Whistleblowing Study - Introduction and Background

August 20, 1997

Mr. Don Mercer
Head, Amendments Unit
Competition Branch
Industry Canada
Place du Portage I
50 Victoria
Hull, Quebec
K1A 0C9

Dear Mr. Mercer:

INTRODUCTION

You have asked us to consider whether whistleblowing legislation would provide significant benefit to the Competition Bureau and, if so, the types of measures that would be beneficial. Alternatively, we were asked to consider whether there are any measures, short of legislation, which would help to encourage whistleblowers to co-operate with the Competition Bureau.

For the purpose of this Study, you have indicated that the two particular situations with which you are concerned are the following:

• where an employee of a business enterprise informs investigative authorities of suspected wrong-doing by his or her employer or by other firms within the same industry; and
• where any member of the public (for example, a customer of a firm participating in the specific industry) seeks to inform authorities of wrong-doing.

You have asked us to consider the protections currently available to whistleblowers in the competition law context, examples of whistleblowing legislation in Canada and elsewhere in other contexts, the relevant academic literature, the extent to which whistleblowing legislation would provide a benefit to the Competition Bureau, and any measures (both legislative and non-legislative) that we would recommend to encourage whistleblowers to co-operate with the Competition Bureau and which would assist the Competition Bureau in carrying out its mandate.

Our study has four parts.

• The first part, "Background", discusses -- at a very general level -- how whistleblowing has been defined, the interests involved in deciding how to deal with whistleblowers, and some of the legislative reforms that have been adopted or proposed to protect whistleblowers generally, and more recently, in the competition law context.
• The second part, "Existing Protections", discusses the confidentiality and employment law provisions that already offer protection to employees who blow the whistle in the competition law context.

The third part, "Models of Whistleblower Protection", discusses different approaches that have been used -- both in Canada and other jurisdictions -- to encourage whistleblowers to come forward with information and to protect them from reprisals. This part also analyses the effectiveness of each of these models, and discusses the academic commentary concerning them.

Finally, in the fourth part, "Options", we consider two options -- one legislative, the other non-legislative -- that could be used to encourage employees or other members of the public to disclose suspected competition law violations, and to protect these individuals from reprisals brought by the companies concerned.

I. BACKGROUND

The issue of "whistleblowing" has garnered widespread attention in the United States and, to a lesser extent, Canada, over the past several decades. Whistleblowers have sometimes been treated as heroes, and lionised in the media and in Hollywood films. But whistleblowers have also been regarded as snitches or traitors. Indeed, as recent media reports have noted, for example, Canada's Department of Fisheries and Oceans treats public criticism of the department by employees as an offence akin to fraud or mutiny on the high seas. Whistleblowers have often suffered serious reprisals from their employer in response to their actions. It is to protect employees from such reprisals that most whistleblowing legislation is directed.

A. Definitions

The term "whistleblowing" has entered the lexicon of politics, corporate governance and law with little attention paid to its definition. A conference organised in the 1970s by the American consumer advocate Ralph Nader, defined "whistleblowing" as:

... an act of a man or woman who, believing that the public interest overrides the interest of the organization he serves, blows the whistle that the organization is involved in corrupt, illegal, fraudulent or harmful activity. (quoted in M. Myers and V.J. Matthews Lemieux, "Whistleblowing Employee Loyalty and the Right to Criticize -- The Employee's Perspective", in W. Kaplan, J. Sack and M. Gunderson, eds., Labour Arbitration Yearbook (1991) 211 at 212)

In their book Blowing the Whistle (1992), Marcia Miceli and Janet Near, the two leading American academic experts on whistleblowing, define it at p. 15 as follows:

We do not know where the term whistle-blower originated, but the analogy is to an official on a playing field, such as a football referee, who can blow the whistle to stop action. Popular usage of the term is probably as confounded as its original source.

In an earlier paper (Near & Miceli, 1985, p. 4), we defined whistle-blowing to mean "the disclosure by organization members (former or current) of illegal, immoral, or illegitimate practices under the control of their employers, to persons or organizations that may be able to effect action." The whistle-blower lacks the power and authority to make the change being sought and therefore must appeal to someone of greater power or authority (Graham, 1983; Near & Miceli, 1987)...

