A Comprehensive Whistleblower Protection for the EU

On April 23, Kramer Levin reported on the European Parliament’s approved proposal for the adoption of a whistleblower protection directive.^[1] On Oct. 7, the Directive on protection of persons reporting breaches of Union law (Directive) was officially adopted by the European Union (EU). EU member states have until Oct. 2021 to implement the Directive into their national law. As stated in Article 1 of the Directive, its purpose “is to enhance the enforcement of Union law and policies in specific areas by laying down common minimum standards providing for a high level of protection of persons reporting on breaches.” In that sense, those who report breaches of EU law are considered by the EU legislature as fulfilling a mission of public interest for the sake of the European citizens. The Directive is also aimed at avoiding distortions of competition while creating a level playing field for all businesses in the internal market across Europe.

The Directive is generally broader and more comprehensive than whistleblower, anti-retaliation protections in the United States, which has dozens of such statutes and regulations dating back many decades. Title VII of the Civil Rights Act of 1964 (Title VII), prohibiting certain employers from discriminating against employees on the basis of sex, race, color, national origin and religion, as well as the corresponding state laws mimicking or expanding on Title VII, are analogous examples.^[2] As a general matter, these anti-discrimination laws protect a class of employees (i.e., those falling within a protected group, such as race) from employment discrimination based on a protected characteristic and from retaliation for reporting such discrimination. A more recent example that shares some of the objectives of the Directive is the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), which instituted a “bounty” program to encourage whistleblowers to report to regulators violations of securities and other laws in order to assist in rooting out corporate malfeasance, and also enacted anti-retaliation protections for such whistleblowers.^[3]

As a reminder:

• The Directive’s material scope is limited to infringements of EU law.^[4] Its scope is in fact extremely large:
  
  
  • First, it includes all of the EU (e.g., public procurement, financial services, products and markets, and prevention of money laundering and terrorist financing, product safety, transport safety, environmental protection, radiation protection and nuclear safety, food and feed safety, animal health and welfare, public health, consumer protection and protection of privacy and personal data, and security of network and information systems).
    
    
  • Second, it concerns breaches affecting the financial interests of the Union as referred to in Article 325 of the Treaty on the Functioning of the European Union, for example in cases of procurement fraud or EU grant fraud.
    
    
  • Third, it relates to the reporting on breaches of the rules of the internal market, especially breaches of the competition and State aid and corporate tax rules.
    
    
• The Directive applies to the private and public sectors,^[5] such as, in the latter case, EU institutions and agencies, governmental agencies and bodies, national institutions at the central level and local authorities. With regard to the private sector, it may equally concern associations such as non-governmental organization (NGOs) as well as corporate companies.
  
  
• It applies to a wide range of reporting persons,^[6] including individuals outside the traditional employment relationship such as contractors, subcontractors and suppliers. Former employees or employees who obtain information during the recruitment process, facilitators and third parties connected with the whistleblowers, such as colleagues or relatives, are also protected. In the same way, the Directive applies to reports by volunteers, and paid or unpaid trainees. The Directive even extends the protection to legal entities that the reporting persons own, work for or are otherwise connected with in a work-related context.

The Dodd-Frank bounty program similarly applies to “any individual” who provides “original” information to regulators, with the exception of certain enumerated classes of persons, such as those who have a pre-existing duty to report the information or are in law enforcement.^[7] In contrast, Title VII’s employment anti-discrimination and retaliation provisions protect only current and former employees and job applicants within classes protected under the statute.

• The Directive provides protection for every individual (i) who has reasonable grounds to believe, in light of the circumstances, that the information reported was true at the time of reporting and fell within the scope of the Directive and (ii) who complies with the requirements of the Directive on alert channels and the procedures in place.^[8] The protection is not lost where the reporting person made an inaccurate report in good faith. Only those who deliberately and maliciously report false and misleading information cannot enjoy the protection provided for in the Directive.
  
  
• The Directive allows each EU member state to decide whether reporting may or may not be anonymous.^[9] In France, for instance, while Law No. 2016-1691 of Dec. 9, 2016 (the Sapin II Law) does not expressly address the issue of anonymous alerts, this option is provided for certain alerts, in particular if the seriousness of the facts is established and the factual elements are sufficiently detailed.^[10] The Directive thereby grants protection to all whistleblowers; those who choose to report transparently — by speaking up to their manager or a compliance officer, or by sending an email, for instance — as well as those who report anonymously — through a hotline, in particular. The same protection is given to those who wanted to remain anonymous and have subsequently been identified as well as to those who eventually decide to reveal their identity after having reported anonymously.^[11] In that respect, it is to be noted that under the Sapin II Law, disclosure of confidential information about a whistleblower (or an alleged violator) may be punishable by two years of imprisonment or a fine of EUR 30,000. Since it concerns a criminal offense, it may apply extraterritorially.

