Worldwide: A Global Whistle-Stop Tour

Last Updated: April 18 2018
Article by Cynthia Jackson

Codes of conduct not only implicate corporate compliance obligations under US law for US-based multinationals, but also compliance with the employment and data privacy laws in the foreign jurisdictions where their subsidiaries operate. Despite sometimes significant differences between the laws of the different jurisdictions, most multinational companies want a single, "user friendly" global code of conduct. However, accomplishing that requires an understanding of local laws. Without such an understanding, even the best-intentioned companies can, in their quest to be ethical, end up violating local civil, constitutional and criminal laws.

Some countries encourage robust reporting by employees of illegal activities occurring in an organization. One such country is the US which permits employers to require reporting of any suspected violations, affords whistleblowers anonymity to allay concerns of retaliation, requires in-depth investigation into whistleblower claims by senior management or boards of directors, and encourages, or at least allows for, prompt "no-tolerance" remedial measures against not only wrongdoers but also those who knew but failed to disclose a violation by others.

In contrast to the US scheme, some countries limit what can be reported beyond local management or local law enforcement; are suspicious of hotlines and anonymity, which is believed to lead to malicious and unfounded accusations; require "proportionality" balancing of the seriousness of the alleged violation against the invasion upon personal privacy involved in ferreting it out; limit the collection and transmittal of personally identifiable information communicated via a hotline and/or uncovered during an investigation; and proscribe who may view such reports and findings. In addition, many countries do not consider a violation of US law by a local employee as providing a basis for disciplinary action unless it would also constitute "cause" under local employment law.

How Did This Happen?

In the US, anonymous reporting of any and all illegal or unethical conduct is encouraged. Sarbanes-Oxley §301 requires audit committees of US publicly traded companies to establish anonymous whistleblower hotlines. The New York Stock Exchange rules, while not specific, encourage reporting of illegal or unethical behavior. The US Sentencing Commission Guidelines Manual expects reasonable steps for compliance, such as anonymous and confidential hotlines. Federal contractors are expected to have internal controls and reporting mechanisms (48 Code of Federal Regulations §3.1000). US regulators view anonymous hotlines as both an important tool to allow employee watchdogs to blow the whistle, and an employee-friendly way to provide retaliation protection.

In contrast, anonymous whistleblower hotlines do not evoke such warm feelings among EU member states. Instead, they conjure up memories of World War II, when children reported their parents, condemning them to death; or when co-workers or neighbors, under the cloak of anonymity, turned each other in, often without giving the accused adequate opportunity to rebut the charges.

This cultural collision manifested itself most starkly in 2005, when France concluded that two US-based, publicly traded companies had violated French employment and data privacy laws in implementing US-required SOX anonymous whistleblower hotlines for employees of their French subsidiaries. A German court reached the same conclusion, putting the Securities and Exchange Commission and US enforcement scheme at odds with EU law. With the SEC and the EU recognizing that this was an untenable situation, in February 2006, Article 29, a collective body of EU data privacy authorities, opined that anonymous hotlines should be permitted, provided certain conditions were met, including: (i) limiting whistle-blowing to alleged accounting, banking, financial, governmental anti-corruption and "vital interest" or "moral integrity" interests; (ii) discouraging (or at least not encouraging) anonymity over identifiable reports, although confidentiality should be kept; (iii) limiting who may be incriminated through hotlines; (iv) limiting the collection of data to what is strictly necessary to verify allegations; (v) deleting data promptly upon completion of the investigation, unless legal or disciplinary proceedings are initiated; (vi) informing people who are incriminated promptly; (vii) limiting whistleblowing administration to a limited number of specially trained individuals, bound by confidentiality obligations; and (viii) adhering to all data privacy laws, including data privacy registrations, filings and proper data transfer vehicles (e.g., EU Model Contracts, Privacy Shield, Binding Corporate Rules).