A British author, Gerald Vinten, offers a more precise definition:

(t]he unauthorized disclosure of information that an employee reasonably believes evidences the contravention of any law, rule or regulation, code of practice, or professional statement, or that involves mismanagement, corruption, abuse of authority, or danger to public or worker health and safety. (G. Vinten, "Whistle Blowing: Corporate Help or Hindrance?", (1992) 30 Management Decision 44)

In an article by Dworkin and Near: Whistleblowing Statutes: Are they Working?"(1987-88) 25 Am. Bus. L.J. 242.) the learned authors also consider the appropriate definition of whistleblowing at p. 244:

Perhaps the most complex question in defining legitimate whistleblowing concerns the definition of wrongdoing. While illegal acts are most clearcut, employees also may act because they consider the misdeed to be immoral, unethical, or simply beyond the purview of what an organization legitimately can expect an employee to do. Definitions of legitimate whistleblowing by experts in this area often include this broader conception of wrongdoing. Near and Miceli, for example, define whistleblowing as the disclosure of illegal, immoral, or illegitimate practices under the control of the employer. Hauserman includes perceived wrongdoing in her definition. Rongione agrees with the inclusion of both illegal and immoral acts but adds that the wrongdoing must be "likely to result in unnecessary harm to third parties." This requirement of potential harm to third parties seems to fit the interpretation of the many courts that make public policy exceptions to the doctrine of employment at will. However, since there has been little consistency in the courts' recognition of public policy exceptions, no consensus as to necessity for potential harm to third parties can be drawn from court opinions.

Others have defined it more simply as "the disclosure of an employer's improper activities by an employee" (Myers and Matthew Lemieux, supra at 211).

Employees may blow the whistle about their employer to the media, to the police or some other regulatory authority, or, perhaps, only to their superiors within the organisation in which they work.

In this respect, the following comments by Dworkin and Near, supra, at p. 243 are apt:

There is some controversy concerning the complaint recipient. It might be argued that this individual or entity should be external to the organization (e.g. from the news media). However, there is no sound theoretical reason for distinguishing whistleblowers who complain to someone within the organization from those who complain to someone outside the organization. Extensive research on the process of whistleblowing indicates that whistleblowers who use internal channels do not differ significantly from external whistleblowers. Indeed, most whistleblowers who use external channels have previously complained about the wrongdoing to someone within the organization. Thus, theory and research do not support defining whistleblowing only in terms of external complaint recipients. Organizations against which wrongdoing is alleged, however, have reason to prefer internal whistleblowing. (Emphasis added)

Employees should have a reasonable belief that the misconduct they are reporting has taken place.

The importance that the complaint be meritorious is stressed in the article "Current Developments in Whistleblower Protection" by John L. Howard, February, 1988 Labour Law Journal Vol. 39, No. 2, p.67 at p. 80:

The object of protecting whistleblowers is to encourage them to have a personal investment in the enforcement of laws and in the integrity of their organizations. Whistleblowers are an aid in enforcing statutes and in furthering public policy; it is conceivable that the very existence of whistleblower protections is an incentive that encourages employers to comply with laws, rules, and other standards of conduct. The likelihood that an employee will make the personal investment to blow the whistle will increase if the threat of retaliation or reprisal is reduced. At the same time, a reliable process for separating meritorious disclosures from groundless or harassing complaints is essential to providing responsible whistleblowers protections they deserve. (Emphasis added)

H.L. Laframboise, a former assistant deputy minister for the Government of Canada, distinguishes the "public hero" whistleblowers from the "'vile wretches' ... whose acts of whistleblowing are more offensive to the community or to their peer groups than the acts on which they have blown the whistle" and the "compulsive moralists ... who grieve everything grievable, appeal every competition they lose, incite other employees to complain, and generally make nuisances of themselves" (H.L. Laframboise, "Vile wretches and public heroes: the ethics of whistleblowing in government" 24 Canadian Public Administration 73 at pp. 73, 76).

