Documents considered by the Committee on 17 July 2019 Contents

1Whistleblowing and breaches of EU law

Committee’s assessment

Legally and politically important

Committee’s decision

Not cleared from scrutiny; further information requested; drawn to the attention of the Business, Energy and Industrial Strategy Committee, the Work and Pensions Committee, the Health and Social Care Committee

Document details

Proposal for a Directive of the European Parliament and the Council on the protection of persons reporting on breaches of Union law

Legal base

Articles 16, 43, 50, 53(1), 91, 100, 114, 168, 169, 192 and 325(4) TFEU and Article 31 of the Euratom Treaty (in the final text for adoption); ordinary legislative procedure; QMV

Department

Business, Energy and Industrial Strategy

Document Number

(39695), 8713/18 + ADDs 1–3, COM(18) 218

Summary and Committee’s conclusions

1.1“Whistleblowing” is commonly understood to be the act of speaking out and disclosing serious wrongdoing, usually by employees. EU law on whistleblowing already applies in some areas such as financial services, transport safety and environmental protection. The Cambridge Analytica,1 Lux Leaks,2 Dieselgate3 and Paradise/Panama Papers4 scandals have all highlighted the importance but also the vulnerability of whistleblowers. In their wake, the Commission originally proposed this text of a Directive (document (a)) to strengthen and extend protection for whistleblowers across the EU who report breaches of a wide range of EU legislation.

1.2We set out a full account of the proposal, the Government’s view of it set against the current UK domestic legislation in our first Report on this proposal of 20 June 2018.5 We also set out a summary of our most recent scrutiny of the proposal in our Report of 27 February 2019. This summary highlights the most important issues concerning the proposal as identified by the Government and separately by ourselves.

1.3The scope of the proposal is now set out in Article 1 of latest public text of the proposal.6 It covers breaches of EU law listed in the Annex to the proposal as regards the following areas: public procurement; financial services, products and markets and prevention of money laundering and terrorist financing; product safety; transport safety; protection of the environment; radiation protection and nuclear safety; food and feed safety, animal health and welfare; public health; consumer protection; protection of privacy and personal data, and security of network and information systems. However, it is important to note that the protection of workers (Articles 153 and 157 TFEU) is not included in the scope of the agreed text. The text also states that the proposal will not affect the responsibility of Member States to ensure national security and to protect their essential security interests. As this is a minimum harmonisation proposal, it is open to Member States to legislate for higher levels of protection.

1.4In the original draft of the proposal, the deadline for implementing the Directive was proposed to be 15 May 2021. This meant that the UK would not have to implement the proposal,7 either in the case of “no-deal” or of a negotiated exit where the implementation period is not extended beyond 31 December 2020. However, the UK might have to align with the proposal as part of the core labour or competition provisions of an EU-UK free trade/other agreement or it may choose to do voluntarily. We note here the current Government’s commitments to build on workers’ rights after the UK’s exit from the EU.8

1.5It is our own understanding that the text agreed in Coreper in March 2019 and by the European Parliament in April 2019 as the outcome of trilogue negotiations has changed the legal provisions on the implementation of the Directive.9 This now provides that the Directive should be implemented two years “after adoption” at the latest. As the proposed Directive is due to be adopted in Council this month,10 the position is unlikely to be materially different in terms of any obligation on the UK to implement the agreed text. Also, Member States can now defer implementing requirements for businesses and others with more than 50 but less than 250 employees to set up internal reporting channels for up to two years after a Member State’s transposition of the rest of the Directive.

Parliamentary interest in whistleblowing reform

1.6We note that there has been considerable interest in Parliament in the reform of the current UK legislation on whistleblowing, particularly in the context of the NHS. Over the past year there has been a Westminster Hall debate on “NHS Whistleblowers” on 18 July 2018 and more recently a general debate on the floor of the House on 3 July 2019. In that latter debate, the Minister for Small Business, Consumers and Corporate Responsibility (Kelly Tolhurst MP), who has responsibility for this proposal, commented:

