By October, companies in the European Union employing at least 50 employees will be required to operate an internal reporting system for reporting misconduct that may indicate compliance violations. Furthermore, all companies in the EU, regardless of size, will be required to ensure the protection of whistleblowers from all types of retaliation.
The EU Whistleblower Protection Directive originally came into force in October 2019. It gave EU member states two years to prepare to incorporate the directive into their national legislation. Prior to the enactment of the directive, no uniform binding legislation applied to all EU member states and only 10 member states had enacted national legislation in this regard. The upcoming inception of national whistleblower protection laws throughout the EU will naturally trigger a ripple effect.
Although the situation in Israel is different, and the EU directive will not apply to Israeli companies operating in Israel that are not subject to the directive in some way, past experience has shown that the ripple effect of such legislation will also reach Israel’s shores. The repercussions may take the form of accelerated legislation of whistleblower protections in Israel, or of major European companies applying pressure on their Israeli partners to make sure the latter comply with the European standards as a precondition to continuing joint business activities. Either way, it would be wise for Israeli businesses to devote some thought to this issue.
The obvious starting point is by defining the term “whistleblower.” Whistleblowers are employees or third parties who discover during the course of their work misconduct that could be detrimental to the public interest and who report that misconduct to some authority (usually inside the company). Examples of misconduct include actions that cause environmental damage, harm public health, or adversely impact investors in the capital market.
It is important to note within this context that, although Israel has not enacted legislation similar to the EU directive about to take effect, there is definitely growing awareness of the issue in Israel. Firstly, the Protection of Employees (Exposure of Offenses, of Unethical Conduct and of Improper Administration) Law already protects whistleblowers in the public sector. In addition, there is also growing awareness in the private sector that internal reports of misconduct and offenses inside organizations should be encouraged and that there is a need to protect whistleblowers.
So what does the EU Whistleblowing Protection Directive include?
- The directive obligates the creation of safe communication channels for reporting within organizations themselves.
- It expands the protection to also include instances of reporting through external channels. For the most part, the directive encourages whistleblowers to use internal channels for the initial report, before referring to authorities outside of their organizations. Nevertheless, the directive states that whistleblowers must not be denied protection even if they decide to report to external authorities from the outset.
- The directive expands whistleblower protection to include not only employees, but also volunteers, interns, shareholders, etc.
- It defines the means of protection to be provided to whistleblowers against acts of bullying or retaliation, such as through suspensions from work, demotions, threats, or other means of intimidation.
- The directive expands the scope of protection to also cover people who help whistleblowers, whether colleagues or family members.
- It adds a list of support measures that must be provided to help whistleblowers.
- The directive obligates corporations and authorities to take action upon receiving a whistleblower’s report within three months. (This time frame may be extended to six months in justified instances.)
Companies that fail to comply with these requirements are placing themselves at risk, because whistleblowers may resort to external reporting channels and report the companies to EU authorities. This will generate bad press and the label that these companies allow unethical offenses and misconduct and have a poor culture of compliance.
Therefore, Israeli companies with subsidiaries or related companies in EU member states should accelerate their preparations for tightening their culture of compliance and implement internal mechanisms in conformity with the directive’s provisions.
In addition, as mentioned, it would also be wise for Israeli companies, even those without any ties to the EU, to devote some time to building customized internal mechanisms to encourage and protect whistleblowers.