Whistleblowing and employment law support for companies
New compliance obligations based on the EU Whistleblower Directive: In the future, companies with at least 50 employees or a turnover of at least EUR 10 million per year and municipalities with more than 10,000 residents must establish an internal whistleblower system. Employees may notify internal wrongdoing within their organisation (to the extent that there is an internal whistleblower system) or to the authorities directly. Germany has until 17 December 2021 to transpose the Directive into national law. The Federal Ministry for Justice and Consumer Protection has already presented a draft bill for a Whistleblower Act.
As soon as they make a notification, the employee will have broad protection from sanctions under employment law. The following article shows what companies and municipalities are in for and also looks at the employment law consequences of the Directive.
Core provisions of the Whistleblower Directive
The Whistleblower Directive regulates two main points: First, it establishes the obligation for companies with more than 50 employees to set up a whistleblower system.
This obligation also applies to all legal persons in the public sector, including those which are owned or controlled by such a legal person (including publicly-owned companies).
In addition, the Directive grants special (employment law) protection to the whistleblower.
Protection for whistleblowers under labour law
Currently, there is no general protection for whistleblowers under employment law.
The transposition of the EU Whistleblower Directive into national law will change this legal situation: The Whistleblower Directive forbids companies from taking any (labour law) sanctions against whistleblowers for notifying wrongdoing to the whistleblower system. The whistleblower is also protected when this report is later shown to be incorrect. It is sufficient if the whistleblower was bona fide in their report.
The employee will therefore receive full protection from (employment law) sanctions, providing he or she complies with the provisions of the Whistleblower Directive.
What is a sanction? What is prohibited?
The Whistleblower Directive grants whistleblowers extensive protection. It covers not only active sanctions, such as the termination of employment, reassignment or the reduction of salary, but also more subtle disadvantages.
Revoking any privilege is also prohibited, such as, for example, refusing to grant a promotion, failing to extend limited-term employment contracts or not allowing the employee to participate in training due to the report that was made. In other words, it is illegal to revoke a privilege to which the employee would not normally have had any claim, were it not for the whistleblowing. The exciting question is whether the employee can pursue a claim for a benefit after making the whistleblower report although the employee would not have had any right to the benefit without the report. This will only be the case when they can show that, under normal circumstances, they could legitimately expect to receive the benefit. It is still unclear which requirements will apply to the employee’s claim given the shift in the burden of proof.
Procedural shift in the burden of proof in favour of the employee
In a change to the previous legal position, in labour law proceedings the employee must no longer show that an employment law sanction was imposed due to his notification to the whistleblower system. Instead, it will be the employer that has to show that the imposition of sanctions was not due to the whistleblower notification.
- Companies with more than 50 employees or EUR 10 million in turnover per year should establish a whistleblower system for employees, customers, suppliers and other third parties by December 2021, so that (alleged) wrongdoing within the company can be notified anonymously.
- Whistleblowers may inform the authorities or the public directly if the company fails to provide an anonymous whistleblower system.
- Companies concerned must therefore provide their own whistleblower system in order to fulfil their new statutory duties and to avoid a whistleblower going to the authorities or the public.
- Broad (employment law) protection applies for employees that notify the company or authorities of the wrongdoing.
Companies should react with sound judgment. Specifically, companies are well-advised to speak to an expert about the current situation within their organisation and to establish an internal whistleblower system in Q2 or Q3 of 2021 to ensure they have a “safety buffer” before the new rules enter into force on 17 December 2021. They might even consider hiring an external compliance centre, which can provide such a system as a (cost-effective) external provider. This will discharge management liability and ensure the company fulfils its new obligations.
As the protection given to the whistleblower under the EU Whistleblower Directive is very broad and harbours the potential for abuse, companies should also take the following precautionary measures:
- Maintain performance documentation for all employees, in order to be able to show, in the case of doubt, that the imposition of a sanction or the refusal of a benefit had nothing to do with the employee’s involvement in the whistleblowing. This includes more precise documentation of the conduct of the employee (working time violations, warnings, written warnings, etc.)
- In contrast to now: Keep detailed documentation, also for employees during their trial periods and for employees with limited-term contracts.
Although the EU Whistleblower Directive has not yet been transposed into national law, companies and municipalities should start implementing the above recommendations: German labour courts can construe the current law in line with the EU Whistleblower Directive in accordance with the efficiency rule under EU law and provide broad protection to employees.
Dr Maximilian Degenhart
Lawyer, Compliance Officer (TÜV)
Dr Anne Dziuba
Lawyer, Licensed Specialist for Labour Law