Labour law - The whistleblowing protection act

By Gabriele Kamps

John Barnett and Ed Pierson were whistleblowers associated with Boeing. They both raised concerns about safety issues and non-compliance, manufacturing, and quality assurance practices at Boeing. Ed Pierson raised alarms about what he saw as unsafe conditions and issues related to the production and quality control of the Boeing 737 Max, particularly before the two fatal crashes involving this model in 2018 and 2019.

Tesla has been criticized for its workplace culture, business practices, and occupational safety. The company has been facing criminal and civil investigations. Critics have highlighted that Tesla is downplaying the issues and the accusation of alleged retaliation against several whistleblowers like Martin Tripp in 2018. Carlos Ramirez sued Tesla for misclassifying workers injuries to avoid reporting them to authorities. Ramirez was fired.

Not all cases of whistleblowing are that severe.

The regulatory landscape on a local and global level has been changing rapidly, and the rate of whistleblowing has been on the rise in recent years and will rise further when providing protection and anonymity while implementing internal and external channels of speaking up and signalling violations. Does this lead to compliance on a global level? Which impact does it have on organizations and on the workforce, on the atmosphere among employees?

The European Whistleblower Protection Act (HinSchG, HinweisGeberSchutzgesetz) was enacted on May 31, 2023, and is in effect since July 2, 2023.

In the United States the Whistleblower Protection Act was made into federal law in 1989. The idea was to guarantee freedom of speech for workers and contractors in certain situations. Whistleblowers are protected from retaliation for disclosing information that the employee or applicant reasonably believes provides evidence of violation of any law, rule, regulation, gross mismanagement, gross waste of funds, an abuse of authority, or substantial and specific danger to public health or safety.

The act supports the reports of money laundering and financing of terrorism. It sustains compliance in product safety and conformity, safety in infrastructure and public transport, safety in transportation and cargo via the sea, protection of the environment and protection of radioactive material and power plants. It aims at supporting compliance with energy efficiency and renewable energy as well as ecological products, food for humans and animals. It also sustains the compliance in livestock farming and slaughtering, transport and living of animals. The act can be applied on security standards in medicine and patient treatment. It addresses consumer protection, financial services, prices for products, protection of privacy in general and in information technology, free speech, and expression of opinion. The US directive focuses on facts and cases, concrete areas of application and violations.

The German HinSchG aims to enhance the confidentiality of reports and protection of individuals who, in the course of their professional activities, acquire information about violations and lack of compliance and report or disclose these to designated reporting offices as prescribed by the law. It also provides protection for individuals who are the subject of a report or disclosure in a work-related context, as well as other individuals affected by a report or disclosure.

The EU directive applies to government bodies as well as private organizations, aiming at establishing the minimum conformance for all member countries.

Both acts, in the USA and in Germany, seek to protect individuals who report misconduct, but there are differences in their scope, implementation and specific protections offered like compensation, right of information, right for independent review, support in legal recourse, protection from retaliation.

The EU Whistleblower Directive obliges companies with more than fifty employees to establish internal reporting channels, with special regulations for companies in the insurance and financial sectors. The law emphasizes the protection from retaliation, mandates the confidentiality of the whistleblower´s identity, and sets up both internal and external reporting channels. Notably, companies are not required to set up anonymous reporting channels, although they are encouraged to process anonymous reports. External reporting channels are supposed to be set up in Germany. Public disclosures by whistleblowers are allowed under specific conditions, such as when internal and external channels do not adequately address the report or in cases of imminent public nature. Violations of the whistleblower´s protections can lead to fines up to 50.000 Euro.

Until the new directive of 2023 reporting had to be internal at first step and only then could be external. Now, a complaint can be presented externally right away.

This represents an important change and may result in companies trying to incentivize internal reporting instead of external reporting.