B. The Conflicting Interests

The issue of "whistleblowing" is perhaps best approached by focusing on the conflicting interests inherent in its regulation. On the one hand is the duty of loyalty and confidentiality that employees owe to their employer. On the other is the public's interest in encouraging employees to come forward with information about their employer's illegal activity or other serious wrongdoing. The question for courts and lawmakers, of course, is where to draw the line between these two interests -- when can employees legitimately decide to put their employer's interests second to what they believe the public interest requires them to do.

The employee's duty of loyalty and confidentiality has always received strong common law protection. But the courts have also recognised an exception where an employee releases information regarding an employer's wrongdoing that ought, in the public interest, to be disclosed. More than 140 years ago, in Gartside v. Outram (1856), 26 L.J. Ch. 113, Sir William Page-Wood V.-C., in dealing with a defence to an action for breach of confidence, observed at p. 114:

The equity upon which the bill is founded is a perfectly plain and simple one, recognised by a number of authorities and most salutary to be enforced, by which any person standing in the confidential relation of a clerk or servant is prohibited, subject to certain exceptions, from disclosing any part of the transactions of which he thus acquires knowledge. But there are exceptions to this confidence, or perhaps, rather only nominally, and not really exceptions. The true doctrine is, that there is no confidence as to the disclosure of iniquity. You cannot make me the confidant of a crime or a fraud, and be entitled to close up my lips upon any secret which you have the audacity to disclose to me relating to any fraudulent intention on your part: such a confidence cannot exist. (Emphasis added)

Subsequent decisions have broadened the exception to the common law duty of confidentiality and loyalty to include more than criminal conduct. One that is particularly applicable to the competition law context is Initial Services Ltd. v. Putterill, (1967] 3 All E.R. 145 (C.A.). In that case, the defendant, Mr. Putterill, had revealed to a newspaper that his former employer had entered into a price-fixing scheme with other laundering firms that had not been registered as required under the Restricted Trade Practices Act, 1956. The employer sued the defendant and the newspaper claiming an injunction and damages for breach of confidential information. When the defendant raised a whistleblowing defence, the employer brought an application to have it struck out. The Court of Appeal unanimously dismissed the application, with each judge writing separate concurring reasons. In his judgment, Lord Denning, M.R. stated:

In support of the appeal, counsel for Initial Services, Ltd. said that in the employment of every servant there is implied an obligation that he will not, before or after his service, disclose information or documents which he has received in confidence. Now I quite agree that there is such an obligation. It is imposed by law. But it is subject to exceptions. Take a simple instance. Suppose a master tells his servant: "I am going to falsify these sale notes and deceive the customers. You are not to say anything about it to anyone." If the master thereafter falsifies the sale notes, the servant is entitled to say: "I am not going to stay any longer in the service of a man who does such a thing. I will leave him and report it to the customers." It was so held in the case of Gartside v. Outram. Counsel suggested that this exception was confined to case where the master has been "guilty of a crime or fraud"; but I do not think that it is so limited. It extends to any misconduct of such a nature that it ought in the public interest to be disclosed to others. (Emphasis added)

In the United States until very recently employees who suffered retaliation at the hands of their employer by reason of whistleblowing had, in the absence of legislation or a collective agreement, no remedy. This was by reason of the doctrine of employment at will.

Employment-at-will is a doctrine of state common law that traditionally allowed an employer to dismiss, for any reason or even for no reason, an employee who does not have an employment contract for a definite period of time.

The doctrine of employment at will meant that non-unionised employees who were hired for an indeterminate period had no common law protection for arbitrary or unjust firings, including firings because they blew the whistle. One of the responses to this unfairness was the erosion of the doctrine of employment at will.

In recent years, the courts in many American states have developed public policy exceptions to the doctrine of employment at will. Under these exceptions, employees can sue their employer for wrongful discharge when they have been dismissed in contravention of a state public policy. One of the public policies many courts have recognised is the public interest in having whistleblowing employees come forward to disclose their employer's illegal activities. This remedy is intended to neutralise the employer's power, enabling the employee to act in the best interests of society.

In Palmateer v. International Harvester Co., 421 N.E. 2d 876 (Ill. 1981), for example, the Illinois Supreme Court upheld an employee's claim for wrongful discharge when he was allegedly dismissed for supplying the police with information about another employee's criminal activities. The court held at p. 880 that "no public policy is more basic, nothing more implicit in the concept of ordered liberty ... than the enforcement of a State's criminal code."

