Whistleblowers are individuals who report to some entity (usually within their organization) when, in the course of their work, they come across improper conduct that may harm public interest. Such conduct may be, for example, causing environmental harm, endangering public health, or harming investors in the capital market.

In Israel, there are statutory protections for whistleblowers in the public sector alone, through the Protection of Employees (Exposure of Offenses, of Unethical Conduct and of Improper Administration) Law.

However, awareness for the need to protect whistleblowers in all sectors is growing. Thus, in October 2019, the Council of the European Union adopted new rules to protect whistleblowers through a new directive, allowing EU member states two years to incorporate the rules into their domestic statutory systems.

According to the rules, companies located within the EU who employ 50 employees or more are required to create and adopt a system of internal reporting that allows for reporting improper conduct that may indicate compliance violations. In addition, all companies located in the EU, regardless of their size, are required to ensure that whistleblowers are protected from any retaliatory activity.

As of the date of the directive’s publication, there was no standard legislation applicable to all member states in the EU, and only 10 of the EU’s member states addressed the issue in domestic legislation. Currently, several additional member states are working to regulate the issue of whistleblowing through legislation.

The new rules include, inter alia, provisions on the following issues:

  • Creating safe communication channels within the organizations themselves.
  • Expanding protections even in instances of contacting channels external to the organization – Generally, whistleblowers are encouraged to use internal channels when initially reporting, before reaching out to external entities or to government authorities. The rules ensure that whistleblowers are not stripped of protections even if they decide to report to external entities first.
  • Expanding the profile of individuals entitled to protection to include not only employees, but also volunteers, interns, shareholders, and more.
  • Anchoring whistleblowers’ protection mechanisms – The rules list mechanisms to protect whistleblowers from retaliation or hostility, such as suspension from work, demotions, and threats and intimidations. Those assisting whistleblowers, be they colleagues or family members, are protected as well. The directive includes a list of support measures that must be implemented in order to assist whistleblowers.
  • Imposing duties on corporations and authorities – The rules create a duty to respond and a duty to act within three months of a whistleblower’s report (with the possibility of extending this period to six months when justified).

Companies that fail to meet these requirements risk the chance that whistleblowers will not feel protected and be unable to act within the organization. This could lead to the continuation of the corrupt conduct, which at the end of the day poses a risk to the company, or could lead to the whistleblower choosing to reach out to EU authorities or institutions. Contacting external reporting channels and making corrupt behavior public will likely compromise the reputation of such companies, not to mention the estimated financial harm they will face.

In conclusion, Israeli companies with subsidiaries or affiliates in EU member states should prepare accordingly and begin working toward creating and strengthening organizational compliance culture and establishing internal mechanisms in accordance with the directive’s provisions.