Documents considered by the Committee on 20 June 2018 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 Public Accounts Committee, the Health and Social Care Committee, the Defence Committee, the Digital, Culture, Media and Sport Committee, the Joint Committee on Human Rights, the Women and Equalities Committee and the Exiting the EU Committee

Document details

(a) Proposed Directive on the protection of persons reporting on breaches of Union law; (b) Commission Communication: Strengthening whistleblower protection at EU level

Legal base

(a)Articles 16, 33, 43, 50, 53(1), 62, 91, 100, 103, 109, 114, 168, 169, 192, 207 and 325(4) TFEU and Article 31 of the Euratom Treaty; ordinary legislative procedure; QMV; (b)—

Department

Business, Energy and Industrial Strategy

Document Number

(a) (39695), 8713/18 + ADDs 1–3, COM(18) 218; (b) (39696), 8725/18 COM(18) 214

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 is proposing this Directive (document (a)) to strengthen and extend protection for whistleblowers across the EU who report breaches of a wide range of EU legislation. As this is a minimum harmonisation proposal, it is open to Member States to legislate for higher levels of protection.

1.2The proposed Directive imposes obligations on Member States but also extends to both private and public sectors. However, requirements relating to setting up internal reporting procedures would only apply to private bodies with 50 or more employees or with an annual business turnover of €10 million5 or more (though all financial services providers are caught). They would also apply to state and regional administrations6 and to “other entities governed by public law”. Additionally, the proposed Directive would cover a wide category of individuals (or “reporting persons”)7 to be protected, including workers, the self-employed, those working for contractors, shareholders; volunteers, unpaid trainees, job applicants and members (including non-executive members) of corporate boards.

1.3In terms of obligations on Member States, the proposal would prohibit and provide penalties8 for all forms of retaliation from anyone including employers, colleagues, suppliers, customers against genuine whistleblowers who reasonably believe their disclosure to be true. Disclosures by whistleblowers can include reports of actual or potential unlawful activities. Member States must also provide access to free advice and adequate remedies for whistleblowers against, for example, workplace harassment or unfair dismissal. This includes a defence where the burden of proof is on the organisation concerned to show that it is not acting in retaliation. Member States are also required to implement a three-tiered reporting system: internal reporting channels (within an organisation), reporting to competent authorities and public media reporting. A more detailed account of that three-tiered system and other aspects of the proposal is set out in paragraphs 1.20–22 below.

1.4The proposed Directive once adopted9 would have to be implemented by Member States in their own law by 15 May 2021. If the UK’s proposed transition/implementation period ends as scheduled on 31 December 2020, the UK would not have to implement the Directive. However, as the proposal has a strong internal market justification, the UK may want to align existing UK law on whistleblowers (see paragraph 1.7 below) with the proposal depending on obligations it might assume as part of a future EU-UK trade deal or in line with the PM’s commitment to building on existing workers’ rights after the UK exits the EU.

1.5The Annex10 to the proposal lists the EU legislation covered: public procurement, financial services, prevention on money laundering and terrorist financing, product safety, transport safety, protection of the environment, nuclear safety, food and feed safety, animal health and welfare, public health, consumer protection, protection of privacy and personal data, security of network and information systems, combatting fraud on the EU budget, competition/state aid and corporate tax avoidance. This horizontal approach is reflected in the multiple legal bases on which the proposal is based (see the headnote to this chapter). There is no single legal base specifically allowing the EU to legislate for whistleblowing protection in general.

1.6The proposal is accompanied by a Commission Communication (document (b)) which sets out the background to the proposal. Together with the EM to the proposal and the accompanying Impact Assessments, the Communication explains why the Commission considers that horizontal legislation is justified at an EU level. Broadly this is because EU law breaches can be cross-border in nature and impact. This warrants a minimum level of protection for whistleblowers across the EU which is not currently achieved by fragmented national approaches to whistleblower legislation. A more detailed account of the justification for the proposal is set out in the “Background” section to this chapter.

