ing a claim for breach of confidence.
The debate over whistleblowing and the protection of whistleblowers has
affected commercial and non-commercial organisations across the world. It has
been seen that on the whole a worker who blows the whistle on an employer
can expect to feel the full force of institutional anger and discredit with the fol-
Poor performance evaluations;
Ostracism from colleagues;
Stress and health damage.
Whistleblowing and governance: an overview
Over the last few years we have witnessed both real and alleged whistleblow-
ing on organisations both in the private and public sectors, such as Merrill
Lynch and the European Commission, as well as in the profit and not-for-profit
sectors. Historically whistleblowers have found that they have made a decision
that entails all risk and no reward.
A detailed discussion of whistleblowing is clearly not possible or appro-
priate in this book as it is a subject that deserves much more comprehensive
treatment. However, it should be noted that the issue of whistleblowing has
arisen, of course, as a risk issue in the well-documented corporate scandals.
A recent example that also involved a large financial penalty for an organ-
isation is that a US Federal court awarded $1.5 million (Â£830 000) in damages
to a painter who said he was the target of retaliation after he complained about
workplace hazards. The employee warned that employees and the public were
exposed to dust from lead-based paint and asbestos. He also said hazardous
materials were stored and disposed of improperly, and employees were work-
ing without the legally required training and safety equipment. He said he was
Part C â€“ Overview of the Social Aspects of Business Risks
the target of retaliation by his bosses and was disciplined, isolated and not
given job duties (Risks, issue number 219, 13 August 2005).
Moreover it is especially relevant in the consideration of all organisations,
including charities, bearing in mind the crucial area of professional ethics. If the
public or organisations do not protect whistleblowers, it tacitly accepts the risks
of being denied important information. Although government ministers have
been quick to condemn whistleblowers who raise awkward questions â€“ as in the
documented case of the concerns over UN telephone tapping â€“ the regulatory
departments have begun to appreciate, and even encourage, whistleblowers.
The UK approach: the Public Interest Disclosure Act 1998
In the UK the Public Interest Disclosure Act 1998 (the 1998 Act) was enacted to
protect those who blow the whistle on wrongdoing in their workplace.
Essentially, the 1998 Act gives protection to workers when they make a â€˜pro-
tected disclosureâ€™ (see further below).
The primary objective is to encourage workers to disclose information to
their employers so that the employers can take remedial action internally.
However, in certain rather restricted circumstances the 1998 Act can also pro-
tect workers who disclose information to third parties, including the media.
In any event there are several hurdles that must be overcome in order to
establish that a disclosure is a â€˜protected disclosureâ€™: these are commented
The scope of the protection
A worker who makes a protected disclosure is protected in several ways:
Any confidentiality provision in a contract is void in so far as it purports to
preclude the worker from making a protected disclosure. This means that an
employer cannot rely on the confidentiality clause in the contract in order
to claim that a worker has breached their contract by making the protected
The worker has the right not to be subjected to any detriment on the ground
that he or she made the protected disclosure. By way of example detriment in
this connection would evidently include any disciplinary action or a failure
to promote the worker. Moreover a worker claiming to have been subjected to
a detriment on the basis of a protected disclosure can complain to an employ-
ment tribunal and, if successful, the tribunal can make a compensation
award in favour of the worker. The compensation can include an element for
injury to feelings which it has been reported should be assessed in the same
way as an injury to feelings in the context of discrimination cases on the
grounds of sex or race;
If the worker is dismissed and the reason or the principal reason is that he or
she made a protected disclosure this dismissal will automatically be consid-
ered as an unfair dismissal by an employment tribunal; and
Chapter 14 â€“ Human resources risk (human rights inside the workplace) 341
It is important to note that the usual qualifying period of one yearâ€™s continu-
ous employment and the usual cap on unfair dismissal compensation â€“ cur-
rently Â£55 000 â€“ do not apply in whistleblowing cases. This means that it
would be advantageous for a worker to show that he or she had been dis-
missed as a result of a protected disclosure rather than for any other reason
in unfair dismissal cases where the employee has less than one yearâ€™s contin-
uous employment or where his or her losses exceed Â£55 000.
The key elements of a protected disclosure are as follows.
