The Enterprise and Regulatory Reform Bill currently going through Parliament will change the UK's whistleblowing legislation.

The much-criticised loophole that allows disclosures made in relation to a breach of an employee's own employment contract to become protected looks set to be closed.

The Bill proposes to amend the current requirements so that disclosures must be made in the public interest to be deemed a "qualifying disclosure". Such qualifying disclosures must then be disclosed to a relevant person in good faith to become "protected". Whether the Bill will have the desired effect will no doubt be borne out in case law, but does this change by itself represent the correct and appropriate development of this highly contentious area of law?

The US model

Some commentators argue the UK should adopt a similar approach to the USA, where whistleblowing protection dates as far back as the American Civil war when it was used to encourage individuals to come forward and expose corruption amongst suppliers. Since then, the principles behind that law have been preserved and are now enshrined in the recent Dodd-Frank legislation, passed following the Enron scandal and the financial crisis of 2008. Where a regulator imposes a fine in excess of $1m, the legislation allows for between 15%-30% of such fine to be paid to the person or persons who disclosed the relevant breach on which the regulatory action was based.

This approach has resulted in a huge increase in the flow of information to the authorities, and has kept the US Regulators busy. In July, $150m was awarded to four former executives of GlaxoSmithKline who blew the whistle on the illegal marketing of drugs, and earlier this year Bradley Birkenfield received $104m from a fine paid by UBS AG following a tax investigation by the US Internal Revenue Service.

The UK approach

In the UK, while whistleblowers are protected against detriment and dismissal as a result of blowing the whistle, they are hardly encouraged to do so and there is often prejudice against whistleblowers who are regarded as letting the team down rather than acting for the greater good.

This perception is not helped by the fact that employees often seek to use the current whistleblowing legislation tactically to get around the qualifying period for bringing an unfair dismissal claim (now two years) and the cap on the amount of compensation for unfair dismissal (currently £72,300).

Employment tribunals do have the power to award compensation if a Claimant is successful in a whistleblowing claim, and in certain circumstances, the FSA and HMRC can compensate an individual for loss of earnings, but this falls way short of the sums involved across the Atlantic.

The rather tepid encouragement to come forward may implicitly acknowledge the view that whistleblowing legislation has been abused by employees raising spurious claims to further their own interests, often by relying on a supposed breach of their own contract, in an attempt to bypass the requirement for sufficient service to bring a claim for unfair dismissal. These are the precise concerns that the Reform Bill intends to address.

The Bill is expected to be in force sometime next year and perhaps we will see return to whistleblowing in its "pure", publicly motivated form as a result. However, a further change towards a legal structure that prescribes significant compensation for those with the courage to expose wrongdoing without having to resort to litigation seems further away.

An example

One case that may come close is that of Michael Woodford and Olympus. Mr Woodford was fired from the camera giant for blowing the whistle on irregular dealings that led to an investigation into $1.7 billion worth of investment loss cover up. He is claiming £35m compensation for his dismissal. Mr Woodford's claim appears to be made in the public interest and in accordance with the principle behind the Reform Bill amendment. It will be interesting to see whether the East London employment tribunal will break the mould and award significant compensation, should his claim be successful.

Comment

UK legislation is currently content to protect whistleblowers from detriment, but if real progress is to be made in holding those engaged in illegal and immoral business practices to account, is it not time it rewarded them as well?