Whistleblowing Study - Models of Whistleblower Protection

As noted above, a number of federal and provincial statutes already contain whistleblowing provisions that apply to particular subject areas. In addition, there are a multitude of whistleblowing statutes in the United States. This part of the opinion examines the nature and effectiveness of some of these whistleblowing initiatives. For ease of discussion, they are divided as follows:

(a) specific statutory anti-retaliation provisions;

(b) general whistleblower statutes;

(c) internal compliance programs;

(d) immunity programs; and

(e) other alternative approaches.

A. Specific Statutory Anti-Retaliation Provisions

Perhaps the most common examples of whistleblowing provisions are those contained in specific statutes in areas like health and safety or environmental law. These whistleblowing provisions are generally designed to facilitate regulation and enforcement in the particular subject area. The subjects involved -- health and safety regulation, for example -- are those with respect to which employees can be expected to possess evidence essential for industry regulation and the prosecution of corporate wrongdoers.

Canada

In Canada, these protections appear to be concentrated in the area of environmental and occupational health and safety law. The relevant sections of each of these statutes are contained in Appendix A to this study.

In the area of environmental law, there are a number of statutes which provide express protection to employees who complain that their company has violated environmental protection statutes. Ontario's two main environmental statutes -- the Environmental Protection Act, R.S.O. 1990, c. E.19 and the Environmental Bill of Rights, S.O. 1993, c. 28 -- contain extensive protections for employees who have been discharged, disciplined or harassed for complying with Ontario's environmental legislation. Under both statutes, employees who have had reprisals taken against them are authorized to file a complaint with the Ontario Labour Relations Board, which will first try to effect a settlement or, if unsuccessful, hold an inquiry into the complaint. If the Board finds the employee's complaint justified, it has broad powers to order rectification, reinstatement or compensation. Because Ontario's Environmental Protection Act prohibits an employer from taking reprisals against an employee for complying with the Act, an employer who contravenes this section could be prosecuted under s. 186 of the Act, which states that every person who contravenes the Act is guilty of an offence.

The Canadian Environmental Protection Act, R.S.C. 1985, c. C-15.3 ("CEPA") also contains a whistleblowing provision. It declares that no federal government employee shall be disciplined, dismissed or harassed for reporting on the release of certain toxic substances to a CEPA inspector. These provisions have been criticised for applying to only a limited number of violations under CEPA, for protecting only reports to a CEPA inspector, rather than the media or other officials, and for extending only to federal public servants, rather than all employees in the federal sphere (Environment Canada, CEPA Issue Elaboration Paper #10 -- Public Participation for Environmental Protection, 1994, pp. 119-20).

Whistleblower protection is also found in occupational health and safety legislation, and human rights legislation. Ontario's Occupational Health and Safety Act, R.S.O. 1990, c. O.1 prohibits employers from taking reprisals against a worker because the worker has complied with the Act, sought its enforcement, or given evidence in a proceeding brought under the Act. Alleged contraventions are dealt with either by binding arbitration pursuant to a collective agreement, if one exists, or by filing a complaint with the Ontario Labour Relations Board. If a penalty for contravention is not established in the collective agreement, the Board can substitute such other penalty that to the Board seems "just and reasonable in all the circumstances". The employment standards provisions in the Canada Labour Code, R.S.C. c. L-2, which apply to employers under federal jurisdiction, contain similar protections for employees who have testified, given information to an inspector, or sought enforcement of the Code. Employers who contravene these provisions are guilty of a summary conviction offence and liable to a fine of up to $15,000. Finally, the Canadian Human Rights Act, R.S.C. 1985, c. H-6, prohibits any person from threatening, intimidating, or discriminating against an individual because that individual has made a complaint, given evidence, or assisted in the initiation or prosecution of a complaint under the Act.

