Proposal for a Directive on the protection of persons reporting on breaches of Union law (COM(2018) 218 final)

The general objective of the Directive on the protection of persons reporting on breaches of Union law (so-called “Whistleblower Protection Directive”) is important, as it aims to guarantee effective enforcement of EU law and to protect internal markets from unlawful and unfair competition. The proposal, however, contain several problematic issues.

The Directive does not follow principles of better regulation. The Directive is complicated, ambiguous and its material scope is fragmented and difficult to apply. National implementation of the Directive will therefore be difficult.

According to the proposal a person reporting shall qualify for protection if he/she has reasonable grounds to believe that the information reported was true at the time of reporting and that this information falls within the scope of the Directive. For individuals, it is very difficult in practice to be certain that the information falls within the scope of the Directive.

Considering national variations of implementation, it is not enough to get acquainted with the list annexed to the Directive. One should also be familiar with how the EU legislative acts of the list have been implemented at national level. A person reporting should also have reasonable grounds to believe that disclosing information is in the public interest. The definitions of “breach”, “unlawful activity” and “abuse of law”, which may be reasons for a person to report and get protection, are unprecise and subjective by nature. Taking this and the general criteria of “public interest” into account, all kind of breaches, abuses or unlawful activities would not mean that the rights conferred in the Directive would be applicable. The assessment of these definitions should be made using objective criteria. Otherwise reporting would cause major legal uncertainty for companies and entities that are subject to reports.

The material scope of the Directive contains a long list of EU Directives and Regulations that are mentioned in the Annex. It should be considered further whether all of them contain such public interest that might be endangered where a person reporting on the breach of Union law was not be protected as proposed in the Directive. Especially regarding consumer protection directives, it can be questioned whether it is proportionate to include them into material scope.

Internal reporting should always be used first. According to the proposal a reporting person should use first internal reporting channels of the company in order to address the problem. This is the right approach. If the problem may be fixed by internal reporting and actions, further reporting and protection is not needed. According to the proposal, small entities (less than 50 employees or annual business turnover/balance sheet less than 10 MEUR) are excluded from the obligation to establish internal channel for reporting. However, external reporting applies to businesses of any size. Small entities may use internal channels voluntarily. This should be recognized in the Directive by stating that if internal channel exists, it shall be used primarily.

The Directive will cause administrative burden, especially in relation to HR management. The obligation to create internal channel for reporting is not costly as such, if the Directive does not provide for too detailed requirements. Administrative burden, new obligations for reporting procedures and follow-up and extensive list of prohibited retaliation actions will cause problems in everyday practice. Especially prohibition of retaliation against reporting persons is problematic, since some (e.g. lay-off, reprimand/warning) actions are quite commonly used in employment relations. For instance, if a person who has made a report is one of the employees that are subject to lay-off, the employer must justify the lay-off separately to the employee, even though the lay-off would not be in any relation to reporting.

The Directive is unbalanced regarding protection of the reporting persons and of the concerned persons. The main content of the Directive is protection of reporting person. However, it is equally important to protect persons who are concerned. Malicious or abusive reports or disclosures may cause severe damage, which may be in this context direct losses and/or indirect badwill or other type of damage. Especially for SMEs the consequence for groundless reports may be severe. Therefore, legal approach should be balanced and take better into account also the position of concerned persons.

The relation to the Trade Secret Directive 2016/943 is unclear. The Directive on Trade Secret protection, which is currently in force, contains an article on whistleblower protection. According to it, the legal remedies provided in the Trade Secret Directive cannot be invoked against a person revealing trade secret as whistleblower. The relation between Trade Secret Directive and Whistleblower Protection Directive should be clarified for the sake of legal certainty. Overlapping regulatory actions should be avoided.

Position of the Federation of Finnish Enterprises

The Federation of Finnish Enterprises (FFE) calls for more balanced approach. The objective of the Directive is reasonable as the smooth functioning of internal markets requires that no breaches EU law exist. However, The Directive should not create legal uncertainty and the administrative burden for businesses shall be kept minimum. The key priorities for the FFE are:

Promotion of internal channels for reporting: reporting helps company management to rectify fouls and missteps which may be accidental or not made on purpose.
Balance between the protection of reporting person and concerned person, taking especially into account the situation of small businesses and entities:
Better regulation: clarification of the content is needed, also material scope should be assessed critically. Legal certainty for both reporting persons and concerned person shall be ensured.

Albert Mäkelä

specialist
Federation of Finnish Enterprises