The final whistle for frivolous claims?

The Enterprise and Regulatory Reform Bill will change the face of current whistleblowing legislation, according to employment lawyer Nick Pritchett.

The Bill’s intention appears to be to close the much-criticised loophole that allows disclosures made in relation to a breach of an employee’s own employment contract to become protected and subsequently used as a basis for an employment tribunal claim.

Will this amendment result in a restoration of whistleblowing law as it was originally intended in the UK and, if so, has the time come to formally recognise and reward genuine cases of public-interest whistleblowing?

Qualifying disclosures

The Bill proposes to amend the current requirements so that disclosures must be made in the public interest to even be deemed a “qualifying disclosure”. Such qualifying disclosures must then be disclosed to a relevant person in good faith to become protected.

Whether or not the Bill will have the desired effect will no doubt be borne out in case law, but does this change by itself represent the correct and appropriate progression in this highly contentious area?

Some commentators argue that the UK should adopt a similar approach to the US, where whistleblowing protection dates as far back as the Civil War, when it was used to encourage individuals to come forward and expose corruption among suppliers. Since then, the principles behind that law have been preserved and are now enshrined in the recent Dodd-Frank legislation following the Enron scandal and the financial crisis of 2008. Where a regulator imposes a fine in excess of $1 million, this legislation allows for between 15%-30% of such fine to be paid to the person or persons who disclosed the relevant breach on which the regulatory action was based.

Increase in information flow

This approach has resulted in a huge increase in the flow of information to the authorities and has kept the US regulators busy. In July 2012, $150 million was awarded to four former executives of GlaxoSmithKline who blew the whistle on the illegal marketing of drugs and, earlier this month, Bradley Birkenfield received $104 million from a fine paid by UBS AG following a tax investigation by the US Internal Revenue Service.

The UK has a long way to go if it is to adopt a similar structure. While whistleblowers are protected against detriment and dismissal as a result of blowing the whistle, they are hardly encouraged to do so.

There is often a sense of prejudice against whistleblowers, who are regarded as “letting the team down” rather than acting for the greater good. This is reflected in a lack of any sort of monetary reward scheme comparable to that seen in the US cases.

Power to award compensation

Employment tribunals have the power to award compensation should a claimant be successful in a whistleblowing claim, and in certain circumstances, the Financial Services Authority and Her Majesty’s Revenue and Customs can compensate an individual for loss of earnings, but this falls way short of the sums involved across the Atlantic.

The rather tepid encouragement to come forward may implicitly acknowledge the view that whistleblowing legislation has been abused by employees raising spurious claims to further their own interests, often by relying on a supposed breach of their own contract, in an attempt to bypass the requirement for sufficient service to bring a claim for unfair dismissal. These are the precise concerns that the Reform Bill intends to address.

When this loophole is closed (the Bill is expected to come into force sometime next year) and we see what is hoped to be a return to whistleblowing in its “pure”, publically motivated, form, will we then see a further change towards a legal structure that prescribes significant compensation for those with the courage to expose wrongdoing without having to resort to litigation?

Olympus case

One case that may may be illuminating is that of Michael Woodford and Olympus.

Mr Woodford was fired from the camera giant for blowing the whistle on irregular dealings that led to an investigation into $1.7 billion worth of investment-loss cover up. He is claiming £35 million compensation for his dismissal. Mr Woodford’s claim appears to have been made in the public interest and in accordance with the principle behind the Reform Bill amendment. It will be interesting to see whether or not the employment tribunal will break the mould and award significant compensation should his claim be successful.

But is this the correct direction for UK law? Some business leaders are wary of any extension of the whistleblowing regime for fears of undermining trust within companies and encouraging malicious or frivolous litigation. But with that loophole soon to close, will momentum shift the other way?

UK legislation is content to protect whistleblowers from detriment, but if real progress is to be made in holding those engaged in illegal and immoral business practices to account, is it not time it rewarded them as well?

Nick Pritchett is an employment specialist at Shoosmiths LLP

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