The subject matter of the disclosure
A disclosure is protected in circumstances where â€“ in the reasonable belief of
the worker making the disclosure â€“ the information being disclosed tends to
show that any of the following is occurring, has occurred or is likely to occur:
A criminal offence;
A failure to comply with a legal obligation;
A miscarriage of justice;
An endangering of the health and safety of any individual;
Damage to the environment; and
The deliberate concealing of information tending to show any of the above.
There are many types of information that are capable of forming a protected dis-
closure. According to commentators, in spite of the name of the 1998 Act there
is no requirement that the disclosure should be â€˜in the public interestâ€™ or event
that it must affect anyone other than the worker himself or herself. By way of
example a complaint by a worker that he or she has been paid incorrectly can
be a protected disclosure. Moreover it is not necessary for the disclosed infor-
mation to be true. The vital point is that the worker reasonably believes that the
subject matter of the disclosed information tends to show one of the failures
that are listed above.
One caution to be noted is that workers who are relying upon disclosures
regarding possible future failures must be careful. In such circumstances a
worker must reasonably believe that the failure is likely to occur, not only that
it could occur. The stronger test should be noted.
The person to whom the information is disclosed
Once the subject matter falls within the above categories another hurdle must
be overcome. The disclosure will only be protected if the disclosure is made to
the employer of the worker or to a person who has been designated by the
employer. The latter designation may be through the terms of a whistleblower
policy. Some workers in the public sector can also achieve protection under the
1998 Act by making a disclosure to the relevant minister. As an alternative the
worker can obtain protection by making the disclosure to the relevant â€˜pre-
scribed personâ€™. A full list of prescribed persons is found in the Public Interest
Part C â€“ Overview of the Social Aspects of Business Risks
Disclosure (Prescribed Persons) Order 1999. This lists 40 â€˜prescribed personsâ€™
or organisations, including the Audit Commission, the Charity Commission
and the Inland Revenue. The clear intention of the 1998 Act is therefore to
encourage disclosure within the workplace or, where this is not feasible, to offi-
Motive of disclosure: â€˜in good faithâ€™
In all cases of a disclosure the disclosure must be made â€˜in good faithâ€™.
Evidently this means more than just reasonably believing the truth of the infor-
mation. Therefore where the dominant purpose of the disclosure is some ulte-
rior motive such as personal antagonism towards a manager, then the disclosure
is not made in good faith.
Disclosure to third parties
Despite the clear intention of the 1998 Act referred to above there is also some
statutory recognition that in certain circumstances it is appropriate for a worker
to disclose the information about an employerâ€™s failure or failures to third par-
ties. Since, however, such disclosure could be very detrimental to the employer
in many respects, especially as regards their reputation, there are additional
criteria or hurdles included in the legislation that must be fulfilled or overcome
before any disclosure to a third party is protected. These are as follows:
The worker must not make the disclosure for the purposes of personal gain; and
Either the worker must have already made the disclosure to his or her
employer or a prescribed person or must reasonably believe that he or she
will be subjected to a detriment or that evidence will be destroyed or con-
cealed if he or she did so; and
The disclosure must be â€˜reasonable in all the circumstancesâ€™.
The â€˜reasonablenessâ€™ ingredient is important. The 1998 Act contains a list of
matters that a tribunal must consider or have regard to in determining reason-
ableness. These matters include:
The identity of the person to whom the disclosure is made;
The seriousness of the alleged failure;
Whether the disclosure is in breach of a duty of confidentiality owed by the
employer to any other person; and
Any action taken by the employer or a prescribed person in response to a pre-
As a result of the above â€“ that is the criteria that must be fulfilled and the over-
riding need for â€˜reasonablenessâ€™ â€“ a worker must be extremely careful before
leaking information to the press if he or she wishes to claim protection under
the 1998 Act. It may be noted, nevertheless, that where the disclosure relates to
an â€˜exceptionally seriousâ€™ failure, the requirements are less stringent. To date,
Chapter 14 â€“ Human resources risk (human rights inside the workplace) 343
however, there is not any guidance, whether by statute or case law, that demon-
strates what amounts to an â€˜exceptionally serious failureâ€™.