Other U.S. courts, however, have emphasised that while society has a great interest in discouraging illegal activity, there is also a strong public interest in maintaining harmony and productivity in the workplace. In Smith v. Calgon Carbon Corp., 917 F. 2d 1338 (3d Cir. 1990), the U.S. Court of Appeals for the Third Circuit held that the Pennsylvania Supreme Court would not entertain a wrongful discharge action by an employee who had complained that his employer had polluted the air and water. The court held, at p. 1345, that "(t]he public's countervailing interest in workplace harmony and productivity was more compelling, at least where the employee involved was not charged with the specific responsibilities of protecting the public's interest".

The erosion of the doctrine of employment at will is commented on in Blowing the Whistle, Miceli and Near, supra, at p. 239-240, as follows:

While employment at will has been eroded under three judicially created theories, whistle-blowers are primarily concerned with the public policy exception to employment at will. This theory holds that employers should not be able to use their power as employers to subvert public policy as established by the legislature or the courts. Firing an employee because she or he claimed a legislatively created benefit like workers' compensation, exercised a right such as voting, or refused to break the law on behalf of the employer, would be an act in violation of public policy because it attempts to prevent what the laws have created (or do what the law has prohibited) for the public good. Likewise, when a whistle-blower is retaliated against for reporting or trying to stop illegal or unsafe acts of the employer, this is considered to be a firing in violation of public policy. The courts are fairly conservative in what they recognize as protected whistle-blowing, however, and if the whistle-blower cannot point to a well-established and clearly expressed law that is being violated, he or she is likely not to be protected.

A firing in violation of public policy is brought as a wrongful discharge in tort. Under a tort cause of action, the employee is entitled to damages for all losses suffered including emotional harms. In addition, as mentioned above, a whistle-blower fired in violation of public policy is likely to get punitive damages. Punitive damages are assessed in cases where the defendant's actions have been especially wrongful. Using one's power as an employer to subvert the law is generally considered to be especially wrongful. Punitive damages are not based on the amount of actual damages suffered, but on how much the jury thinks it would take to teach the defendant not to commit similar acts and to deter others who might act similarly. When the defendants are large corporations, this is often determined to be hundreds of thousands to millions of dollars. Thus, whistle-blowers who have suffered retaliation have a financial incentive to bring their claims in tort rather than, or in addition to, the statutory laws. (Emphasis added)

In Canada, the issue of how to balance employee loyalty and the public interest has arisen in numerous arbitral decisions involving whistleblowing employees who have brought grievances claiming unjust dismissal. These cases are discussed in more detail below. In general, arbitrators and courts have recognised that there is a public interest exception to the duty of loyalty that may justify certain disclosures by employees. But they have emphasised that whistleblowers should first raise their concerns through internal channels before disclosing the information outside the corporation.

C. Legislative Reform

In the United States since the late 1970s, Congress has enacted legislation to protect whistleblowers, however, most of the federal acts encompassing whistleblowing have been enacted to carry out or ensure a non-whistleblowing purpose. Thus, the protection afforded is narrowly focused. These kinds of protections can be found in federal environmental laws, labour standards, labour relations, occupational health and safety, workers compensation and civil rights legislation. The employees are protected only if the whistleblowing pertains to the particular area regulated. Each contains its own administrative or judicial rules to deal with complaints from employees who alleged they have been disciplined as a result of disclosures they have made. These provisions generally provide for reinstatement and compensation for an employee who has been subject to retaliation.

In the 1980s, the state legislatures also began to pass legislation to protect whistleblowers. Again, in most cases, the statute was made applicable only for particular activities. The enactment by the state legislatures in this respect is summarised by Miceli and Near, supra, at p. 241, as follows:

...As does Congress, state legislatures clearly see whistle-blowing as a way to control waste of public funds, abuse of authority, mismanagement, and violation of laws by those in the public sector. Sixteen states protect public employees only; four states protect employees of contractors with the state as well as state employees; one state (Louisiana) protects all employees but only for environmental whistle-blowing; one state (Montana) protects all employees through a codification of common law theories; and twelve states give general protection to private and public employee whistle-blowers.