1.7The UK already has whistleblowing legislation:11 the Public Interest Disclosure Act 1998 (PIDA) which amended the Employment Rights Act 1996 (“the 1996 Act”). The key provisions are contained in Part IVA of the 1996 Act, as amended. The legislation aims to protects workers12 that disclose information about malpractice at their workplace or former workplace provided certain conditions are met. However, it excludes members of the armed forces, the Security Service, the Secret Intelligence Service and GCHQ.13The conditions concern the nature of the information disclosed and the person to whom it is disclosed. If these conditions are met, the 1996 Act protects the worker from suffering detriment because of having made the disclosure. Whereas the UK legislation14 is limited to protecting workers reporting malpractices by their employers or third parties from victimisation, dismissal and in any ensuring employment dispute, the proposed Directive additionally seeks to provide a reporting framework for whistleblowers.

1.8Other differences with UK law concern the potential range of individuals protected by proposal,15 what can count as “retaliation” against them (including non-employment related retaliation).16 However, there are also areas of analogous protection. UK law provides specific protections to workers who have reported a disclosure to a “prescribed person”. These bodies are generally regulators, ombudsmen and other public oversight bodies but also include Members of the UK Parliament.17 These prescribed persons or bodies generally fulfil a similar role to those of a “competent authority” under the proposed Directive. The Directive also places requirements upon the way that prescribed persons assess or deal with a whistleblowing concern.18

1.9The Parliamentary Under Secretary of State (Andrew Griffiths) set out the Government’s view of the documents in his Explanatory Memorandum of 15 June (the link provided for more detailed reference). In summary, he indicates that the Government is not in favour of the proposal. It questions whether the proposal complies with subsidiarity19 since the Government has already told the Commission that a non-legislative initiative should have been tried first.

1.10The Government also provides an Impact Checklist which estimates the costs to medium sized and large employers of setting up internal reporting procedures to be between £8.4 million and £17.9 million with the costs of maintaining those systems between £27.1 million to £115.1 million. Cumulative costs forecast for training range from £36.1 million to £105.6 million. There would also be costs of the justice system if there are more employment tribunal cases relating to detriment or dismissal. However, the Checklist also recognises unquantifiable benefits to individuals, companies themselves (where preventative action means the avoidance of litigation resulting from unlawful or harmful activities) and the receipt of otherwise lost tax revenue where evasion or anticipated evasion is reported.

1.11The Minister further notes that amendments would be required to UK legislation, principally the 1996 Act, but also potentially also on data protection, competition, finance and a wide range of other primary and secondary legislation governing regulators, ombudsmen and other oversight bodies.

1.12The Government is also concerned that there are no explicit exemptions for disclosures relating to staff in national security or intelligence agencies (excluded from protection under UK law) or disclosure by third parties (for example, journalists) that could undermine national security.20

1.13On legal issues, the Government says it will investigate whether all the multiple legal bases are justified and whether criminal penalties are envisaged by the proposal.

1.14We thank the Minister for his detailed Explanatory Memorandum (EM) and Impact Checklist.

1.15We note the Government would prefer the EU to take a non-legislative approach to providing protection for whistleblowers on subsidiarity grounds,21 “leaving Member States to consider their own legal frameworks”. However, we do not recommend that the House issues a subsidiarity Reasoned Opinion for the following reasons:

1.16Once negotiations progress, we would be grateful for an update in due course and a response from the Minister to the following questions:

1.17If, as the negotiation progresses, the transposition date changes and the UK may have to implement or it becomes clearer that the UK may have to or want to align with the proposal, we would be grateful for a more detailed legal analysis from the Government about required changes to UK law. This might include whether any changes would be required in relation to gagging clauses, a high-profile issue at the moment.25

1.18In the meantime, we retain the documents under scrutiny. We also draw the chapter and document to the attention of the Business, Energy and Industrial Strategy Committee, the Work and Pensions Committee, the Public Accounts Committee (in view of the Report of a previous Committee on Whistleblowing, the Health and Social Care Committee (in view of the Report of a previous Committee covering whistleblowing in the NHS, the Defence Committee (given the national security implications of whistleblowing), the Digital, Culture, Media and Sport Committee, the Joint Committee on Human Rights, the Women and Equalities Committee and the Exiting the EU Committee.