There appear to be no Canadian studies which have examined the effectiveness of these statute-specific whistleblowing provisions. We interviewed members of the Legal Services Branch of Ontario's Ministry of the Environment and Energy to discuss the use and effectiveness of the provisions in Ontario's Environmental Protection Act and the Environmental Bill of Rights. They indicated that, to their knowledge, employees had sought compensation under the whistleblowing provisions in the Environmental Protection Act on two or three occasions, but that the provisions had not played a large part in bringing violations to the attention of the Ministry. According to them, no employees had yet had recourse to the whistleblowing provisions in the Environmental Bill of Rights, which was only enacted four years ago. It is, of course, difficult to gauge what influence these provisions might have had in affecting employer and employee behaviour within firms. For example, an employer may have decided not to discipline or discharge an employee on the basis of these protections.

There is one reported case concerning an employee who invoked the whistleblowing provisions under Ontario's Environmental Protection Act. In Marshall v. Varnicolor Chemical Ltd. (1991), 8 C.E.L.R. 29 (N.S.), the complainant was fired after he disclosed to the Ministry of the Environment, a local environmental group, the opposition environment critic, and the media, his concerns about the manner in which his employer was disposing of its chemical waste. The employee brought a complaint under the Environmental Protection Act whistleblowing provisions, asking for compensatory damages, reinstatement and punitive damages. By the time the complaint reached the Ontario Labour Relations Board, the employer had ceased operations as a result of an order from environmental officials. The Board awarded the employee compensatory damages. Because the employer had ceased operations, the Board concluded that it could not order reinstatement, but indicated that it was prepared to reconsider the matter should the respondent's operation re-open.

United States

In the United States, Congress has included similar anti-reprisal laws as part of its regulatory legislation in specific areas. 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. Each contains its own administrative or judicial rules to deal with complaints from employees who allege that they have been disciplined as a result of disclosures they have made, or actions they have taken in accordance with the applicable federal statute. These provisions generally provide for reinstatement and compensation for an employee who has been subjected to retaliation.

A relatively detailed table listing these federal statutes as of 1992 is contained at pages 1-5 of Appendix B to this study, which reproduces a table from Miceli and Janet's, Blowing the Whistle. The first legislation that encompassed protection of whistleblowers was the National Labor Relations Act of 1935, which contained a section protecting employees who testified or filed charges concerning illegal unfair labour practices. Since then, similar provisions have been included in the following statutes, which are described in detail in Appendix B:

• The Clean Air Act
• The Comprehensive Environmental Response, Compensation and Liability Act (Superfund)
• The Energy Reorganization Act
• The Federal Surface Mining Act
• The Occupational Safety and Health Act
• The Safe Drinking Water Act
• The Solid Waste Disposal Act
• The Surface Transportation Act
• The Toxic Substances Control Act
• The Water Pollution Control Act
• The National Labor Relations Act
• The Labor Management Relations Act
• The Fair Labor Standards Act
• The Longshoreman's and Harbor Worker's Compensation Act
• The Employee Retirement Income Security Act
• The Federal Mine Health and Safety Act
• The Migrant and Seasonal Agricultural Workers Protection Act
• The Asbestos School Hazard Abatement Act
• The Safe Containers For International Cargo Act
• Title VII (amended by the Civil Rights Act of 1991)
• The Age Discrimination in Employment Act
• The Job Training and Partnership Act

While these provisions vary somewhat according to which statute is involved, they can generally be invoked by employees when they have been disciplined for taking some kind of action that complies with the statute, such as laying a complaint, commencing a proceeding, testifying in a proceeding, or exercising a right they have under the statute. In most cases, they appear to be directed to situations where employees disclose information to the authorities, rather than the public or the media. However, the Asbestos School Hazard Abatement Act expressly covers whistleblowers who bring asbestos problems to the attention of the public.

Each of the acts contains an administrative procedure that employees can invoke after they suffer reprisals. Most commonly, employees file complaints with the Secretary of Labor, who investigates the charges and, if a violation is found, orders corrective measures. Reinstatement and lost wages and benefits are the main remedies provided under the legislation, together with recovery of the costs of bringing the claim. Some of the more recent statutes provide for the award of compensatory, and even exemplary and punitive damages. The Federal Mine Health and Safety Act provides for a remedy of immediate reinstatement pending a final resolution of the issue, so long as the employee's complaint is not brought frivolously. Several of the statutes provide for the imposition of penalties on the employer. The Fair Labor Standards Act allows for fines up to $10,000 and/or imprisonment, and the Longshoreman's and Harbor Worker's Compensation Act provides for fines up to $5,000. It is interesting to note that many of these statutes have very short limitation periods, with some requiring a complaint to be filed within 30 days after the adverse job action.