The Diverging EU Path for Reporting

It was left to each EU member state to adopt the advisory opinion and, even then, the Working Party did not attempt to define what it meant by "moral integrity" or "vital interest." As a result, even within the EU, differences began to emerge as to what compliance policies were worthy of whistleblower-reporting to the US and what hotline reports should be handled locally. Belgium and the Netherlands, for example, have not adopted bright-line lists of hotline-reportable topics and instead have taken the position that only matters that cannot be handled in Belgium or, in the case of the Netherlands, only matters that are substantial abuses that exceed the national level of the Dutch company, should be communicated to the US through hotlines, to be determined on a case-by-case basis. Spain and Portugal, on the other hand, still do not permit anonymous hotlines at all. Sweden, for its part, in addition to requiring general data privacy compliance and filings, restricts hotline reports to concerns about managers and above.

The UK, Ireland, Germany, Italy and France all permit communication of Sarbanes Oxley-like violations and Foreign Corrupt Practices Act violations on anonymous hotlines (provided certain data privacy safeguards are met) but France has a much more restrictive view than the others of what constitutes "moral integrity" or "vital interest." In France, only the following types of violations may be reported via a hotline: financial, accounting, banking, anticorruption, antitrust, discrimination or harassment, workplace health, hygiene and safety, environmental protection and—recently (July 2017) augmented to include a crime—"manifest and serious" infringement of an international commitment ratified or approved by France or a "serious threat or damage to public interest."

France does not allow "any and all Code violations" or "any and all legal or policy violations" to be reported on a hotline; reports beyond the topics specified by the French data privacy authority (CNIL) must be handled locally. In such cases, US investigators may find that they need to physically go to the country to conduct their investigation rather than having local French management transport the data (soft or hard) to the US. Further, unlike most EU members, which allow employers to state that employees "should" report certain violations, France only permits employers to "encourage" hotline reporting.

In contrast to the "restrictive" EU jurisdictions, the UK, Ireland, Germany, Italy and most of the rest of the world allow for typical US Code violations to be reported through anonymous hotlines provided local data privacy and employment requirements are followed. To avoid proliferation of codes, global companies operating in "restrictive" countries should remove language requiring that every code violation be reported via a US hotline and instead direct overseas employees to country-specific reporting protocols so that these differences can be lawfully addressed. With artful drafting and site references, this "routing" can be accomplished in a single global code without voluminous footnotes or convoluted instructions.

Some Policies Just Don't Translate

Even if the differences in reporting requirements are addressed in a company's global code, data privacy notices and/or on hotline sites to accommodate jurisdictional differences, some substantive US employment policies simply do not lend themselves to global application. The most notable examples are US policies that refer to (i) employment "at will," (ii) discipline for actions or inaction that do not rise to the level of "cause" for discipline under local laws, (iii) employee surveillance or monitoring, (iv) trade sanctions against Cuba, or (v) policies that purport to control a non-employee family member or to penalize an employee for a family member's conduct. Typical US Title VII nondiscrimination policies may also violate local employment laws. For instance, some Islamic countries employers to discriminate on the basis of sex or religion. Many countries, such as Germany, require employers to take age, disability and marital status into consideration as part of an economic dismissal selection process. These issues can usually be addressed by deleting problematic US code language and, instead, requiring employees to comply with all applicable discrimination laws, supplemented with more robust policies where permitted.

Local Implementation Requirements

If companies have works councils or trade unions, codes typically require consultation prior to implementation. In France, employers must, at least 30 days before implementation, post the code in the workplace and file copies with the French labor inspector and labor courts for comment. China requires that the code be the product of a "democratic process"; failure to follow certain prescribed procedures can render it a legal nullity. In some countries, employee consent to the code must be obtained, whereas in others, employee acknowledgement is strongly suggested. Several countries require that, for a code violation to be the basis of discipline, the code must have been incorporated into work rules or employee contracts. Even then, employee consultations or warnings may also be required before imposing discipline. Translation into the local language is legally required in several countries (and certainly advisable elsewhere). And in some countries, employees may not be disciplined for violating the code of a foreign parent. The local subsidiary must adopt the code as its own, , in order to discipline an employee for violating it.

The Fix

No global company should put itself in the otherwise avoidable "catch 22" of being required under US law to take prompt investigatory and, if necessary, remedial action while, at the same time, being prohibited from doing so under local employment and data privacy laws. Fortunately, proper code drafting, reporting processes and training in advance of a hotline ringing can all but eliminate this exposure.

Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries.

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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