‘Pretaliatory’ Enforcement Action for Chilling Whistleblowing through Corporate Agreements: Lessons from North America
| DOI | 10.1177/0067205X1804600304 |
| Date | 01 September 2018 |
| Author | Olivia Dixon |
| Published date | 01 September 2018 |
| Subject Matter | Article |
WHISTLEBLOWING THROUGH CORPORATE
AGREEMENTS: LESSONS FROM NORTH AMERICA
Olivia Dixon*
ABSTRACT
Studies have shown that potential whistleblowers are reluctant to report misconduct
because they fear retaliation. In Australia, fear of retaliation is exacerbated for private-
sector employees where the lack of prescriptive legislation aggravates vulnerability in
all but exceptional circumstances. Through examining the codes of conduct of
Australia’s 100 largest listed companies (‘Codes’) this article argues that while Codes
have the potential to provide an important regulatory function through facilitating
whistleblowing, the breadth of confidentiality undertakings contained therein may
instead be chilling potential whistleblowers from speaking up. While companies have
legitimate interests in protecting confidential information, it is well-established that
employees may disclose their employer’s unlawful conduct to the government, even if
such disclosure is in violation of the company’s confidentiality policy. To affirm this
right, in the United States (US), federal regulators have recently taken ‘pretaliatory’
enforcement action against companies for requiring employees to execute
confidentiality agreements that stifle the reporting of possible violations of federal laws.
Such regulation by enforcement has successfully effected cultural change through
facilitating widespread amendments to US corporate confidentiality agreements.
Accordingly, this article argues that any future Australian legislation should include an
‘anti-confidentiality provision’ similar to the US and Canadian frameworks to affirm an
employee’s right to communicate with a regulator directly, despite any purported
agreement or corporate policy to the contrary.
I INTRODUCTION
A frequently cited definition of whistleblowing is ‘the disclosure by organization
members … of illegal, immoral or illegitimate practices under the control of their
employers’.1 By definition, a whistleblower is therefore generally a corporate insider
*
Lecturer, The University of Sydney Law School. I wish to thank the anonymous referees for
their helpful comments and suggestions.
1
Janet P Near and Marcia P Miceli, ‘Organizational Dissidence: The Case of Whistle-Blowing’
(1985) 4 Journal of Business Ethics 1, 4. However, this definition does not correspond with the
diversity of definitions offered by statute, which are prohibitively narrower. See generally
Olivia Dixon, ‘Honesty Without Fear? Whistleblower Anti-Retaliation Protections in
Corporate Codes of Conduct’ (2016) 40 Melbourne University Law Review 168.
428
Federal Law Review
Volume 46
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who witnesses misconduct and faces a moral choice between reporting internally,
reporting externally to the government or remaining silent. Employers naturally prefer
employees who witness misconduct to report internally since these reports ‘prevent the
negative publicity, investigations, and administrative and legal actions that usually
ensue after external whistleblowing.’2 Further, an internal report motivates change from
within the company, allowing the company an opportunity to correct its misconduct
earlier. While an internal reporting process for the proper escalation of concerns assists
a company and industry as a whole, employees are only going to engage with that
process if they feel comfortable doing so. An employee’s decision as to how to report
misconduct, if at all, is therefore very much linked to corporate culture.
Reporting misconduct directly to the government raises a moral dilemma.
Employees are subject to a duty of loyalty and fidelity which requires them to avoid
doing acts which may harm their employer’s interests, such as damaging the company’s
reputation or disclosing proprietary company information. Employers generally only
entrust employees with sensitive company information on the basis that it is kept
confidential. To the extent that an employee knows of misconduct he or she must choose
whether to reveal confidential information and documents to the government, in
accordance with general moral duties, or keep the information confidential, in
accordance with legal duties owed to the employer.3 Whistleblowers provide a vital
corporate governance function; however stringent corporate confidentiality
undertakings combined with a conflict of duties may in fact cause employees to ‘suffer
in silence’,4 which negates the interests of the government, the employer and the public.
It is this moral dilemma which the North American whistleblower protection
frameworks attempt to attenuate,5 providing invaluable guidance for the Australian
government, regulators and companies as we design our own private-sector
whistleblower protection framework.
Prior studies on whistleblowing have identified factors that influence the likelihood
of whistleblowing actions: psychological;6 cultural and ethical;7 structural;8 retaliation;9
2
Terry Morehead Dworkin and Janet P Near, ‘Whistleblowing Statutes: Are They Working?’