Hon. Members will be aware that the EU has developed a whistleblowing directive that we expect to be approved this summer. It is very wide-ranging and comprehensive, and we will have to consider how we take it into UK law. It could fall within the implementation period agreed under the terms of the withdrawal agreement, but, as we know, there are questions marks over that. The hon. Member for Ellesmere Port and Neston (Justin Madders MP) mentioned workers’ rights. As colleagues knows, the Government were clear throughout the EU negotiations that we would not reduce workers’ rights when we left the EU. Whistleblowing and how we proceed in that regard is covered by the overall provision for the protection of workers in employment. I hope that Members will take that as some kind of commitment from me, at least.11

Minister’s letter of 9 July 2019

1.7The Minister now says in her letter that:

Legal bases

1.8As explained in the “Background” section of this report, the legal soundness of the proposal based on multiple legal bases has been an issue of concern for the Committee and Government alike. In our last Report of 27 February, we asked the Government for a more detailed legal analysis of the problem.

1.9The Minister recalls that the issue was considered by COREPER on 16 January before the General Approach was approved on 25 January. As this is an important legal issue, we set out the Minister’s further response here:

Discussion within working groups considered that where multiple legal bases are used, the objectives must be of equal weight, they must be inseparably linked, and the legal bases used must provide for compatible procedures. It was agreed that Article 114 served as the main legal base and that the Directive’s predominant aim is the enhancement of the enforcement of certain areas of Union law through rules on the protection of whistleblowers. Article 114 requires use of the ordinary legislative procedure, and covers rules relating to public procurement; financial services; prevention of money laundering and terrorist financing; product safety; food and feed safety; consumer protection; the protection of privacy and personal data; and the security of network and information systems.

Where areas of law cannot be linked to the internal market, and there is a more specific legal base, that should be used. As a result of discussions, the Directive is now based on 12 rather than the initial 17 legal bases, as superfluous or incompatible legal bases were removed: Articles 33, 62, 103, 109 and 207 of the Treaty of the Functioning of the European Union. The Annex was also amended to remove some Directives which were based on Articles with incompatible legal procedures. These Directives include Regulation (EU) No 258/2012, Decision No 1082/2013/EU, and Directive 2017/1371.

It is very unusual to see a Directive which cites legal bases in so many numbers, and across such a breadth of EU legal areas. The UK has consistently argued that it is not appropriate to include within the Directive ‘acts which breach the rules of corporate tax or arrangements whose purpose is to obtain a tax advantage that defeats the object or purpose of the applicable corporate tax law’. The Government believes that legislation related to corporate tax should be based on Article 115, the procedure for which requires unanimity. The requirement for unanimous decision making and Member States’ right to veto proposals under this legal base protects national sovereignty over tax policy and allows Member States to design their domestic tax regime as they see fit. The Government expressed this view on the legal bases of the text and was joined by a minority of Member States, however it was unsuccessful in amending this provision.

Changes to the text arising from trilogues

1.10The Minister reports that the Government worked with other Member States to amend the proposed Directive to remove the hierarchy in reporting requirements. The text no longer requires a whistleblower to report internally to an employer before being able to report to an external “competent authority”. A whistleblower will be free to report either internally or externally in the first instance. The Minister comments:

This approach more closely aligns with the UK’s domestic position and removes an important barrier to whistleblowers coming forward to report.

1.11As a result of trilogue negotiations, the “personal” scope of the proposal has been extended to “a wider class of individuals” including:

…facilitators, third persons connected with the reporting persons who may suffer retaliation in a work-related context, and legal entities that the reporting persons own, work for or are otherwise connected with in a work-related context.

1.12The Government is unhappy with this widening of scope because it may be disproportionate given the aims of the proposal and lead to “spurious claims for whistleblower protection”.

Government position and views of the text

1.13The Minister says that the Government recognises how valuable it is that whistleblowers be able to expose wrongdoing without fear of recriminations. However, it retains concerns about the overall proportionality of the proposals and will therefore not be supporting the text for formal adoption in Council. She nevertheless requests us to clear the proposal from scrutiny.

Our conclusions

1.14We thank the Minister for her letter of 9 July 2019. We note her request to clear the document from scrutiny but also that the Government are not intending to support the proposal in Council. However, we are not minded to grant clearance until we have received answers to our further questions below. This in part reflects ongoing Parliamentary interest in whistleblowing reform of which the Minister is aware given her participation in the debate on the floor of the House on 3 July.