Under Dodd-Frank, a whistleblower may remain anonymous. An anonymous whistleblower must be represented by an attorney who must certify to the Securities and Exchange Commission (SEC) that he or she has verified the whistleblower’s identity and reviewed the submission for completeness and accuracy.^[12] Prior to receiving any bounty, however, the whistleblower’s identity must be revealed to the SEC.^[13]

• The Directive imposes an obligation on public and private entities that meet certain thresholds (legal entities with more than 50 employees or local municipalities that have more than 10,000 inhabitants) to establish internal channels and procedures for alerts.^[14] Internal reporting channels may be “in writing and/or orally, through telephone lines or other voice messaging systems, and upon request of the reporting person, by means of a physical meeting within a reasonable timeframe.”^[15]
  
  
• While requiring member states to encourage prior internal reporting within the organization before external reporting (administrative or judicial authorities), it allows whistleblowers to choose between these two channels depending on the individual circumstances of the case.^[16] Nonetheless, legal entities in the private and public sectors are encouraged to promote “Speak Up” culture to reinforce corporate social responsibility, whereby whistleblowers are considered as significantly contributing to self-correction and excellence. Even though Speak Up culture is not rooted in French legal tradition, it is noteworthy that the setting up of a professional alert system is made compulsory by several pieces of legislation, notably the Sapin II Law^[17] and the Law No. 2017-399 of March 27, 2017 (Duty of Vigilance Law).^[18] However, the Sapin II Law states that before reporting through an external channel, the whistleblower must use the internal channels at his/her disposal. The Sapin II Law organizes a three-stage reporting process whereby a report is to be made: (i) first, to the individual’s superior; (ii) then to a competent authority or body; and (iii) lastly, “only where this is clearly impracticable,” to the public.^[19] The Directive will oblige the French legislature to modify the law in this regard so as to allow whistleblowers to report directly to the competent authorities if they deem it preferable. It is the responsibility of the concerned entity to inform its employees and the persons with whom it is in contact (service-providers, distributors, subcontractors, suppliers and business partners etc.) about such possibility, notably through clearly visible posters and on its website. It should also be included in trainings (e-learning or face-to-face sessions) on ethics and compliance.

Similar to the Directive, under Dodd-Frank, employees may choose to report directly to federal regulators before reporting “up the ladder” internally. However, Dodd-Frank includes three incentives for whistleblowers to first report potential violations internally. First, the SEC allows 120 days for a whistleblower who first reports internally to then provide that information to the SEC. In other words, the whistleblower will not lose his or her “place in line” for purposes of collecting a bounty.^[20] Second, if a whistleblower first reports internally and the company later provides the SEC with that information (or information derived from the whistleblower’s information), the whistleblower may still get credit for that information in order to collect a bounty. Third, in determining bounty amount, the SEC considers and rewards the whistleblower’s voluntary participation with the company’s internal reporting and compliance program.^[21]

• The Directive logically establishes an obligation to follow up on alerts and to keep whistleblowers informed within a reasonable time frame.
  
  
  • In the case of reporting through an internal channel, feedback to the reporting person should not exceed “three months from the acknowledgment of receipt of or if no acknowledgment was sent, from the expiry of the seven-day period after the report was made.”^[22] After an initial confidential inquiry aimed at verifying evidence of the reported breach, the concerned legal entity must launch an investigation if the evidence so requires. Based on its conclusion, the entity must give feedback to the reporting person and address the issue.
    
    
  • In the event the whistleblower has chosen to report externally to a competent authority, the latter must also give feedback within a timeframe “not exceeding three months, or six months in duly justified cases”^[23] about the closure based on lack of sufficient evidence, or the envisaged action, such as, referral to another authority, or launch of an investigation and, based on findings in the course of this investigation measures to be taken to tackle the issue.