In general, the type of whistle-blowing protected is no broader than, and is often narrower than, what would be protected under common law theories. Legislatures do not want to leave much to the whistle-blower's discretion. Most states want to encourage whistle-blowing only when the employer is violating a state or federal law, rule, or regulation. Only three states protect employees who report violations of codes of conduct or ethics, and only seven protect employees who refuse to carry out or participate in an activity which violates the law. ...

In Canada, similar specific anti-retaliatory provisions have been included in environmental, occupational health and safety and other legislation. But governments in Canada have so far declined to enact broader whistleblowing legislation.

At the federal level, on a number of occasions since 1986 to the present, private members have introduced legislation to deal with whistleblowing. Although there has been some variation between these bills, they have all had a broad focus, proposing to amend the Canadian Human Rights Act, Canada Labour Code and Public Service Employment Act to protect all workers under federal jurisdiction from retaliation when they report serious misconduct. None of these Bills has ever received more than First Reading.

D. Proposals in the competition law context

In the area of competition regulation and enforcement, the issue of whistleblowing has arisen in two ways.

First, since the early 1990s, the Competition Bureau has offered the carrot of immunity to whistleblowers who come forward with evidence of competition law violations. For example, if a corporation or individual decides to voluntarily report their participation in a conspiracy or bid-rigging activity, the Director may recommend that the firm or individual be granted immunity from prosecution by the Attorney General of Canada. This kind of policy is directed, of course, at firms and individuals who have participated in the commission of an offence under the Competition Act. It offers no incentive for innocent whistleblowing employees to come forward with information about the misconduct of their employer or of other employees.

Second, the Competition Bureau, the Ministry of Industry and Trade, and various Members of Parliament have begun to discuss whether whistleblowing protections should be extended to "innocent" whistleblowers. Unlike the whistleblowers who benefit from the immunity programs, innocent whistleblowers are concerned not about their own liability under the law, but about reprisals that may be taken against them by the corporation that has allegedly broken the law. A classic example would be an employee who is fired after providing evidence to the Competition Bureau about his employer's participation in a price-fixing scheme.

Section 9 of the Competition Act provides a whistleblowing mechanism of a sort -- a process by which any six persons resident in Canada can trigger an inquiry into an alleged violation of the Act. But this requires a detailed formal statement from the six persons, listing their names and addresses, the nature of the alleged violation and a statement of the evidence supporting their opinion. This avenue is used infrequently, and offers no special protection to the persons who make the application.

Proposals for more effective provisions for whistleblowing in the competition law area have, in particular, stemmed from consumer concerns about pricing by gasoline retailers. Members of Parliament have received numerous complaints from the public about the way in which gas prices fluctuate in unison. In June 1995, Parliament's Committee on Natural Resources held hearings on the issue. At the hearings, George Addy, the Director of the Competition Bureau at that time, emphasised the difficulty of gathering evidence regarding pricing in the gasoline industry. He suggested that the problem might be remedied by clarifying the protections available for informants and witnesses who disclose illegal conduct, and by encouraging firms to adopt voluntary whistleblowing mechanisms within their organizations (House of Commons, Standing Committee on Natural Resources, June 20, 1995).

In April, 1996, Raymond Bonin, a government member from Northern Ontario, introduced Bill C-266, a private member's bill to protect employees from reprisals by their employer when they report competition law violations. His Bill would do three things. First, it protects the confidentiality of persons who disclose information about competition law violations. Second, it prohibits employers from retaliating against an employee or independent contractor who has reported on, or testified against, an employer, or who has done any other act in compliance with the Competition Act. Third, it grants a civil remedy to employees who have suffered retaliation, enabling a court to make an order remedying or reversing the employer's actions or granting the employee punitive damages.

Bill C-266 applies only to the Competition Act's offence provisions. These criminal offences include conspiracy, bid-rigging, discriminatory and predatory pricing, price maintenance and misleading advertising or deceptive marketing practices. The Bill does not appear to apply to the non-criminal reviewable matters, such as mergers, abuse of dominant position, refusal to deal, consignment selling, exclusive dealing, tied selling, market restriction and delivered pricing.