Full details of the documents

(a) 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, COM (18) 218; (b) Communication from the Commission to the European Parliament, the Council and the European Economic and Social Committee: Strengthening whistleblower protection at EU level: (39696), 8725/18, COM (18) 214

Background

1.19In the Communication and the EM and Impact Assessment to the proposal, the Commission explains that legislative action is justified for the following reasons:

Further details of the proposed Directive (document (a))

1.20Article 4 of the proposed Directive would require:

1.21Article 5 requires internal reporting channels to guarantee the confidentiality of a whistleblower and to them about follow-up within a reasonable timeframe not exceeding three months. Accessible information on internal reporting procedures and how to report externally to competent authorities must be provided.

1.22Member States will also need to:

Previous Committee Reports

None.


1 Facebook and data analytics firm Cambridge Analytica have been accused of harvesting and using personal 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 £8.8 million using an exchange rate of 1 Euro to £0.8821.

6 Also, municipalities with a population of 10,000 or more.

7 These are “natural or legal persons” who report or disclose “information acquired in the context of his or work-related activities”.

8 These ‘penalties’ must ensure that the Directive is implemented effectively, including penalties against discouraging reporting, penalties for retaliatory actions; and penalties to discourage malicious and abusive whistleblowing.

9 The Government tells us in its EM that Working Party discussions on the proposal were not expected to start before early June.

10 This list might be updated to cover more legislation in time but there are no powers included in the proposal for the Commission to change the Annex by implementing or delegated acts. There are also other annexes to the proposal which are helpful in providing further background information, including who the proposal applies to.

11 See these two House of Commons Library Papers for a summary of UK legislation: one on Whistleblowing and Gagging Clauses and one on Whistleblowing to MPs.

12 The whistleblowing legislation protects not only employees but also other workers, including employee shareholders (although only employees and employee shareholders can bring an unfair dismissal claim).”Worker” is defined more widely in relation to whistleblowing than it is in relation to other employment rights under ERA 1996 and can include former workers/employees.

13 See sections 191, 193 and 200 ERA 1996.

14 The Government notes in its EM that the Commission recognises the strength of the United Kingdom whistleblowing framework. A question and answer document accompanying the proposal comments on the strength of the UK’s system stating that “The UK has one of the most advanced systems of whistleblowing protection in the EU. However, in most Member States, whistleblowers are only protected in very limited situations”.

15 The Government notes in its EM that rather than applying to workers, trainees and some other limited categories (including some self-employed professions in the NHS) as currently under UK law, the proposal affords protections to a wide range of people connected in a work-related way to a concern, including the self-employed, contractors, shareholders or directors.

16 The Government notes in its EM that the proposal covers a wide range of non-employment rated retaliatory activities, from termination of a contract for goods and services, to damage to personal reputation, financial loss (including loss of income) or cancellation of licences or permits.

17 See The Public Interest Disclosure (Prescribed Persons) (Amendment) Order 2014. See the House of Commons Library Paper of 17 April 2014 on Whistleblowing to MPs.

18 However, the Government tells us that the UK framework already requires prescribed persons (with some exceptions) to report in writing annually on whistleblowing disclosures made to them as a prescribed person over the previous 12 months. Each report must cover the number of disclosures made by workers in a 12-month period and the number of disclosures where the prescribed person decided to take further action. It must also include a summary of the type of action taken as well as how disclosures have impacted on the prescribed person’s ability to perform its functions and meet its objectives (for example, to improve services in a sector). In this regard, requirements for Member States to report on whistleblowing disclosures available at a central level may be able to be gathered from collated reports.

19 See footnote 15 for the Article 5(2) TEU definition of the subsidiarity principle.

20 The Government also states that any exclusion to these categories should also extend to the private sector who have sensitive relationships with UKIC and knowledge of capabilities and assets.

21 See Article 5(2) TEU: “The Union shall act only if and in so far as the objectives of the proposed action cannot be sufficiently achieved by Member States, either at central or at regional or local level, but can rather, by reason of the scale or effects of the proposed action, be better achieved at Union level”.