In the United States, the SEC is generally not similarly obliged to respond to a whistleblower’s complaint, and operates with considerable latitude with respect to the pace and scope of its investigation. Under Title VII, however, after a charge is filed against an employer, the Equal Employment Opportunity Commission (“EEOC”) must serve notice on that employer within ten days and begin an investigation into whether there is reasonable cause to believe that the charge is true. The EEOC must make its determination as promptly as possible.^[24]

• In certain circumstances, the Directive allows for public disclosures.^[25] If the reported breach is promptly addressed, public disclosure should not be necessary, and thus it is the responsibility of the legal entity concerned to ensure that the breach does not remain unaddressed. Eventually, the whistleblower may directly make a public disclosure in cases where he/she has grounds to believe that there is an imminent or manifest danger to the public interest; a risk of irreversible damage, including harm to physical integrity, or a risk of retaliation. In those cases, he or she enjoys protection.
  
  
• It prohibits any form of retaliation against whistleblowers and provides a non-exhaustive list of examples of different forms of retaliation^[26] ranging from dismissal, layoff or demotion to damage to the person’s reputation in social media or industry, or a business wide blacklisting. It follows that private as well as public entities have to set up a non-retaliation policy accompanied by training at different levels. The Directive states that competent authorities to which reporting may be made should be obliged to publish on their websites all necessary information on the remedies and procedures available against retaliation.

Dodd-Frank also includes prohibitions against retaliation for reporting to the SEC, even if the SEC does not investigate the underlying complaint or the alleged misconduct does not ultimately constitute a violation of the law. The U.S. Supreme Court has held that Dodd-Frank does not protect employees from retaliation unless they provide the information to the SEC. In other words, simply reporting misconduct through internal channels is insufficient to obtain protection from retaliation under Dodd-Frank.^[27] Dodd-Frank focuses on retaliation “in the terms and conditions of employment.”^[28] Title VII similarly focuses on retaliation in the context of employment.^[29] In contrast, the Directive more broadly prohibits “any form of retaliation.”

• The Directive requires that whistleblowers have access to independent legal aid and advice.^[30] Member states are also invited to provide whistleblowers with financial and psychological support. The French Constitutional Council voided a provision of the Sapin II Law that provided that the ombudsman should be able to yield such financial aid.^[31] The French Constitutional Council concluded that such action was not within the scope of the Ombudsman. Based on the Directive, the French legislature will have to set up another mechanism.
  
  
• In the event of proceedings before a courtor authority relating to retaliatory measures suffered by the whistleblower, it calls for the shifting of the burden of proof to the defendant.^[32] The damages suffered should be compensated in full under national law. Compensation may take different forms of actions such as: (i) reinstatement (e.g., in case of dismissal, transfer or demotion, or of withholding of training or promotion); (ii) restoration of a cancelled license or contract; (iii) compensation for actual and future financial losses (for lost past wages, but also for future loss of income, costs linked to a change of occupation); (iv) compensation for other economic damages such as legal expenses and costs of medical treatment; and (v) compensation for intangible damages (pain and suffering).

Dodd-Frank provides a cause of action for any discharge or discrimination made by an employer in retaliation for reporting to the SEC.^[33] Relief for a prevailing individual includes: reinstatement with the same seniority status, two times the amount of back pay otherwise owed to the individual, and compensation for litigation costs and attorney’s fees.^[34] Similarly, under Title VII, the court may, for example, enjoin the respondent from engaging in unlawful employment practices, order affirmative action, or provide any other equitable relief as it deems appropriate.^[35]

• The Directive stipulates that whistleblowing shall not affect the protection of secrecies such as the secrecy of classified information in the fields of defense and security, legal and medical privilege, the secrecy of judicial deliberations, and rules on criminal procedures. Indeed, national security especially remains the sole responsibility of each member state. In contrast, disclosure of trade secrets is possible under the Directive in terms of not incurring civil or criminal liability^[36] insofar as such disclosure does not go beyond what is necessary to avoid or punish illegally reported breaches.
  
  
• The Directive requires member states to implement penalties against natural or legal persons who attempt to hinder, retaliate against, or take legal action or vexatious proceedings against whistleblowers. It also provides for sanctions in case of breach of the duty of maintaining the confidentiality of the identity of the reported person. Penalties must be not only effective and proportionate, but also dissuasive,^[37] as is commonly required by EU law.
  
  
• Lastly, the Directive also obliges member states to ensure that the possibility to report and disclose information cannot be contractually limited, such as loyalty clauses or confidentiality or non-disclosure agreements.^[38]
  
  
• With regard to the implementation of the Directive:
  
  
  • First, it performs “minimal harmonization” which means that member states can introduce only stronger whistleblower protection in their domestic law.^[39]
    
    
  • Second, where existing EU legislation already contains detailed rules on whistleblower protection, these specific rules remain applicable. This is, for instance, the case in the areas of financial services, the prevention of money laundering and terrorist financing. If so, the Directive is applicable only in all those matters not regulated under the sector-specific instruments, which are thus complemented by the Directive. It should principally concern provisions on non-retaliation.
    
    
• In conclusion, given the importance of whistleblowing to combat corruption, the Directive represents a huge step in the direction of reinforcing enforcement of EU legislation and rules to the benefit of EU citizens. In that regard, the reform is directly in line with the creation of the European Public Prosecutor’s Office^[40] (EPPO) which will start operating in 2020, at this stage with the participation of 22 EU member states.^[41] The EPPO will have the power to investigate, prosecute and bring to justice crimes against the EU budget, such as fraud, corruption or serious cross-border VAT fraud. Enjoying a status of full independence, it will act in the interests of the EU and will neither seek nor take instructions from either EU or national authorities. Against this background, it is foreseeable that whistleblowers in Europe will from now on choose to report breaches in the EU instead of going — as some of them have done — to US authorities such as the Department of Justice and the SEC.
  
  
• Our principle recommendation is based on the novelty of the Directive’s removal of hierarchy between internal and external reporting channels. Since individuals can report directly to authorities, companies operating in Europe should set up the most efficient and accessible alert mechanisms possible. In doing so, employees and third parties will feel sufficiently secure to report internally rather than going directly to external or public entities. They will feel most secure if the company ensures zero tolerance of retaliation against whistleblowers.

^[1] _{https://www.kramerlevin.com/en/perspectives-search/protections-afforded-to-whistleblowers-in-the-eu-an-update.html.}

^[2] _{See 42 U.S.C. § 2000e-2(a).}

^[3] _{Pub. L. No. 111-203, § 922(b), 124 Stat. 1376, 1842 (2010).}

^[4] _{Article 2.}

^[5] _{Article 4.}

^[6] _{Article 4.}

^[7] _{See Pub. L. No. 111-203, § 922(a), (c)(2).}

^[8] _{Article 6.1.}

^[9] _{Article 6.2.}

^[10] _{CNIL, Projet du référentiel relatif aux traitements de donnée à caractère personnel destines à la mise en œuvre d’un dispositif d’alerte.}

^[11] _{Article 6.3.}

^[12] _{Pub. L. No. 111-203, § 922(d)(2)(A).}

^[13] _{Pub. L. No. 111-203, § 922(d)(2)(B).}

^[14] _{Article 8.}

^[15] _{Article 9.}

^[16] _{Article 10.}

^[17] _{Article 8.}

^[18] _{Article 1.}

^[19] _{Article 8.}

^[20] _{See Securities Exchange Act of 1934, Rule 21F-4(b)(7).}

^[21] _{See Securities Exchange Act of 1934, Rule 21F-6(a)(4).}

^[22] _{Articles 9 and 11.2.}

^[23] _{Article 11.}

^[24] _{42 U.S.C. § 2000e-5(b).}

^[25] _{Article 15.}

^[26] _{Article 19.}

^[27] _{Digital Realty Trust, Inc. v. Somers, 583 U.S. __, 138 S. Ct. 767 (2018).}

^[28] _{Pub. L. No. 111-203, § 922(h)(1)(A).}

^[29] _{42 U.S.C. § 2000e-3(a).}

^[30] _{Article 20.1.}

^[31] _{Decision n° 2016-741 of December 8, 2016, point 137.}

^[32] _{Article 21.5.}

^[33] _{Pub. L. No. 111-203, § 922(h)(1)(B).}

^[34] _{Pub. L. No. 111-203, § 922(h)(1)(C).}

^[35] _{42 U.S.C. § 2000e-5(g).}

^[36] _{Article 21.}

^[37] _{Article 23.}

^[38] _{Article 24.}

^[39] _{Article 25.}

^[40] _{Council Regulation (EU) 2017/1939 of 12 October 2017 implementing enhanced cooperation on the establishment of the European Public Prosecutor’s Office.}

^[41] _{Non participating countries: Denmark, Hungary, Ireland, Poland, Sweden and the United Kingdom.}