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Pensions Update

Whistleblowing changes - employers beware

Whistleblowing legislation is undergoing its first major update and with effect from 25 June 2013:

1 . Disclosures of wrongdoing must be in the “public interest”;
2 . Disclosures will no longer have to be made in good faith; and
3 . Employers and co-workers can be liable for detrimental treatment of a whistleblower.

We expect that these changes, and those limiting unfair dismissal compensation to 12 months pay, will encourage more employees to bring whistleblowing complaints.

This will make it harder for employers to sift the genuine whistleblowing complaints from those that constitute a misuse or abuse of the legislation. Organisations must develop new strategies for handling whistleblowing complaints in order to protect their staff and their employees from potential legal action.

Public Interest

Case law has previously established that a “protected disclosure” did not need to be in the public interest in order for it to be covered by whistleblowing laws. This surprising decision meant that employees could “blow the whistle” in relation to personal disputes with their employer. For example, a complaint about bullying by a line manager could constitute “blowing the whistle”, even though there is no wider public interest.

It was this perceived “loophole” which the Government set out to close with the new legislation which now requires any disclosure to be “made in the public interest”. So far, so good for employers it would seem. However, the legislation fails to define “public interest” and it will fall to individual Employment Tribunals to determine the scope of its meaning in each case. A broad interpretation could, for example, protect disclosures which are merely something of interest to some members of the public.

Furthermore, it will still be the case that an employee’s disclosure will be protected, if “in their reasonable belief” the disclosure was in the public interest. In other words, the employee need only demonstrate that he reasonably believed that the disclosure was in the public interest at the time, even if this subsequently turns out not to have been correct.

The new “public interest” test therefore may be easier for employees to overcome than it seems at first.

Good Faith and Compensation

From 25 June 2013, disclosures will no longer need to have been made in “good faith” in order to receive protection. Good faith will now only be a factor with regards to value of the claim as the tribunal can reduce compensation by up to 25% if a disclosure was not made in good faith.

This employee-friendly change seems to be the quid pro quo for the new requirement for disclosures to be made in the public interest. However, it removes a useful line of defence for employers and will embolden employees to make tactical “whistleblowing” disclosures in situations where they may have been guilty of some wrongdoing.

Personal and Vicarious Liability

The most significant change to whistleblowing laws, however, are the new rules introducing personal and vicarious liability. These changes mean that individuals can face personal liability to whistleblowers, and employers can be “vicariously” liable for the acts of their staff (irrespective of whether the acts are done with their knowledge or approval). These provisions will inevitably enable whistleblowers to put greater pressure on employers; for instance, by naming the organisation’s directors as parties to a tribunal claim.

Employers will have a defence against a claim that they are vicariously liable for the acts of their employees if they can demonstrate that “all reasonable steps” were taken to prevent the detrimental treatment. However, whilst this would exonerate the employer, their employees could still be held liable, and this is often an unpalatable outcome for employers.

Under the new rules, an employer can be vicariously liable not just for the acts of its employees, but also the acts of any agents it engages. Agents can be engaged in a wide number of situations to act as intermediaries between employers and their customers. Employers will need to set clear limits on the authority they grant to their agents in order to reduce the risk of liability.

Protecting your business

In light of these changes, we recommend that you:

• Update your whistleblowing policy;

• Make sure that the policy is widely publicised and staff receive appropriate training (preferably of the kind that can be tracked);

• Speak to your provider of Directors and Officers Insurance to see if personal liability under whistleblowing laws can be insured against; and

• Review any agency contracts to ensure they set clear limits on authority and (if possible) contain indemnity protection from the agent in the event of a whistleblowing claim.

If regulated properly, whistleblowing procedures can benefit a company by providing internal control of risk, avoiding serious wrongdoing such as fraud or regulatory breaches and most importantly protecting the reputation of an employer

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