22 The PM’s Lancaster House speech, 17 January 2017. And a fairer Britain is a country that protects and enhances the rights people have at work. That is why, as we translate the body of European law into our domestic regulations, we will ensure that workers’ rights are fully protected and maintained. Indeed, under my leadership, not only will the government protect the rights of workers set out in European legislation, we will build on them. Because under this government, we will make sure legal protection for workers keeps pace with the changing labour market—and that the voices of workers are heard by the boards of publicly-listed companies for the first time.

23 We note in Recital 41 to the proposal public sector bodies have been brought within the scope of these requirements because of their involvement in procurement. Further, that “entities governed by public law” in the EU Public Procurement Directive is defined to include bodies financed or part-financed by the State and this has been accepted to extend to the House of Commons. We would welcome clarification of whether the same meaning would be applied in relation to this proposal. At present, although the House of Commons Service is not expressly covered by Part IVA of the Employment Rights Act, there are already some internal procedures in place as a matter of good practice.

24 Directive 2016/1919/EU on legal aid for suspects and accused persons in criminal proceedings and for requested persons in European arrest warrant proceedings

25 We understand that Section 43J of the Employment Rights Act 1996 provides that gagging clauses are unenforceable in so far as they purport to preclude the making of a “protected disclosure”.

26 The other MS are France, Hungary, Ireland, Italy, Lithuania, Malta, the Netherlands, Slovakia and Sweden.

27 The link is to a 2017 Council of Europe factsheet summarising key cases of Guja v. Moldova n°—14277/04, 12.02.2008; Heinisch v. Germany—28274/08, judgment 21.7.2011; Bucur and Toma v. Romania—40238/02, Judgment 8.1.2013; Marchenko v. Ukraine—4063/04 Judgment 19.2.2009.

28 At an exchange rate of 1 Euro to £ 0.8821.

29 A number of EU Directives already impose some specific requirements upon the financial services sector in relation to whistleblowing and wrongdoing. The Government tells us in the EM that in September 2016, the Financial Conduct Authority and Prudential Regulation Authority introduced new rules to support whistleblowers which require firms to put in place mechanisms that allow employees to raise concerns internally, and to appoint a senior person to take responsibility for these arrangements. However, smaller firms are not covered by this requirement.

30 A competent authority is a body designated by the Member State to receive and deal with disclosures. Member States shall ensure that competent authorities follow up on the reports by taking the necessary measures and investigate the subject-matter of the reports to an appropriate extent. They shall communicate the final outcome of the investigation to the whistleblower. Reports to EU bodies, offices or agencies attract the same protection as reports to national competent authorities.

31 Competent authorities must review their procedures for receiving and following up on reports at least every two years. They must ensure the identity of a reporting person is protected for as long as an investigation is ongoing.

32 These conditions are: (i) the person first reported internally, but no appropriate action was taken; (ii) no internal reporting channels were available or the person could not reasonably be expected to be aware of those channels; (iii) the use of internal reporting channels was not mandatory for that person; (iv) they could not reasonably be expected to use those channels in light of the subject matter of their concern; (v) they had reasonable grounds to believe that using those channels could jeopardise the effectiveness of investigative actions by competent authorities; or (vi) they were entitled to report directly to a competent authority by virtue of EU law .

33 Remedies against retaliation are not prescribed (other than a requirement that they should include access to interim relief)

34 Retaliation includes but is not limited to: Suspension, lay-off, dismissal or equivalent measures; demotion or withholding of promotion; transfer of duties, change of location of place of work, reduction in wages, change in working hours; withholding of training; negative performance assessment or employment reference; imposition or administering of any discipline, reprimand or other penalty, including a financial penalty; coercion, intimidation, harassment or ostracism at the workplace; discrimination, disadvantage or unfair treatment; failure to convert a temporary employment contract into a permanent one; failure to renew or early termination of the temporary employment contract; damage, including to the person’s reputation, or financial loss, including loss of business and loss of income; blacklisting on the basis of a sector or industry-wide informal or formal agreement, which entails that the person will not, in the future, find employment in the sector or industry; early termination or cancellation of contract for goods or services; cancellation of a licence or permit.




Published: 26 June 2018