By Brian D. Portas (Calgary)
Originally published Winter 2005
The federal government has recently introduced amendments to the Canadian Criminal Code that consider it a criminal offence for employers to make employment-related threats, such as job loss or demotion, or take retaliatory actions against employees who provide information about unlawful acts to law enforcement authorities. These new "whistleblower protection" provisions were proclaimed in force on September 15, 2004. Any one who contravenes these provisions is subject to a maximum penalty of five years imprisonment.
Section 6 of An Act to Amend the Criminal Code (capital markets fraud and evidence-gathering), S.C. 2004, c. 3 (Bill C-13) adds a new section 425.1 to the Criminal Code. Section 425.1 provides:
Threats and retaliation against employees
425.1 (1) No employer or person acting on behalf of an employer or in a position of authority in respect of an employee of the employer shall take a disciplinary measure against, demote, terminate or otherwise adversely affect the employment of such an employee, or threaten to do so,
- with the intent to compel the employee to abstain from providing information to a person whose duties include the enforcement of federal or provincial law, respecting an offence that the employee believes has been or is being committed contrary to this or any other federal or provincial Act or regulation by the employer or an officer or employee of the employer or, if the employer is a corporation, by one or more of its directors; or
- with the intent to retaliate against the employee because the employee has provided information referred to in paragraph (a) to a person whose duties include the enforcement of federal or provincial law.
(2) Any one who contravenes subsection (1) is guilty of
- an indictable offence and liable to imprisonment for a term not exceeding five years; or
- an offence punishable on summary conviction.
These whistleblower provisions came with a number of provisions in Bill C-13 that were aimed at strengthening measures to investigate, prosecute and deter capital markets fraud. They were introduced in the aftermath of market scandals such as Enron and WorldCom and are intended to bolster investor confidence and market integrity. However, it is apparent from the section above that the whistleblower provisions will cover more than just capital market situations such as insider trading. These provisions are designed to protect employees who report any type of unlawful conduct from retribution.
Employers are becoming subject to more stringent legislation that protects whistleblowers from reprisal. Canadian corporations that are Securities and Exchange Commission (SEC) registrants may already be subject to similar provisions established under U.S. law by the Sarbanes- Oxley Act of 2002. Similarly, the federal government has recently revamped its proposed whistleblower legislation directed at public servants. Bill C-11, which is a revised version of Bill C-25, seeks to introduce a mechanism governing the disclosure of wrongdoing in the federal public service that would allow whistleblowers to report to the president of the Public Service Commission.
Whistleblower protection provisions are a recognition that employees play an important role in the detection and investigation of individual and corporate abuses. James Hunter, the Toronto-based president of KPMG Canada’s forensic accounting division, has indicated that whistleblowing is "… one of the most significant mechanisms of bringing fraud to light and that’s why (protection for whistleblower) has been mandated." 1
Employers should take steps to protect themselves given the recent amendments the Criminal Code and the potential requirements of other legislation that may apply to them. Here are some suggestions:
- Employers should develop policies and procedures for responding to complaints from employees alleging improper financial reporting, potential breaches of the company’s code of ethics, or illegal conduct.
- Employees should be assured that they will be protected from retaliation. These whistleblowers should also be advised that reasonable efforts will be made to protect their anonymity but that their identity may need to be revealed to properly investigate the matter or to comply with any legal obligations that may arise. On a more practical level, the employee expressing the concern may be the only individual who has access to certain information and therefore the disclosure would likely lead back to that particular person.
- The whistleblower policy should contain a reporting procedure within the organization. This reporting structure may be similar to procedures that already exist in company policies that address issues such as harassment, discrimination and safety concerns.
- The reporting channel should reach high enough in the organization to give employees confidence that their disclosures will be treated seriously. This is also in the employer’s best interests as an effective reporting channel is more likely to result in an abuse being corrected in a timely fashion2.
- If the employee is uncomfortable or unable to discuss the matter with a supervisor, an alternative person should be identified in the policy such as inhouse counsel. The supervisor or designated legal officer should be in a position to implement procedures to protect the employee from retribution.
- The individuals who are processing the reports should be trained to carefully record how and when a report is received, to obtain enough information to properly understand the nature of the employee’s concern, to record what kind of investigation was conducted and how the issue was addressed, and to indicate what steps were taken to protect the employee. These notes will become particularly important if any subsequent investigation or litigation arises.
- Companies should also consider using confidential reporting procedures such as suggestion boxes or impartial third party service providers that may provide a "whistleblowing hotline". However, these alternatives may not be successful if the employees feel they are not anonymous or will not result in corrective measures being taken by the company. In addition, it may create an environment of distrust amongst management when open communication between an employee and an immediate supervisor may have solved the problem relatively quickly.
- A whistleblower policy should also address concerns expressed by nonemployees, such as professional accounting and legal advisors or shareholders, and indicate that all reports be made to a specific person such as in-house counsel3.
If your company already has measures in place to ensure that it is adhering to the various regulatory environments such as securities legislation, environmental law, occupational health and safety, and employment standards, a whistleblower policy should be incorporated as an integral part of this compliance system.
1 As quoted in J. Buckstein, "Post-Enron snitch lines heating up" The Bottom Line, Vol. 20, No. 9 (August 2004).
2 S. Gordon, "Blowing the Whistle" National, Vol. 13, No. 7 (November 2004) at 29.
3 For more suggestions, see A. J. MacDougall and J. Walsh, "Develop a whistleblower policy before someone
blows the whistle" The Lawyers Weekly, Vol. 24, No. 10 (July 9, 2004).
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.