Institute Insights - Whistleblowing in the Regulated Sector

Whistleblowing and whistleblowing claims in the employment tribunal have been on the increase since the 2008 financial crisis resulted in a crackdown on corporate wrongdoing. The FCA reports that it receives around 300 whistleblowing reports every quarter, many of which contain multiple allegations covering issues such as compliance, concerns over fitness and propriety, culture, TCF and fraud. Despite this increase, individuals who are considering blowing the whistle still fear punishment, retaliation and victimisation and the FCA reports that around one third of whistleblowers are reporting concerns anonymously.

In this article we summarise the legal framework governing whistleblowing and how this is applied in practice.

What is whistleblowing?

While the term "whistleblowing" is not defined in legislation, it refers to the situation where a worker makes what is known as a "protected disclosure" to their employer (or in certain specified circumstances to another person). There are various conditions which apply and, if they are all met then the worker will be protected from suffering a detriment or being dismissed because they have made that protected disclosure. Detriments can include not protecting the confidentiality of the whistleblower, closer monitoring of them, denial of training or subjecting them to unreasonable disciplinary proceedings. If the worker is subjected to a detriment or is dismissed as a result of having made a protected disclosure then they will have the right to bring a claim in the employment tribunal. Workers who are dismissed from their employment as a result of having made a protected disclosure will have been automatically unfairly dismissed without any requirement to have two years' continuous employment. There is no statutory cap on the amount of compensation that can be awarded for such claims of automatic unfair dismissal and individuals can potentially apply for interim relief, preserving their pay until the final hearing.

What are the conditions that make a disclosure protected?

The disclosure must be a "qualifying disclosure". This means that there must be a disclosure of information which, in the reasonable belief of the worker, is made in the public interest and tends to show one or more types of wrongdoing or failure has taken place. We set out below further details of these elements.

1. The disclosure must relate to one of the following six categories of malpractice/wrongdoing:

a. a criminal offence

b. breach of a legal obligation

c. a miscarriage of justice

d. a danger to health and safety

e. damage to the environment, or

f. deliberate concealment of information about one of the above.

2. There must be a disclosure of information relating to one of these six areas. For concerns raised with the FCA (or PRA) the second area will include all breaches of regulatory rules and requirements as well as the law that overlays them. Simply threatening to make a disclosure or making generalised allegations is unlikely to amount to a qualifying disclosure.

3. The individual must have a reasonable belief that the information shows that one of the six categories of malpractice has occurred, is taking place or is likely to occur. In this respect the individual is not required to prove the particular facts or allegations are true or that they are capable in law of amounting to one of the categories of wrongdoing. Providing the individual subjectively believes that a relevant failure has occurred and that belief is objectively reasonable, this particular test will be satisfied even if the belief subsequently turns out to be wrong or the facts alleged would not amount to a relevant failure in law.

4. The individual must also have a reasonable belief that the disclosure of information is in the public interest. Although there is no definition of "in the public interest", information relating to malpractice or wrongdoing which affects only the individual personally is unlikely to be in the public interest. However, belief in the public interest need not be the predominant motive for making the disclosure or even part of the individual's motivation. The requirement is for there to be a reasonable belief in the public interest not to be motivated by that belief.

To whom should the disclosure be made?

If a qualifying disclosure is made, then in order for it to be protected, it must be disclosed to particular categories of people. Disclosures made to the employer will be protected providing the above conditions are met. Disclosures to the FCA and PRA are also protected even if they have not previously been disclosed to the employer, providing the individual believes the information is substantially true and concerns an area within that person's area of responsibility.

Wider disclosure to other bodies such as the police, shareholders, non-executive directors, MPs or the media is possible but there are more rigorous conditions for such wider disclosures to be protected. In summary, the individual must believe the information is substantially true and must not act for gain. Further, unless the matter is exceptionally serious, the individual must have already disclosed it to the employer or a prescribed person (for example the FCA or PRA) or believe that, if they do make such a disclosure, evidence would be destroyed or they would suffer reprisals. Finally, disclosure to the external body/person must also be reasonable in the circumstances.

Practical steps for effective reporting

As a first step, consider your organisation's whistleblowing policy and procedure, which is likely to set out the process that you would be expected to follow and identify the person with whom concerns should be raised.

It is always a good idea to ensure that the concerns are recorded in writing and that you keep a copy so that you can demonstrate precisely the concerns which were raised and when. Further, although individuals are not required to set out which of the categories of wrongdoing has occurred, this could be helpful in demonstrating that a belief in the malpractice was reasonable at the time. In addition, while there is no obligation to include reference to a belief that the disclosure is in the public interest, explicitly setting out why there is a belief that such disclosure is in the public interest can be helpful in demonstrating that this belief was held at the time the disclosure was made.

It is also worth considering any potential corrective actions or steps the employer could implement going forward so that these can be discussed and considered.

A meeting is likely to be arranged to discuss the concerns and it is always helpful to keep a note or ask for notes of that meeting to be taken and circulated for approval. The organisation should then undertake a reasonable investigation and keep the individual updated of its progress.

Once the investigation is concluded, the employer should report back to the individual the outcome and what, if any, corrective or other actions are going to be implemented and what other steps the employer is going to take, which could include changes to policies, procedures and practices or putting in place additional reporting requirements. It is important to note that regulated firms are required to provide feedback to whistleblowers where this is feasible and appropriate.

If the individual is not satisfied with the outcome then the whistleblowing policy may allow an appeal or reference to be made to a more senior level of management (or to the nominated whistleblowers' champion, which regulated firms are required to have in place). If the policy does not allow a right of appeal, consideration should be given to raising concerns about the outcome internally, or potentially escalating this to the FCA or PRA.

If the individual has genuine concerns about potential repercussions or reprisals as a result of making a protected disclosure then the whistleblowing policy should allow the individual to report such concerns on an anonymous basis. This does of course place constraints on investigations and makes it more challenging for organisations to identify and establish whether the allegations raised are credible. The whistleblowing policy should nevertheless allow a process for such concerns to be raised on an anonymous basis.

Individuals who are subjected to detrimental treatment or are dismissed as a result of making a protected disclosure have the right to submit claims to the employment tribunal. In addition, regulated firms are required to include reasonable measures to ensure that if a reportable concern (which includes protected disclosures) is made by a whistleblower, no person under the firm's control engages in victimisation of that whistleblower.

How we can help

The Employment Team at Womble Bond Dickinson are experienced in supporting individuals and businesses with the complexities around whistleblowing allegations and claims of dismissal and detriment arising from protected disclosures. If you would like support or guidance in relation to a potential whistleblowing situation or claim, then please contact us on [email protected] to arrange an initial no obligation chat.