Notable in its absence from this list are any of the United States antitrust statutes. When we asked Gary Spratling, Deputy Assistant Attorney General of the Antitrust Division of the U.S. Department of Justice about this, he indicated that, to his knowledge, American officials and legislators had never considered whether specific statutory protection for employees who report violations of antitrust law by their employers might be useful or appropriate. As discussed below, U.S. antitrust enforcement authorities rely instead on immunity programs to encourage corporate informers to come forward. Although federal antitrust statutes contain no specific protection for whistleblowers, employees who are subject to reprisals as a result of reporting their employer's alleged violation of antitrust law, would still be able to bring a claim for wrongful dismissal under state common law or, depending in which jurisdiction they are, might be able to rely on one of the general state whistleblowing statutes, discussed below.

As with the Canadian statutes discussed above, it is difficult to assess exactly how effective the American statutes have been. Even in the United States, there are relatively few whistleblower cases that actually proceed to court. Many are settled or may never arise because employers change their policies to encourage internal whistleblowing, and refrain from retaliating against whistleblowers. American studies that have attempted to assess the effectiveness of whistleblowing have focused on general whistleblowing statutes, rather than the statute-specific provisions listed above. These studies are concerned primarily with the extent to which whistleblowers have made use of the protections. They do not assess specifically the usefulness of the statutes as a regulatory enforcement technique, i.e. the extent to which they encourage employees to come forward with information that regulatory authorities do not otherwise possess.

One of the best discussions of these federal statutes is contained in Miceli and Near's text, Blowing the Whistle. They do not attempt to evaluate the overall effectiveness of these acts. However, they make a number of useful comments.

First, they comment on the narrow focus of the legislation. At p. 234, they state:

Because of the narrow focus of the federal model, whistle-blowers do not enjoy generalized federal protection in the reporting of wrongdoing. While the awarding or denial of protection can encourage whistle-blowing regarding those issues that Congress selects as the most important, it does not give employees the message that they are to be generalized watchdogs against organizational wrongdoing. Under this model, whistle-blowing is seen more as an aberrational act valued only if it pertains to certain activities.

Second, they emphasize the problems that arise from the brevity of limitation periods under the legislation. They state at p. 235-6:

One of the biggest problems with most of these acts is that they give the whistle-blower very little time within which to file a claim .... The most common period is thirty days after the adverse job action has occurred. The practical effect of such a short time period is to prevent many whistle-blowers from pursuing their claims, for it is only the extremely knowledgeable or aggressive employees who will realize that they have a claim and be motivated to act within that time frame. ... The very short statutes of limitations are one of the reasons why many whistle-blowers who are covered by these federal laws now bring claims under wrongful firing theories in state courts, where the applicable tort statute of limitations is generally one or two years.

Finally, and perhaps most importantly, Miceli and Near point out that these statutory anti-reprisal provisions are often far less effective than the remedies available to employees under state common law. As they state at pp. 236-7,

What is clear is that the remedies available under most acts are much more limited than would be available in a tort suit for wrongful firing, where in addition to any lost wages and benefits, the plaintiff is likely to get an award for the emotional distress caused by the retaliatory action, and punitive damages, in addition to other damages peculiar to the particular case. Today, the average award in such suits is approaching $1 million. Even under the federal acts where compensatory and exemplary damages are allowed, damages are likely to be less than would be recoverable in a wrongful firing suit. Juries determine damages in a wrongful firing suit, while under these federal laws the damages determination is made administratively or judicially. In general, juries are more pro-plaintiff and more generous. Plaintiffs, therefore, are likely to file a state wrongful firing claim in addition to, or in exclusion of, the federal claim. This has created a new battleground for whistle-blowers and their employers, for the employers try to force the whistle-blowers to pursue only the more limited federal remedy. Thus, the first step in many whistle-blowing cases today is a lawsuit over where, and under what theory, the suit may be pursued.