1.15Under the terms of the draft Withdrawal Agreement the UK would only be required to implement the Directive in national law where the transition/implementation period was extended beyond 31 December 2020. In the light of this possibility, does the Government have any plans to challenge the adopted Directive before the CJEU because of the use of multiple legal bases and the inclusion of corporate tax issues?13

1.16We now turn to the scenarios in which the UK would not have to implement the Directive because:

Noting that the Minister said in the debate of 3 July “that Government were clear throughout the EU negotiations that we would not reduce workers’ rights when we left the EU. Whistleblowing and how we proceed in that regard is covered by the overall provision for the protection of workers in employment”, we would be grateful for the following clarifications:

i)Do the Government’s commitments outlined in its Command Paper14 to not reduce workers’ rights only apply where the draft Withdrawal Agreement has been ratified? Are we correct in thinking that the Government under the current Prime Minister has made no such commitments if the UK leaves the EU without that deal?

ii)Did the Minister mean to say in the 3 July debate that those commitments applied to this proposed Directive on whistleblowing and if so, why? We were uncertain that the commitments would apply given that the proposal omits “protection of workers” EU legal bases (Articles 153 and 157 TFEU). What would be the Government’s criteria for deciding whether an EU legislative acts fall within the scope of the commitments? The definitions in the commitments of “new workers’ rights” and “workers’ rights” are not entirely clear-cut.15

iii)Once the new Prime Minister is installed, we would be grateful if the Minister would write to confirm whether these commitments on workers’ rights would apply to this Directive and/or at all.

iv)In a scenario where the Government in future neither has to implement the Directive nor honour any of the current Government’s commitments on workers’ rights, does the Minister consider that the UK might voluntarily align its current legislation on whistleblowing (the Public Interest Disclosure Act 1998) with the Directive or aspects of it. As the UK is not supporting the proposal, it is hard to gauge to what extent, if at all, the Government finds any of it attractive.

1.17Finally, in the event that the UK either has to implement the proposal or chooses to align with it, we would be interested to learn from the Minister what the impact might be on the use of the Non-Disclosure Agreements in the UK.

1.18We look forward to receiving the Minister’s response. In the meantime, we retain the proposal under scrutiny. We draw it to the attention of the Business, Energy and Industrial Strategy Committee, the Work and Pensions Committee, the Health and Social Care Committee.

Full details of the documents

Proposal for a Directive of the European Parliament and the Council on the protection of persons reporting on breaches of Union law: (39695), 8713/18 + ADDs 1–3, COM(18) 218.

Background and previous scrutiny

1.19We last reported on this proposal to the House on 27 February 2019. In that Report, we informed the House that the Government had told16 us that:

1.20In view of the March Council, the Minister asked us to consider granting a scrutiny waiver or clearance. Connected with this, she said that the Government will continue to press for amendments to the proposal during trilogues. We expected these would address the following concerns still held by the Government, broadly summarised as follows:

1.21In addition, we have been concerned ever since our very first Report whether the proposal is legally sound. This is because the original proposal relied on multiple legal bases and Member States have been concerned about what this means for the use of different legislative procedures. We said we understood from press reports17 that there had been a Council Legal Service opinion about the multiple legal bases (as proposed originally and additional legal bases proposed during negotiations) and the potential incompatibility of respective legislative procedures. We had also read the legal opinion of the EP’s Legal Affairs Committee (JURI). Although we understood that the Government would not comment on the legal opinions of the EU institutions, we asked it to provide a more detailed legal analysis of these issues itself.

1.22As we reported in our last Report, the Government agrees with the view that the Directive needs to be legally sound but said in its last letter that the rapid pace of the negotiations had prevented the full consideration by the Government of all the different views expressed during recent negotiations.

