Honesty without fear? Whistleblower anti-retaliation protections in corporate codes of conduct.

• Jurisdiction: Australia
• Author: Dixon, Olivia
• Date: 01 August 2016

CONTENTS I Introduction II Current Approaches to Private Sector Whistleblower Protection A Federal Statutory Protection 1 Corporations Act 2 Fair Work Act 3 Occupational Health and Safety Acts 4 'Regulated Organisations' B State Statutory Protection C Common Law III Anti-Retaliation Protections in Corporate Codes of Conduct A Corporate Codes of Conduct B The Whistleblowing Policies of Australia's Largest Listed Companies 1 Sample and Methodology 2 Whom Do the Codes Cover? 3 Is Reporting Required or Encouraged? 4 What Violations Matter to the Companies? 5 Who Receives the Reports of Misconduct? 6 Do Companies Promise Not to Retaliate against Whistleblowers? 7 Is Confidentiality or Anonymity Guaranteed? IV Substantive Benefits: Broader Contractual Protections? V Normative Benefits: Enforcing Corporate Self-Regulation VI Conclusion I INTRODUCTION

Over the past decade whistleblowers have emerged as an integral component of corporate governance through the monitoring and control of agency costs in large public companies. (1) By virtue of their relationships or position, whistleblowers often have privileged access to information about corporate misconduct. (2) As such, '[w]histleblowing is now considered to be among the most effective, if not the most effective means to expose and remedy corruption, fraud and other types of wrongdoing in the public and private sectors.' (3) The expression 'whistleblowing' is often traced to United States consumer activist Ralph Nader in 1971; (4) however, it is most commonly defined as 'disclosure by organization members (former or current) of illegal, immoral or illegitimate practices under the control of their employers, to persons or organizations that may be able to effect action.' (5) The disclosed misconduct most often relates to a violation of a law, rule, regulation or a direct threat to the public interest such as health or safety violations, fraud, bribery or corruption. (6)

Australian whistleblowing legislation emerged in the aftermath of the systemic government corruption inquiries of the late 1980s, (7) meaning that although whistleblower protection was squarely on the political agenda, legislative development was firmly fixed on the public sector. The Commonwealth, (8) states (9) and territories (10) have all enacted public sector whistleblower protection or public interest disclosure Acts (based on an '"anti-retaliation" model ... albeit with [a] stronger ... "structural" model of protection') (11) which prohibit retaliation against whistleblowers for reporting misconduct. While academic debate continues as to whether private sector legislation should ultimately be based on a 'structural', 'anti-retaliation', 'reward' or blended model, (12) political will to enact comprehensive private sector legislation has effectively stagnated and current legal avenues that are available to targets of retaliation are inherently complex, fragmented and unpredictable.

At the Commonwealth level, the Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004 ('CLERP') introduced whistleblower protection provisions into the Corporations Act 2001 (Cth) ('Corporations Act') to encourage company officers, employees and contractors to report potential violations of the Corporations Act; (13) however, the provisions are poorly regarded and rarely used. (14) More generalised remedies for targets of retaliation may exist through occupational health and safety legislation, anti-discrimination legislation or workers' compensation legislation, and, in certain circumstances, targets of retaliation may seek recourse through the Fair Work Act 2009 (Cth) ('Fair Work Act') if they can demonstrate workplace bullying or an adverse action. At the state and territory level, only the South Australian (15) and Queensland (16) whistleblower protection acts incorporate aspects of private sector protection. At common law, retaliation may give rise to a number of actions both in tort and contract; however, onerous burdens, fiduciary duties, defamation laws and private confidentiality agreements have all traditionally undermined the viability of this option.