B. General Whistleblower Statutes

In contrast to the issue-specific anti-reprisal statutes described above, some jurisdictions have adopted broader schemes of statutory whistleblower protection. At the United States federal level, Congress, in 1978, enacted the U.S. Civil Services Reform Act (the "CSRA"), which was amended by the Whistleblower Protection Act in 1989. Many U.S. states have enacted general whistleblower statutes, primarily for public sector employees, but in some cases for both private and public sector employees.

In the United Kingdom, legislation that would protect public and private sector whistleblowing employees from reprisals has received Parliamentary discussion.

This analysis of general whistleblowing statutes focuses on the U.S. experience. To the best of our knowledge, save for New Brunswick, neither the Canadian Parliament nor any provincial or territorial legislature has yet adopted general legislation to protect all whistleblowing employees from reprisals. In addition, none appear yet to have granted whistleblowing protection for public sector employees. As noted below, the Ontario Legislature has passed whistleblowing legislation for its public servants, but these provisions have not yet come into force.

In New Brunswick, similar to some of the U.S. legislation, s. 28 of the Employment Standards Act, Chap. E-7.2 provides, in part, as follows:

28. Notwithstanding anything in this Act an employer shall not dismiss, suspend, lay off, penalize, discipline or discriminate against an employee if the reason therefor is related in any way to

...

(b) the making of a complaint or the giving of information or evidence by the employee against the employer with respect to any matter covered by this act; or

(c) the giving of information or evidence by the employee against the employer with respect to the alleged violation of any Provincial or federal Act or regulation by the employer while carrying on the employer's business;

or if the dismissal, suspension, layoff, penalty, discipline or discrimination constitutes in any way an attempt by the employer to evade any responsibility imposed upon him under this Act or any other Provincial or federal Act or regulation or to prevent or inhibit an employee from taking advantage of any right or benefit granted to him under this Act.

The differences between U.S. and Canadian experience might be explained by the greater protections already provided to whistleblowing employees under our labour relations law, in contrast to the problematic employment-at-will doctrine in the United States. In addition, the emphasis on the rights of the whistleblowers in the United States reflects the American focus on individual rights and suspicion of big government and big business. Whatever the reasons, the initiatives of U.S. legislators in this area provide useful examples from which lessons can be drawn for governments in Canada.

Federal legislation in the United States

The Civil Services Reform Act, as amended by the Whistleblower Protection Act, is perhaps the best-known example of whistleblower protection law in the United States. The CSRA does two main things. First, like the specific statutes discussed above, the CSRA is an anti-retaliation statute, prohibiting the federal government from taking reprisals against employees who disclose certain kinds of information, and providing a means of redress for employees. Second, it provides an internal procedure -- a "secure channel" -- by which employees can disclose complaints of wrongdoing, without fear of retaliation and without disclosure of the whistleblower's identity.

The CSRA applies to all federal employees, as well as to persons competing for certain positions in the federal public service. It applies to employees who disclose information or make complaints about a wide range of employer practices, such as discrimination, violation of the public service merit system principles, nepotism, the violation of a law, rule or regulation, mismanagement, gross waste of funds, abuse of authority, and activities that pose a substantial and specific danger to public health or safety. Remedies include a stay of the personnel action that has been taken against the employee or other appropriate corrective action. Damages are not available.

The primary agency responsible for implementing the Act is the Office of Special Counsel (the "OSC"). It investigates complaints from employees who allege they have suffered reprisals for whistleblowing. In addition, the OSC has the task of receiving information anonymously from employees, and ensuring that it is brought to the attention of the appropriate authorities.