1.23Given the Government’s ongoing concerns about the proposal, we did not grant the Government a scrutiny waiver for 7–8 March Council. This was because we considered it inconsistent with the Government’s ongoing concerns about the proportionality of the proposed General Approach text and our need for further information about the legal integrity of the text arising from the use of multiple legal bases. We were also mindful that the proposal could impact on the UK in a “deal” scenario where the transition/implementation period was extended beyond 31 December 2020. We also did not consider it likely that a scrutiny waiver could facilitate Government efforts to obtain any favourable developments in that text, since the General Approach vote effectively would be rubberstamping a text already agreed in COREPER. Instead we asked the Government to report on the outcome and on any progress made during trilogues.

Previous Committee Reports

Fifty-sixth Report HC 301–lv (2017–19), chapter 1 (27 February 2019); Fifty-first Report HC 301–l (2017–19) chapter 2 (16 January 2019); Thirty-second Report HC 301–xxxi (2017–19), chapter 1 (20 June 2018).


1 Facebook and data analytics firm Cambridge Analytica have been accused of harvesting and using personal data to influence the outcome of the US 2016 presidential election and the UK’s referendum on EU exit. See the oral evidence session, Christopher Wylie, 28 March 2018 held as part of the DCMS Committee’s inquiry into “Fake News”.

2 See BBC website, 11 January 2018. In 2014 two whistleblower employees leaked confidential information concerning PricewaterhouseCoopers dealings with multinational companies in relation to tax rulings in Luxembourg between 2002 and 2010. They were originally both convicted by the Luxembourg courts, but one had his conviction overturned in January 2018.

3 See BBC website, 10 December 2015. The German car manufacturer Volkswagen has since admitted cheating diesel emissions tests in the US.

4 A House of Common Debate Briefing paper explains that Paradise papers consisted of “material …leaked from two offshore service providers and 19 tax havens’ company registries” and reported by some of the UK press “reiterating public concerns as to the scale of tax avoidance and evasion, and the ability of offshore jurisdictions to facilitate these activities”. This followed the publication in the previous year of the ‘Panama Papers’—a leak of financial records from Mossack Fonseca, a law firm that had provided advice on establishing offshore companies to a wide variety of politicians, celebrities and wealthy people.

5 Thirty-second Report HC 301–xxxi (2017–19), chapter 1 (20 June 2018).

6 This is the latest compromise text politically agreed between the institutions following trilogues, which although marked limité has now been made public, as appended to a Press Release from the Council of 14 March. Since then the EP resolved in plenary to agree the text on 16 April.

7 Nor continue it as retained EU law under the EU Withdrawal Act 2018.

8 Command Paper published on 6 March 2019, Protecting and Enhancing Worker Rights after the UK Withdrawal from the European Union on any new EU laws enhancing workers’ rights.

9 See Article 20 Transposition and transitional period. The Government has not yet drawn attention to this change.
1. Member States shall bring into force the laws, regulations and administrative provisions necessary to comply with this Directive [2 years after adoption], at the latest;
1bis. In derogation of paragraph 1, Member States shall bring into force the laws, regulations and administrative provisions necessary to comply with the obligation to set up an internal channel set out Article 4 (3) as regards legal entities with more than 50 and less than 250 employees by two years after transposition at the latest”.

10 See the Government’s letter of 9 July 2019, summarised later in this Report chapter.

11 HC Deb, 3 July 2019, Col 1306.

12 Between the Commission, Council and European Parliament.

13 Challenges to the validity of the adopted Directive must be brought within 2 months of its publication in the Official Journal of the EU.

14 Published on 6 March 2019: Protecting and Enhancing Worker Rights after the UK Withdrawal from the European Union on any new EU laws enhancing workers’ rights.

15 “Workers rights” are defined as “Rights of individuals, and classes of individuals, in the area of labour protection as
regards—
(a) fundamental rights at work (b) fair working conditions and employment standards (c) information and consultation rights at company level (d) restructuring of undertakings, and (e) health and safety at work.”

16 Letter of 11 February from the Parliamentary Under Secretary of State and Minister for Small Business, Consumers and Corporate Responsibility (Kelly Tolhurst MP) to Sir William Cash MP, Chairman of the European Scrutiny Committee.

17 “Whistleblowers could lose out in EU tax shakeup”, Politico 20 December 2018.




Published: 23 July 2019