(1987) 25 American Business Law Journal 241, 242.
3
See generally Michael Davis, ‘Some Paradoxes of Whistleblowing’ (1996) 15(1) Business &
Professional Ethics Journal 3.
4
Brian Barry, ‘Review Article: “Exit, Voice, and Loyalty”’ (1974) 4 British Journal of Political
Science 79, 97.
5
See generally Richard Moberly, ‘Confidentiality and Whistleblowing’ (2018) 96 North Carolina
Law Review 751.
6
See, eg, Robert A Larmer, ‘Whistleblowing and Employee Loyalty’ (1992) 11 Journal of
Business Ethics 125; Jessica R Mesmer-Magnus and Chockalingam Viswesvaran,
‘Whistleblowing in Organisztions: An Examination of Correlates of Whistleblowing
Intentions, Actions and Retaliation’ (2005) 62 Journal of Business Ethics 277.
7
See, eg, Jinyun Zhuang, Stuart Thomas and Dianne L Miller, ‘Examining Culture’s Effect on
Whistle-Blowing and Peer Reporting’ (2005) 44 Business & Society 462.
8
See, eg, Harold Hassink, Meinderd de Vries and Laury Bollen, ‘A Content Analysis of
Whistleblowing Policies of Leading European Companies’ (2007) 75 Journal of Business Ethics
25.
9
See, eg, Terry Morehead Dworkin and Melissa S Baucus, ‘Internal vs. External
Whistleblowers: A Comparison of Whistleblowing Processes’ (1998) 17 Journal of Business
Ethics 1281.
2018 ‘Pretaliatory’ Enforcement Action for Chilling Whistleblowing through Corporate Agreements 429
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and the type of wrongdoing.10 Protection against retaliation is particularly important as
many employees are reluctant to report misconduct internally11 because they believe
that no action will be taken to remedy the misconduct12 or they fear retaliation. Such
fear of retaliation appears to be justified, with data indicating a positive correlation
between the seriousness of wrongdoing and retaliation.13 According to a 2011 National
Business Ethics Survey, more than one in five US whistleblowers who reported
misconduct experienced some kind of retaliation.14 In particular, Rothschild and Miethe
found that whistleblowers ‘who report on systemic organizational corruption or major
activity (ie, misconduct involving over $100 000 in losses and that frequently occurs) are
most likely to experience organizational reprisals.’15 They concluded:
organizations are more likely to self-correct (and not to retaliate against the whistle-
blower) when the misconduct that the whistle-blower has disclosed involves an isolated
bad apple. However, when the misconduct in question is systemic—part of the regular
way that this organization does business—management denial and retaliation are quick
and, as we have found, virtually certain.16
Retaliation against whistleblowers can take any form but has traditionally involved
tactics such as: negative performance reviews, denials of promotions or bonuses,
demotion, assault, harassment, increased scrutiny, investigations into the
10 See, eg, Janet P Near et al, ‘Does Type of Wrongdoing Affect the Whistleblowing Process?’
(2004) 14 Business Ethics Quarterly 219.
11 Research indicates more than 97% of employee whistleblowers choose to report internally
first. See Ethics Resource Center, Inside the Mind of a Whistleblower: A Supplemental Report of
the 2011 National Business Ethics Survey (2012) Corporate Compliance Insights, 12–3
12 See, eg, Conor Buckley et al, ‘Empirical Evidence of Lack of Significant Support for
Whistleblowing’ (2010) 7(3) Corporate Ownership and Control 275; David M Mayer,
‘Encouraging Employees to Report Unethical Conduct Internally: It Takes a Village’ (2013)
121(1) Organizational Behavior and Human Decision Processes 89, 91; See, eg, Government
Accountability Project, Why Whistleblowers Wait: Recommendations to Improve the Dodd-Frank
Law’s
SEC
Whistleblower
Awards
Program
13 See, eg, Janet P Near and Marcia P Miceli, ‘Retaliation Against Whistle Blowers: Predictors
and Effects’ (1986) 71 Journal of Applied Psychology 137, 138; Marcia Miceli and Janet Near,
Blowing the Whistle: The Organizational and Legal Implications for Companies and Employees (New
York: Lexington, 1992), 104; Joyce Rothschild and Terance D Miethe, ‘Whistle-Blower
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