The Office of Special Counsel was widely criticised throughout the 1980s and early 1990s for its ineffectiveness in encouraging whistleblowers to come forward, and protecting them from reprisals. A 1993 report by the U.S. government's General Accounting Office found that most federal employees knew very little about their whistleblower rights. The Whistleblower Protection Act of 1989 was intended to improve the effectiveness of the OSC, and to increase protection for federal whistleblowers generally. For example, under the new provisions, employees can take their own cases to the federal government's Merit Systems Protection Board if they are not effectively pursued by the OSC.

The Office of Special Counsel was an influential model when Ontario's Law Reform Commission released in 1986 its Report on Political Activity, Public Comment and Disclosure by Crown Employees. That Report recommended that Ontario adopt a special counsel model for the Ontario public service. In 1993, the Ontario Legislature passed the Public Service and Labour Relations Statute Law, S.O. 1993, c. 38. Part IV of this Act contains detailed "Whistleblowers' Protection" legislation for the Ontario public service, modelled on the U.S. special counsel regime. Although the Act is now four years old, Part IV has not yet entered into force. Part IV of the Statute is reproduced as Appendix C to this report.

State legislation in the United States

While federal whistleblowing legislation in the United States has focused on particular statutes, states have taken a broader approach. Many have enacted general legislation that provides whistleblowing protection to all employees -- both public and private sector. The legislation has been enacted in many instances as a response to the lack of protection available to employees under the employment-at-will doctrine of state common law, discussed above. The statutes have often been passed in the aftermath of some public scandal, that might have been prevented if employees had been able to successfully blow the whistle.

Once again, the Miceli and Near table contained in Appendix B provides a helpful outline of the state legislation. The table lists 34 states that, as of 1992, had enacted general whistleblowing legislation. These states are Alaska, Arizona, California, Colorado, Connecticut, Delaware, Florida, Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Michigan, Minnesota, Missouri, Montana, New Hampshire, New Jersey, New York, North Carolina, Ohio, Oregon, Pennsylvania, Rhode Island, South Carolina, Texas, Utah, Washington, West Virginia, and Wisconsin. Undoubtedly, that number has grown over the past five years.

All of the state statutes apply, at least, to public sector employees. As Miceli and Near note at p. 241, "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." But twelve of the states also give general protection to private and public sector employees. While the nature of the protected disclosures varies somewhat from state to state, most states protect at least good faith disclosures by employees of any violation of state or federal law, rules or regulations. This means, for example, that private sector employees who work in a state with a public and private sector whistleblowing statute may be protected under this legislation if they disclose information suggesting that their employer has violated federal antitrust law.

The procedures and remedies under these statutes vary from state to state. Some states require that the whistle be blown to an external authority while others require that the employee first make an internal report so that the employer has an opportunity to correct the problem. Remedies generally include reinstatement, back pay and lost benefits, and injunctive relief. Actions for damages are allowed in less than one-half of the states, and only a few allow punitive damages. Many states provide for sanctions against the employer, but these are usually very small fines of only $500 to $1000.

American academics have conducted research assessing the effectiveness of these state whistleblowing statutes. In a 1987 article, for example, Terry Dworkin and Janet Near attempted to assess the effectiveness of three state whistleblowing statutes that had been enacted in the early 1980s ("Dworkin and Near, "Whistleblowing Statutes: Are they Working?", supra). They focused on reported cases -- particularly appellate cases -- that involved suits brought by whistleblowers, and found that the number of suits brought by whistleblowers under these statutes was comparable to, or less than, the number brought by whistleblowers in states that recognized a common law right to sue for firing in violation of public policy. Although they emphasized that it was still too early to properly assess the results of these statutes, they concluded that the statutes were generally not very effective. At p. 260, they provide three possible explanations for this:

1) that the risks of whistleblowing and the motivations behind it are not easily influenced by statutory enactments, 2) that the statutes as enacted are not perceived as being effective or are not adequately understood, and 3) that the statutes are having a beneficial but unanticipated effect -- causing employers to change their policies by encouraging internal whistleblowing and refraining from retaliation against whistleblowers.