Following the lead of the UK in 1998 and the US in 2002, many governments
across the world, including the Netherlands, Japan, Korea and South Africa,
have drafted legislation to protect whistleblowers.
In 2002 the UKâ€™s Financial Services Authority established a hotline that
received 276 calls from whistleblowers between May 2002 and October 2003.
In the US the SOX legislation (see further below) obliges all US-listed compa-
nies to establish â€˜confidential, anonymousâ€™ procedures for employees to submit
material about â€˜questionable accounting or auditing practicesâ€™. It also protects
whistleblowers from retaliation (see below). Impeding a whistleblower from
passing information to enforcement agencies now carries a jail sentence of up
to 10 years, as well as large fines. This demonstrates a major departure for a
country whose legal culture has emphasised the duty of loyalty to the employer.
Evidently Ernst and Youngâ€™s annual survey of global fraud has rated whistle-
blowing above external audits as the second most effective means of detecting
corruption. People are now prepared to acknowledge that whistleblowing is
about good citizenship (see comments on the US below).
In the UK there have also been other interesting developments in different
legislation other than the above that represent the main body of this chapter.
Therefore some comment on other legislation is helpful. By way of example, in
the Charities Bill it is proposed that auditors of charity accounts will be pro-
tected from the risk of action for breach of confidence or defamation when they
communicate relevant information to the Charity Commission. Independent
examiners of charity accounts will also be protected. In this respect they are
protected since they are often able to identify abuse or significant breaches of
trust during the audit process. Since the activities of the profit and not-for-
profit sectors are often linked and can impact on the governance of either sec-
tor some points of governance in the not-for-profit sector are relevant here.
The US SOX legislation
The last five years have seen an unprecedented upswing in reports of account-
ing and other irregularities at public companies (see further information in
Chapter 22). There was a time, a few years ago, when every day seemed to bring
with it a new report that a public company was in the process of restating its
earnings, seeking bankruptcy protection, fighting criminal indictments, or
sometimes all of the above. In the wake of these developments, it was hardly a
surprise when the United States legislature took action. On 30 July 2002,
President Bush signed into law the Corporate Accounting Reform and Investor
Protection Act of 2002, which is now almost universally referred to as the
Sarbanes-Oxley Act of 2002 (â€˜Sarbanes-Oxleyâ€™ or the â€˜Actâ€™), Pub. L. No. 107â€“204
Part C â€“ Overview of the Social Aspects of Business Risks
116 Stat. 745. Despite its swift drafting and passage, Sarbanes-Oxley will likely
have profound implications not just for public companies, but for all compa-
nies doing business in the United States; these are discussed in more depth in
Chapters 21 and 22.
As regards whistleblowing, one of the lessons of the last 10 years in the cor-
porate fraud arena is that, more often that not, corporate fraud is generally
detected from within rather than without. So-called corporate whistleblowers
are, accordingly, an integral part of maintaining corporate integrity and such
activities must be encouraged and protected. Section 806 of the Act protects
whistleblowers from termination and allows them a right of action if they are
discharged, demoted, suspended, threatened, harassed, or discriminated
against (SOX Â§ 806, 18 USC Â§ 1514A). It should be noted that the Act does not
provide for the award of punitive damages to a successful whistleblower. Title
XI of the Act, which deals with corporate fraud and accountability, goes further
than SOX Section 806, imposing criminal penalties on anyone who retaliates
against a whistleblower who provides truthful information to the government
(SOX Â§ 1107, 18 USC Â§ 1513).
Other recent US initiatives
The US Federal government has recently been reported as using two new ini-
tiatives to tackle corporate fraud. As noted in the UK (see above) a corporate
fraud hotline has been created by the FBI, as part of the Bureauâ€™s National
Corporate Fraud Initiative. Through this expanded intelligence-gathering
effort, the FBI has said that it expected to generate four or five new corporate
fraud cases each month. Persons with information about possible corporate
fraud, including corporate employees, are encouraged to contact this hotline.
For individuals whose companies lack internal hotlines, this initiative allows
whistleblowing concerns to be taken directly to the FBI.
Useful web links
The following sites can prove useful for further research on internal
human resources and rights issues.
* Business and human rights: