A seismic shift: Commonwealth government releases draft whistleblower legislation - Whistleblowing

Australian whistleblower reform is coming thick and fast. Hot on the heels of the Whistleblower Protection report by the Parliamentary Joint Committee on Corporations and Financial Services (Committee),¹ the Commonwealth Government has now released an exposure draft of the proposed legislation (Draft Legislation), open for comment until 3 November 2017.

While the draft legislation does not cover every recommendation from the Committee, it will reflect a seismic shift from the current framework. A specific regime has also been announced to deal with breaches of tax laws and tax avoidance, and an Expert Advisory Panel has been established to consider the alignment of the draft legislation with the recommendations made in the Committee's report.

WHY NOW?

At a national level, there has been little consistency in the protections available to whistleblowers and the obligations imposed on companies, trade unions, government bodies and other employers. While specific legislation has applied to the government sector, and different legislation has governed different industries in the private sector, rights and obligations have differed.

These reforms aim to provide a consistent application of whistleblower protections across the private sector (in the corporate and financial space), which aligns with the government sector regime. They will provide an environment in which a whistleblower will have greater comfort in disclosing a wider range of conduct, and will mean that organisations will face an increased prospect of whistleblowing occurring.

The reforms will impact every public company and large private company. With the heightened focus by regulators on 'corporate culture', and the possibility for failures in culture to expose senior managers and directors to action, the importance of getting the tone right in adapting to and living with these changes cannot be understated.

Organisations should start auditing or developing their policies and training requirements now. This presents an opportunity for leaders to take a clear step in setting the "tone from the top".

The proposal is for the draft legislation to apply to any disclosures made after 1 July 2018, or conduct that victimises or damages an individual after 1 July 2018, even if the relevant disclosure occurred before then.

Below is a comprehensive summary of the changes proposed by the draft legislation:

WHAT WILL CHANGE?

In brief, under the draft legislation:

There will no longer be a requirement that the whistleblower is acting in good faith to gain the benefit of protections. Their motivation will be irrelevant, and it will be enough that the person has objectively reasonable grounds to suspect misconduct or a contravention.
Anonymous disclosures will be allowed.
In extreme cases (excluding tax matters), a protected disclosure can be made to the media or members of parliament.
A wider scope of corporate misconduct can be the subject of a protected disclosure.
A wider range of people can qualify for whistleblower protection.
The protection obligations now extend to all public and large proprietary companies.
These companies will have to have whistleblower policies in place – by January 2019 for public companies and December 2019 for large proprietary companies.
There is an expansion of the protections and redress available to whistleblowers who suffer reprisals, and improved access to compensation.
The onus of proof has been reversed when a person seeks compensation, once they have established they have suffered detriment

The new regime will, for the most part, be implemented by amendments to the Corporations Act. However, a similar regime will also apply to tax-related whistleblowing through changes to the Taxation Administration Act.

WHO WILL THE NEW REGIME APPLY TO?

The new whistleblower protection regime will cover all corporate and financial sector whistleblowers who are employed or associated with entities regulated by one or more of the following:

the Corporations Act;
the ASIC Act;
the Banking Act;
the Life Insurance Act;
the Insurance Act: Superannuation Industry (Division) Act;
the National Consumer Product Protection Act; and
the Financial Sector (Collection of Data) Act.

Organisations governed by the new regime will have to ensure their employees are afforded the protections required, including through the adoption of whistleblower policies (see further below).

WHO IS AN 'ELIGIBLE WHISTLEBLOWER' UNDER THE NEW REGIME?

The existing Corporations Act whistleblower protections only apply to people who are currently officers, employees and suppliers.

The draft legislation, however, creates a new concept of an 'eligible whistleblower' – people whose relationship with the relevant organisation may place them in a position to identify wrongdoing by that entity. Under the draft legislation, 'eligible whistleblower' is a much wider category and now includes:

an officer of the organisation;
an employee of the organisation;
an individual who has a contract to supply goods or services to the organisation;
an employee of a supplier of a contract of goods or services to the organisation; and
an individual who is an 'associate' of the organisation (as defined in sections 9 and 10-17 of the Corporations Act).

The draft legislation also contains two other significant extensions of the existing protections – the category of informants who will be the subject of whistleblower protections will also include:

A spouse, child or dependant of any the above (as there is the potential for victimisation or retaliatory action to be visited not only on the person who blows the whistle, but other people or entities associated with them).
Any person or organisation who formerly held any of those positions – that is, former directors, officers, employees, contractors and closely related persons.

NOTE: For businesses involved in the superannuation industry, trustees, custodians and investment managers will also get whistleblower protections under the new regime.

WHAT TYPES OF CONDUCT WILL THE NEW REGIME COVER?

The existing corporate and financial sector regimes have different definitions of the types of misconduct that can be disclosed. This is because they refer to conduct under the relevant piece of legislation itself.

Under the draft legislation, an individual can make an eligible protected disclosure if they have reasonable grounds to suspect that the information indicates that the organisation or any of its staff has engaged in conduct that at a general level concerns 'misconduct or an improper state of affairs or circumstances' in relation to the entity or its related bodies corporate.

This permits disclosures to be made of breaches of any Commonwealth, state or territory laws, and covers misconduct by officers and employees of the entity and the improper state of affairs caused by such individuals.

More specific types of conduct are identified, but are not intended to limit the wider application of the misconduct concept. The draft legislation specifically identifies conduct that:

constitutes an offence or contravention of any of the statutes identified above;
constitutes an offence against any other law of the Commonwealth punishable by imprisonment for a period of 12 months or more (this would, for example, cover conduct which is in breach of the Criminal Code's bribery and corruption prohibitions or the Competition and Consumer Act's cartel prohibitions);
represents a danger to the public or a financial system; or
may be prescribed by regulations.

The 'danger to the public/financial system' category is intended to cover conduct which may not be immediately apparent as a contravention of the law but which poses significant risk to safety or the stability of or confidence in a financial system. That is, it does not need to be a contravention of any law.

The draft legislation's Explanatory Memorandum states that it could also 'include emerging forms of misconduct not covered under existing law such as exploitation of a loophole in the law that creates vulnerability in a government program.'

WHO CAN A WHISTLEBLOWER DISCLOSE INFORMATION TO UNDER THE NEW REGIME?

People associated with the organisation

The draft legislation sets out a new concept – the 'whistleblower disclosee'.

This covers the following people inside and outside the organisation to whom a protected disclosure may be made:

an auditor or a member of an audit team conducting an audit within the organisation or related body corporate;
the actuary of the body corporate or a related body corporate;
a director, secretary or senior manager of a body corporate or related body corporate; and
a person authorised by the body corporate to receive disclosures (this will cover, for example, those organisations who outsource their whistleblower hotline services to external providers).

NOTE: For superannuation entities, a protected disclosure may also be made to the following people:

an individual who is a trustee;
a director of a body corporate that is the trustee; and
any person authorised by the trustees.

Regulators

Under the draft legislation, disclosures can be made to regulators – specifically, ASIC, APRA and the Australian Federal Police. Additionally, the minister can expand the scope of those persons through regulations. In tax related matters, the disclosure can be made to the Commissioner.

Press and legislators

Finally, the draft legislation includes the potential for disclosures to be made to members of parliament or the media. This wider scope of disclosure is intended to apply in situations where the wrongdoing is of such gravity and urgency that it is justified to raise it with the media or the parliament.

However, such disclosures are a "last resort" and can only be made if the following conditions are satisfied:

the whistleblower must have previously disclosed information to a regulatory body (i.e ASIC, APRA, AFP);
a reasonable period must have passed since the disclosure was made; and
the whistleblower must have had reasonable grounds to believe that there is an imminent risk of serious harm or danger to the public health or safety, or to the financial system if the information is not acted on immediately.

Further, these types of disclosures cannot be made to any persons who self-describe themselves as a journalist, and can only be made to a person who is working in a professional capacity as a journalist. (This ensures that public disclosures on social media are not covered by the protection). A disclosure can also be made to a lawyer for the purpose of the discloser obtaining legal advice or representation.

NOTE: The tax changes do not allow disclosures to media or parliamentarians. This is based on policy reasons - avoiding vexatious disclosures, and the confidential nature of taxpayer information.

MANDATORY WHISTLEBLOWER POLICIES

The draft legislation also outlines the introduction of Mandatory Whistleblower Policies, meaning that from 1 January 2019, all public and large proprietary companies will need to have a whistleblower policy which details:

the protections available; and
how the company will ensure fair treatment of the employees who are the subject of a protected disclosure, consistent with the requirements of the legislation.

While many ASX listed entities already have such a policy (as part of a Code of Conduct required by the ASX Listing Rules), this is a significant change for a large number of organisations.

Most significantly, this applies to any proprietary company which has, in the prior financial year, satisfied the definition of a large proprietary company as defined in the Corporations Act.

A company meets that definition if it satisfies at least two of the following three criteria:

the consolidated revenue for the financial year of the company and any entities it controls is $25 million or more;
the value of the consolidated gross assets at the end of the financial year of the company and any entities it controls is $12.5 million or more; and
the company and any entities it controls have 50 or more employees at the end of the financial year.

Failure to comply with these proposed policy requirements will be a strict liability offence with a penalty of 60 penalty units ($12,600).

Corporations who already have Whistleblower Policies will need to review these in light of the proposed changes, because a much wider range of conduct will fall within the protections.

WHAT OFFENCES AND PROTECTIONS WILL THE NEW REGIME CREATE?

Victimisation Offence

The current victimisation offence is extended in the draft legislation to cover instances where the victimiser causes any other person any detriment, where their motivation is simply that they believe or suspect that a person has made, or may make a protected disclosure. The offence arises regardless of whether a disclosure in fact occurred.

The 'victim' who suffers the detriment need not be the whistleblower – it could be an investigator, a family member of the whistleblower or a business associated with them.

Detriment is undefined, but includes:

injury to an employee in their employment (e.g. being held back from promotion)
dismissal;
discrimination;
alteration of their position or harassment;
intimidation of a person;
harm or injury (physical or psychological);
damage to a person's property, reputation, business or financial position.

It will be a contravention (with a maximum fine of $200,000 for an individual of $1M for a corporation) to disclose the whistleblower's identity, or information which may allow them to be identified. Corporations will need to be mindful of this when they conduct investigations arising from a protected disclosure.

Any person will have a right to seek compensation where they suffer detriment, where a suspicion that they made a protected disclosure is part of the motivating reason for the conduct that caused the damage. In these cases, the victim merely has to prove they suffered damage. The person who caused the damage has the burden of demonstrating that they were not motivated by the fact or possibility that the victim made a protected disclosure. Organisations may be liable for detrimental conduct towards a whistleblower, e.g. where the organisation has aided the unlawful conduct of an officer or employee.

The standard approach courts must take is that victims will not have costs awarded against them if they are unsuccessful in an application for compensation. This will not apply if the proceedings were vexatious.

Immunity from use of whistleblowers' information in court proceedings

The draft legislation will prevent the information whistleblowers provide from being admissible against them in any criminal or penalty proceedings (except proceedings relating to the falsity of the information). This is not a complete immunity – as it does not prevent a regulator from making derivative use of the information to progress its own investigations. That information may in turn allow a case to be developed against the whistleblower, if they were involved in the misconduct.

WHAT IS STILL UNDER CONSIDERATION?

The Committee recommended some additional changes – but these remain under consideration by the Commonwealth Government's Expert Advisory Panel.

Some important recommendations which are not currently part of the draft legislation include:

the establishment of a reward or 'bounty' system for whistleblowers;
overriding confidentiality clauses in employment contracts and settlement agreements reached with employers.

The draft legislation is open for comment until 3 November 2017.² Corrs will endeavour to keep you updated on any further developments.

Footnotes

¹ See: http://www.corrs.com.au/thinking/insights/protecting-david-from-goliath-parliamentary-committee-makes-recommendations-for-new-whistleblower-reforms/

² See: https://consult.treasury.gov.au/market-and-competition-policy-division/whistleblowers-bill-2017/

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.