Companies want to manage risks proactively and maintain organizational control and reputation. They prefer internal reporting due to several key aspects:

1. Early Detection and Prevention: Issues can be addressed early, before they escalate into more significant problems and financial loss, legal issues, and damage of reputation.
2. Control over the Resolution Process: Internal handling gives organizations the possibility to control the investigation and the resolution process.
3. Maintaining Confidentiality: Internal handling offers a higher level of confidentiality for both the whistleblower and the organization. External exposure can be reduced, a public scandal avoided. Reputation is managed.
4. Cultural Considerations: A robust internal reporting system reflects a company´s commitment to ethical behaviour and transparency. Encouraging internal reporting can foster a culture of openness and trust, where employees feel safe to speak up without fear of retaliation. Openness and transparency, feeling safe are key actors to high performance teams.
5. Legal and Regulatory Compliance: In many jurisdictions, regulations require companies to have mechanism in place for internal reporting. By encouraging internal reporting companies ensure compliance with these legal requirements. Non-compliance will cause penalties.
6. Financial Savings: Internal resolution clearly safes costs. Legal costs, regulatory fines, and loss of business due to reputation.
7. Employee Relations and Morale: Proper internal handling improves morale and engagement and fosters retention. An internal reporting system can be a powerful tool in that respect. Employees feel valued and heard.

Set up a clear system of internal reporting by establishing:

• A clear policy: clearly report internal reporting procedures, the types of issues that should be reported, and the mechanisms in place to protect the whistleblower. Make sure these policies are easily accessible to all employees.
• Offer multiple reporting channels: Provide various ways for employees to report, such as hotlines, platforms, email, and direct communication with a designated compliance officer or ombudsman. Diversity ensures that the employee can choose the method he feels most comfortable with.
• Guarantee Anonymity and Confidentiality: Ensure that reports will be kept confidential. This is a key feature.
• Protect Whistleblowers from Retaliation: Enforce a strict non-retaliation policy to protect from any obvious or hidden punishment.
• Educate and Train Employees: Conduct training sessions to present the importance of reporting misconduct.
• Promote a Speak-up Culture and Reward Ethical Behaviour: Promote a positive reporting culture this way. Awards, acknowledgement for ethical behaviour, verbal recognition in a team.
• Regularly Review and Improve the Reporting Process: Continuously monitor and assess the effectiveness of the internal reporting system. Solicit feedback from employees on how the process can be improved and make necessary adjustments to ensure the system remains effective and user-friendly.

By implementing these practical steps, companies do not only incentivize internal reporting but also build a stronger ethical culture which has an impact on culture, purpose, and communication within the company. The relationship between employees, within teams and with leadership can be optimized.

Even if an internal whistleblower system can significantly enhance an organization´s integrity and compliance framework, the implementation faces challenges and possible drawbacks. About one third of whistleblowers in a company are kicked out within three years. As leadership may not `trust`a whistleblower anymore, especially when external reports are filed, they prefer to separate from them. The act of 2023 addresses exactly this topic by protecting them, but there are ways to bypass. Often, the reasons to want a whistleblower out of a company are personal ones. The law does not clearly define and regulate the compensation damage. The fear of retaliation remains although the new HinSchG law. In some companies there may be cultural barriers like a bias against `snitching´. The management has to have a clear standpoint in regards. Whistleblowers may be concerned that anonymity is not guaranteed. The reporting system must be easy and transparent. A too complex system discourages the use of it. Another important challenge is the misuse of a reporting system. A misuse can be personal vendetta or reporting issues frivolously. Distinguishing genuine concerns from malicious or unfounded reports can be resource intensive. It is important that employees trust the process. Follow-Ups in an open and transparent way are crucial for the credibility of the system and the relation with employees involved in a case.

To implement a constructive, transparent, ethical, compliant, and performing culture and work environment a company needs a strong leadership, clear policies, ongoing communication and training, and the continuous evaluation and improvement of culture and environment. An internal reporting system is based on these factors and enhances them at the same time. Setting up an internal reporting system is complex and more than ethics and compliance. It has a strong impact on the workforce.

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Overall, the Whistleblower Protection Act seeks to strengthen the rights and protection of individuals who report violations, promoting transparency and integrity in businesses and public authorities.