At p. 263, Dworkin and Near, supra, conclude as follows:

Our examination of state whistleblowing statutes indicates that the statutes are not having their desired effect. They do not seem to be encouraging whistleblowing. They are not being interpreted in a way that offers maximum protection to whistleblowers, and they are not drafted in a manner best designed to protect whistleblowers and to encourage them to report misconduct. Consequently, it seems foolish for legislatures to spend the time and effort to craft statutes that will have no appreciable effect, the more so if whistleblowing is not an activity amenable to statutory influence. The most positive thing the statutes may be doing is to influence some companies to change their policies. However, progressive companies that adapt their policies in the light of the statutes are also likely to do so in response to state common law decisions that award whistleblowers damages, especially if punitive damages are involved. Since most states now recognize a public policy exception to the employment at will rule for whistleblowers who report socially important wrongdoing, this may be one of those instances where the legislature should leave well enough alone.

In general, American academics view whistleblowing legislation as having had a limited impact.

In their 1992 text, Miceli and Near report that little has changed, in their view. As they state at pp. 243-245:

While the number of cases increased somewhat, no plaintiff won a recovery, and most of the plaintiffs used the statutes for purposes not intended by the legislature, such as avoiding an adverse arbitration decision, or attempting to blackmail the employer. In only one case did an act at least partially work in the way the legislature intended. Whistle-blowers were only successful in collecting against their employers when they based their suits on the common law or another act.

Miceli and Near go on to explain, as follows:

One explanation for the limited impact of the statutes may be that the remedies they provide whistle-blowers are inadequate, especially when compared to the remedies provided by common law wrongful firing claims. Statutory remedies in every state with the early statutes offered less damages than if the employee sued under the common law. Remedies such as reinstatement, back pay, and benefits do not present much of an incentive when the employer and other employees are likely to be hostile, career advancement is likely to be severely limited, and the emotional and physical upheaval of being unemployed and pursuing a lawsuit goes uncompensated. In addition, the statutes created procedural difficulties such as ninety-day statutes of limitations, which do not exist in a common-law suit, and requirements of external reports. Finally, as illustrated in previous chapters, statutes which focus exclusively on retaliation fail to provide adequate incentives to spark whistle-blowing. When the whistle-blowing statute is interpreted as preempting the right of a whistle-blower to pursue a common law remedy, as some courts have held, then the passage of a protective statute may even be harmful to whistle-blowers, for it prevents them from collecting the common law remedies that compensate them for the full range of injuries suffered.

C. Internal Disclosure Programs

A growing number of private corporations are establishing their own disclosure policies to encourage employees to raise their concerns about illegality or wrongdoing through internal channels. These internal disclosure programs are sometimes adopted as part of a company's general code of ethics, and may include the establishment of hotlines, ombudspersons and other formal investigative procedures. Employees are encouraged to disclose wrongdoing through these channels and company recognition is sometimes given to internal whistleblowers. A crucial part of any of these disclosure programs is a guarantee of protection for employees who, in good faith, disclose suspected wrongdoing.

The adoption of internal disclosure policies is often recommended in the academic literature discussing whistleblowing. As Miceli and Near explain at p. 243:

... internal whistleblowing is preferable for the organization and the employee. It gives the organization the opportunity to correct the problem and avoid the negative publicity, investigations, and administrative and legal actions that usually follow external whistle-blowing while also maintaining good rapport with the whistle-blower and other ethically-focused employees.

According to a 1993 survey of 300 human resources executives in the United States, executives in companies with internal disclosure policies reported a significant increase in the number of internal disclosures by employees after implementation, and a corresponding significant decrease in external disclosures (Tim Barnett, Daniel S. Cochran and G. Stephen Taylor, "The Internal Disclosure Policies of Private-Sector Employers: An Initial Look at their Relationship to Employee Whistleblowing", (1993) 12 Journal of Business Ethics 127). Another study suggests that internal "legalistic" responses by organizations are more effective that external legal sanctions against whistleblowing (Janet Near, Terry Dworkin and Marcia Miceli, "Explaining the Whistle-Blowing Process: Suggestions from Power Theory and Justice Theory" (1993) 4 Organization Science 393).

