UK: Incentivising Whistleblowing: An Unnecessary Game Changer?

Last Updated: 2 November 2013
Article by Aisleen Pugh

As the Government today closes its consultation on further changes to the UK whistleblowing legislation, one question seems to have divided opinion more than any other: should financial incentives be offered to encourage would-be whistleblowers to report wrongdoing and malpractice?

On 25 June 2013, a number of changes to the UK whistleblowing legislation were introduced by The Enterprise and Regulatory Reform Act 2013 (ERRA). It established a new "public interest" test for protected disclosures which no longer need to be made in "good faith" (although if a disclosure is made in bad faith, the level of any compensation payable to an individual who has suffered a detriment as a result of having made a disclosure can be reduced by up to 25%). The ERRA also introduces vicarious liability for employers if a worker is subjected to a detriment by a co-worker for making a disclosure. This brings whistleblowing legislation in line with discrimination legislation and allows individual co-workers to be named individually as respondents in employment tribunal claims.

The changes were designed to ensure that protected disclosures are not too easily dismissed for not having been made in good faith and to enable a route for redress for those who suffer a detriment by a co-worker for making a protected disclosure. The changes closed the loophole created by case law which meant that the disclosure of a breach of a worker's own contract of employment could qualify for protection under the whistleblowing legislation as a breach by the employer of a legal obligation and, as such, remove the statutory cap on compensation.

Shortly after the introduction of these changes, in July 2013, the Government announced its call for evidence to help it look more closely at the existing protections for whistleblowers and explore whether any other aspects of the whistleblowing legislation were inadequate or were preventing them from coming forwards about potential wrongdoing. The consultation invited responses to a series of questions based on personal experiences of the whistleblowing framework, backed up by relevant data and analysis. Most controversially, the consultation asked if a system of financial incentives would be appropriate in the UK whistleblowing framework?

The consultation has elicited some interesting responses. The whistleblowers' coalition, Whistleblowers UK, has proposed a scheme which would compensate whistleblowers for the "loss of career, livelihood and the stain on their character" suffered as a result of a disclosure. The proposed scheme would see the proceeds of fines imposed as a result of a whistleblower's actions shared out as follows: 30 per cent to the whistleblower, 25 per cent to the Government, 25 per cent to the Office of the Whistleblower (a new body which would be set up to help protect and encourage whistleblowers), and 20 per cent to a central fund which would be used to ensure payouts to whistleblowers would have a degree of parity.

Incentivising whistleblowing is clearly controversial but nevertheless warrants further consideration, not least because it has had some success in exposing serious fraud and malpractice in the US where, under similar rules, the former banker, Bradley Birkenfeld, blew the whistle on UBS's use of secret offshore accounts to avoid tax and in doing so received compensation of $104m.

The question has also been asked by whistleblowing charity, Public Concern at Work, which is due to release the findings of its Whistleblowing Commission on 27 November 2013. Both Michael Woodford, the former president of global electronics company, Olympus and former NHS Chief Executive, Gary Walker (both of whom blew the whistle on wrongdoing by their respective employers) are members of the Commission which has been set up to examine the existing arrangements for workplace whistleblowing and to make recommendations for change.

But, would incentivising whistleblowers be an unnecessary game changer? Would it have an effect on an individual's motives for blowing the whistle? Would it create a market in whistleblowing? What would be the impact on reporting procedures and would disclosure more often be made externally rather than internally? Are such concerns already addressed by the recent changes?

All of these remain to be seen, but what is clear is the continuing importance of the whistleblowing legislation in preventing wrongdoing and illegal activity and encouraging a cultural change to ensure that whistleblowers feel adequately protected when speaking out about their concerns.

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.

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Aisleen Pugh
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