EU Whistleblower Directive forces companies to act

October 19, 2020 – Reading time: 4 minutes

• EU Whistleblower Directive requires companies to set up an internal whistleblowing system by the end of 2021
• According to a survey, German companies are lagging behind when it comes to implementation
• Various tools on the market promise companies an implementation that is compliant with the directive

The EU member states have been in agreement since December 16^th, 2019: whistleblowers should be given special protection so that they can report alleged violations of EU law in and by organizations without fear of negative professional or personal consequences. This is why the member states adopted the new whistleblower directive at the time. They themselves will have time until the end of 2021 to transpose this directive into national law. This has far-reaching consequences for companies with more than 50 employees or annual sales of more than 10 million euros. They are now obliged to set up an internal reporting system for receiving and processing reports that must meet a number of requirements. In addition, there will be sanctions for non-implementation. According to a recent study by the Technical University of Darmstadt, German companies still have a lot of catching up to do in this regard.

“Could effective whistleblower systems have uncovered the wirecard or even the diesel scandal earlier and thus reduced the negative consequences for investors and customers?”, asks Christopher Seinecke, Associate Director of the technology consultancy INVENSITY, based in Wiesbaden. Seinecke: “In retrospect, of course, we cannot answer this with certainty. Although we assume that we would probably have to answer the question in the affirmative. What is certain, however, is that a whistleblowing system in compliance with the new EU directive does not only offer whistleblowers additional protection against reprisals. Despite all the additional costs: companies, and especially their managers, reduce the legal risk of the company and, if necessary, also their personal risk.”

The new directive not only imposes a general obligation to set up such an internal whistleblowing system. It also places specific requirements on it. The following are certainly of particular interest to companies: whistleblowers must be able to report in writing, by telephone or in person. The whistleblower’s anonymity must be guaranteed throughout the entire process of processing a report and beyond. Among other things, this also applies if the whistleblower has to be questioned for investigative purposes. There are also deadlines for processing reports. For example, the receipt of the report must be confirmed within seven days, and the whistleblower must be informed of the results of the investigation and the measures taken within three months. In addition to setting up the reporting system described above, the new directive also leads to a procedural burden of proof on the employer that a dismissal was not made, for example, on the basis of a given notice.

According to the current study “Responsibly through the crisis” by the Technical University of Darmstadt, German companies still lack clear regulations and guidelines for implementing the EU directive. A total of 500 employees from all over Germany were surveyed in this context. According to that survey, on average, they stated that they had hardly been informed by their companies about the significance of the directive.

“The restraint behavior of the entrepreneurs is probably among other things based on the uncertainty to do something wrong, which will later on become a legal burden”, says Seinecke. According to Seinecke, there are already a number of tools on the market to ease the implementation of the directive. He would always recommend a solution in which the whistleblowing system is hosted and operated externally and is accessible from anywhere, for example via a web portal. A secure system of this kind, combined with the expertise of external lawyers who follow up a whistleblowing case, would result in the lowest possible maintenance effort for companies. On the other hand, the greatest possible independence and confidentiality could be guaranteed.

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This report is intended for general guidance and information purposes only. This report is under no circumstances intended to be used or considered as financial or investment advice.

The information contained herein may be subject to changes without prior notice. INVENSITY does not accept any form of liability, neither legally nor financially, for loss (direct or indirect) caused by the understanding and/or use of this report or its content.