Whistleblowing is coming. Are you ready?

Source: Pojistný obzor

Authors: Mgr. Michal Nulíček, LL.M. and Mgr. Anna Cervanová, LL.M.

The Czech Republic has only until the end of 2021 to adopt a law on whistleblower protection under the EU Whistleblower Protection Directive. Yet it is already clear that this deadline will not be met. However, the Whistleblower Protection Act will undoubtedly be a priority for the new Chamber of Deputies. We do not expect the final form of the law to differ significantly from the government’s proposal that is currently on the table.

On the one hand, the law should simplify the reporting of illegal activities and better protect whistleblowers from employer retaliation. On the other hand, it should provide employers with an opportunity to detect and address illegal activity early and prevent any negative impact on society. But what can companies expect from the pending legislation?

Notification Obligation – Everyone, regardless of whether they are employees, has a duty to prevent crime (Section 367 of the Criminal Code) and to notify of crimes (Section 368 of the Criminal Code). Both provisions apply only to the offences defined therein. These include, for example, the acceptance of bribes, bribery or general endangerment (which are subject to both notification and reporting), as well as embezzlement, fraud and subsidy fraud (which are subject only to notification and not reporting).

Both the duty to notify and the duty to prevent apply only to offences already committed (notification) or being prepared or committed (prevention) of which the notifier has credible knowledge.

Notification and Employee Loyalty – The Whistleblower Protection Act does not create a duty to report. Its purpose is to establish the conditions for making reports and to prevent retaliation against whistleblowers who act with good faith in the truth of their report. Under the Act, if an employee suspects a violation and reasonably believes that a report is necessary to uncover it, the employee may file a report, but is not obliged to. In such circumstances, the employee falls within the protection of the Whistleblower Protection Act, under which the interest in preventing wrongdoing meets the interest in maintaining loyalty to the employer, and thus an employee does not commit a breach of loyalty by making a report in good faith and in the manner required by law.

Establishing an Internal Whistleblower System – The primary and preferred method of reporting is always to use an internal whistleblower system, i.e. to report suspected wrongdoing directly to the employer. The use of an external channel (with the DOJ) is appropriate when an internal reporting system is not in place or is not sufficiently credible. The last resort, i.e. publication of the notification, for instance in the media, should only be exercised if the conditions defined by law are met. This system ensures that there is no conflict with the principle of loyalty to the employer, since the priority is always to resolve the notification internally.

Evaluating whether a whistleblowing violation is covered by the Whistleblower Protection Act can be very complicated for non-lawyers. However, whistleblowers may find the situation easier if the whistleblowing system allows not only the filing of a report, but also a request for consultation with an appropriate person in cases where the whistleblower is unsure whether a violation has occurred. Consultation can thereby be used by the many employees who would be concerned about making a report straight away. The operation of the internal whistleblowing system, including the handling of notifications, can also be outsourced to an entity that has the appropriate technical and professional background. However, even in the case of outsourcing, the employer remains ultimately responsible for receiving and handling notifications.

Risk of False Notifications – The fine for knowingly making a false notification is to be CZK 50,000 and the purpose of the penalties under the draft Whistleblower Protection Act is primarily to protect the functionality of the entire whistleblower protection system. This is also why knowingly false notifications are penalized more severely than “mere” false accusations of an offence, which are punishable by a maximum fine of CZK 20,000 under the Certain Offences Act. However, the sanction for knowingly making a false report does not preclude the employer (or the person who was affected by the reporting) from seeking compensation for the damage incurred, either directly in the misdemeanor proceedings before the administrative authority or in proceedings before the courts.

Although the Whistleblower Protection Act has not yet been adopted, the outlines of the new legislation are already clear. Moreover, given the deadline for implementation, the law is expected to be one of the priorities of the new Chamber of Deputies. Companies will thus be obliged to set up whistleblowing systems for their employees to report illegal activities. Moreover, whistleblowers themselves will be protected from employer retaliation if they make reports in good faith and in the manner provided by law. After all, the disclosure of harmful activity is desirable in any company, to safeguard both its financial and reputational interests. However, if whistleblowers knowingly make false reports, they expose themselves to the threat of sanction.

This article was printed in the fourth issue of the Pojistný obzor Quarterly on 1 December 2021.

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