As regulators are becoming increasingly reliant upon 'private initiatives [as] the first line of enforcement', (17) this article argues that in the absence of progress towards comprehensive private sector whistleblower protection, private commitments can provide an important interim regulatory function. Under Listing Rule 4.10.3, Australian Securities Exchange ('ASX') listed entities are required to benchmark their corporate governance practices against the ASX Corporate Governance Council's Corporate Governance Principles and Recommendations and, where they do not conform, to disclose that fact and the reasons why. (18) Recommendation 3.1 states: 'A listed entity should: (a) have a code of conduct for its directors, senior executives and employees; and (b) disclose that code or a summary of it.' (19) Increasingly, companies are incorporating whistleblowing policies within these corporate codes of conduct ('Codes'). Vandekerckhove and Commers refer to these policies as '[institutionalized whistle blowing', defined as 'the set of procedures allowing potential whistle blowers to raise the matter internally before they become whistle blowers in the strict sense.' (20) The benefits of institutionalised whistleblowing are manifold. Wrongdoing that is corrected by the company in a timely manner will avoid external disclosures and potential reputational and financial damage. Further, an appropriate management response to disclosures of wrongdoing enhances the organisational culture, and employee satisfaction and commitment. (21)

A distinguishing feature of Codes is that they are a form of voluntary regulation and prima facie are not legally enforceable. (22) However, the promulgation of Codes by companies has a regulatory effect through signalling appropriate behaviour. (23) Whistleblower protection policies are therefore, at least in part, expressive in character. (24) That is, their function is about "'making statements" as opposed to controlling behaviour directly.' (25) The whistleblower policies contained in Codes not only set a benchmark, causing some companies to alter or modify their behaviour, but by diffusing norms, they positively influence organisational behaviour and culture. (26)

By examining the whistleblower policies of Australia's 200 largest listed companies, this article further argues that private commitments potentially provide broader protection against retaliation for whistleblowers than currently available under statute. The majority of Codes frame the good faith reporting of misconduct as a requirement, duty or responsibility of employment; either promising that the company will not retaliate against a whistleblower or prohibiting retaliation against whistleblowers. The unqualified breadth of these promises avoids many of the problems inherent in the legal avenues currently available to targets of retaliation and, in their strongest form, may provide an alternative route for enforcement, through the employment contract. (27)

This article proceeds as follows. Part II summarises the traditional statutory and common law protections afforded to private sector whistleblowers and examines the weaknesses of each approach. Part III considers the whistleblower policies of Australia's largest 200 listed companies, analysing the breadth of the voluntary promises made by companies against current statutory benchmarks and guidelines. Part IV considers the circumstances under which whistleblower protection policies contained in Codes may bind the company and employee as part of the employment contract, providing an alternate cause of action for targets of retaliation. Consistent with policy rationales, enforcement of promises in Codes may provide important substantive benefits to whistleblowers by facilitating less retaliation, more certainty and therefore more whistleblowing. Part V argues that enforcement of Code provisions will incur normative benefits through encouraging the movement towards corporate self-regulation. Part VI concludes that while broader statutory protection is necessary to ensure consistent application of promises and protection of private sector whistleblowers, permitting whistleblowers to enforce a company promise through a breach of contract action could serve as a valuable additional cause of action and a deterrent to retaliation.

II CURRENT APPROACHES TO PRIVATE SECTOR WHISTLEBLOWER PROTECTION

Encouraging employees to disclose their inside knowledge is a vital tool in combating corporate fraud and misconduct; (28) however, the current approaches to private sector whistleblower protection suffer from significant gaps and grossly misaligned incentives. A complex web of federal and state legislation prohibits companies from retaliating against whistleblowers, the intention being that such protections will encourage whistleblowers and deter corporate misconduct. However, while society, shareholders and employees all benefit positively from such disclosure and face negligible downside risk, a whistleblower is often typecast as a snitch who 'betrays a sacred trust largely for personal gain', (29) and faces a very real threat of retaliation. (30)

This Part briefly describes the current statutory and common law causes of action available to targets of retaliation. As discussed below, although a wide variety of legislation exists which theoretically may protect whistleblowers, each piece of legislation covers only a narrow type of whistleblowing activity engaged in by a narrow group of individuals. The limited scope and inconsistent relief afforded to whistleblowers accounts for the very few successful claims for anti-retaliation protection.

A Federal Statutory Protection

1 Corporations Act

In 2004, pt 9.4AAA was inserted into the Corporations Act, (31) providing a certain immunity and...