in the proposed amendments to the Taxation Administration Act on the basis that the sensitive nature of tax matters means that whistleblowers will not be updated of progress in any investigation and will not have any way of knowing whether their information has been acted upon. The Explanatory Memorandum to the draft legislation also notes the increased risk of vexatious disclosures in relation to individual taxpayers within the tax sphere.
The draft legislation also implements obligations that weren't recommended in the Report, including a requirement to have a whistleblower policy in place, and a reverse onus of proof in relation to compensation.
Mandatory whistleblower policies
Public companies and large proprietary companies who do not have a whistleblower policy in place and who do not make that policy available to people who may be eligible whistleblowers will be liable of a strict liability offence. Given that the definition of eligible whistleblower will now include past or present employees, suppliers and associates of the company, as well as dependents such as wives and children, public companies and large proprietary companies should give serious consideration to publishing their whistleblowing policies somewhere publicly available, such as on their company websites.
Public companies will need to have a policy in place by January 2019. Large proprietary companies will need to have their policy in place effectively by December 2019 (six months after the end of the financial year where they meet the description of a large proprietary company (but no earlier than January 2019, when the provisions are enlivened)).
Victim compensation - reverse onus of proof
The proposed reforms seek to increase access to compensation for whistleblowers and their associates who experience retaliation and victimisation as a result of coming forward or being perceived to be coming forward. The reverse onus of proof in relation to compensation for victimisation means that, so long as the victim can prove that he or she suffered damage because of the first person's conduct, the person accused of victimisation must prove that a disclosure was not in any part a reason for their conduct.
A reverse onus of proof is a feature in some employment laws. It has had the effect of encouraging claims and significantly burdening employers who must prove an absence of prohibited reasons for conduct. The whistleblower compensation provisions are likely to have a similar effect if they are passed as currently drafted.
The Report did not expressly recommend reversing the onus of proof in relation to compensation, but it did refer in passing to best practice criteria providing a 'realistic burden on employers or other reprisors to demonstrate detrimental action was not related to disclosure'.
The draft legislation does not introduce a number of the Report recommendations, including:
- rewards for whistleblowers; and
- the establishment of a Whistleblower Protection Authority.
In relation to rewards, this was perhaps the most controversial aspect of the Report. At least historically, there appears to be a perception in Australian society that those who blow the whistle on conduct are viewed as 'squealers' or 'dobbers'. This, coupled with reported instances of whistleblowers being victimised and bullied, has caused a stigma to develop around being a whistleblower. As outlined in the submissions received during the consultation process for the Report, rewards schemes are unlikely to effect the cultural change necessary to shift these attitudes. It is perhaps unsurprising, then, that the draft legislation does not adopt the Report's recommendation to establish a reward scheme for whistleblowers. Instead, increasing access to compensation may provide an incentive for more whistleblowers to come forward without encouraging opportunistic and frivolous claims.
Public consultation on the draft legislation is open until 3 November 2017, with the legislation set to commence from 1 July 2018.
Public companies must have a whistleblowing policy in place by January 2019 (large proprietary companies by December 2019) and should give serious thought to making it publicly available to avoid later claims that they did not make their policy available to the wide range of people who meet the description of 'eligible whistleblower' (which includes close family members and dependents of employees, supplies and associates of a whistleblower regulated entity).
In light of the above, and in advance of the new legislation coming into force, companies would benefit from auditing their whistleblowing policies and procedures for compliance in anticipation of the more stringent requirements proposed under the new regime.
This may include confirming that current processes provide clear guidance on how to raise concerns and what happens to those concerns when raised, ensuring senior management are trained properly to respond to reports made and to assist with setting the tone from the top, and communicating effectively with all persons who will fall into the category of whistleblowers regarding the scope and application of the company's policy when it is in place.