The provision of internal disclosure mechanisms is also consistent with whistleblowing jurisprudence and statutory requirements in some jurisdictions. The Canadian arbitral law on whistleblowing, as discussed above, places the onus on the employee to exhaust internal remedies before taking their concerns or criticisms outside the organisation. A number of the U.S. state whistleblowing acts require employees to raise their concerns internally before going to outside authorities.

But while internal disclosure programs have much to recommend them, the difficulty for policy makers and regulatory officials is to find a way to encourage employers to adopt these programs. One means, of course, would be to require all companies to put in place internal disclosure programs. However, that would impose additional, costly regulatory burdens on government and employers that are unlikely to justify the benefits that would result from the scheme. A more useful route is to offer a reward to corporations who put in place internal disclosure programs. Perhaps the best way to do this, in regulatory fields like competition law, is to offer some form of reduction in penalty for corporations who -- despite being found guilty of committing an offence -- have put into place a compliance program designed to enable employees to disclose these kinds of offences.

The Competition Bureau has recently adopted a policy that enables companies to receive consideration for alternative case resolution or favourable treatment if they have adopted a corporate compliance program. The Bureau's 1997 Bulletin on Corporate Compliance Programs describes an internal disclosure procedure as one of the elements of an effective compliance program. As it states at p. 4:

An internal reporting procedure -- that is, an unfettered ability to report conduct that is reasonably believed to be a contravention of the Act -- encourages employees to provide timely, reliable information that can be the basis for further investigation by the company. If the steps to be followed and the information required are clearly defined, the reporting procedure can identify existing or potential problems in order that timely remedial action can be taken.

As the Bulletin explains, if a company does not have an effective compliance program, but the Director decides the case is still appropriate for an alternative form of resolution, the Director may require the implementation of a compliance program. According to the Bulletin at p. 6, this can be done in two ways:

• The director may resolve both civil and criminal cases following an information visit if it is found that no further inquiry is warranted due to the company's voluntary corrective action. Such corrective action may include the implementation of a compliance program that is appropriate for the particular company, given the circumstances of the alleged contravention.

• In respect of consent orders negotiated in reviewable matters, or prohibition orders negotiated on consent in criminal matters, the Director will assess whether a compliance program would help to prevent future repetitions of the conduct in question, with a view to including a program as part of the resolution of the case.

The United States Department of Justice's Antitrust Division has also adopted sentencing guidelines that provide for the reduction of sentences for corporations that have put effective compliance programs in place. One of the key criteria the Antitrust Division examines to determine if a compliance program has been reasonably designed, implemented, and enforced is whether it contains a reporting system through which employees can report criminal conduct by the organization, or by others within the organization, without fear of retribution. As Gary Spratling, Deputy Assistant Attorney General of the Antitrust Division of the U.S. Department of Justice stated in a September 1995 speech, "(e]mployees should receive explicit assurances that they will not be punished for reporting suspected antitrust violations to company compliance officials." (p. 12).

Unlike the Competition Bureau Director in Canada, the Antitrust Division does not appear to follow the practice of requiring companies to put in place compliance programs as part of the settlement of a case. However, recent American jurisprudence regarding corporate directors' fiduciary duties has helped to emphasise the importance of adopting these kinds of compliance programs. In Caremark International Inc. Derivative Litigation (1996 WL 549894 (Del. Ch.)), the Court of Chancery of Delaware made some important comments about directors' liability and compliance programs in the course of approving a settlement between Caremark and the U.S. government regarding violations of laws governing health care providers. The Court held at p. 11 that:

... a director's obligation includes a duty to attempt in good faith to assure that a corporate information and reporting system, which the board concludes is adequate, exists, and that failure to do so under some circumstances may, in theory at least, render a director liable for losses caused by non-compliance with applicable legal standards.

In the Court's view, such information and reporting systems should be:

... reasonably designed to provide to senior management and to the board itself timely, accurate information sufficient to allow management and the board, each within its scope, to reach informed judgments concerning both the corporation's compliance with law and its business performance.

Obviously the level of detail that is appropriate for such an information system is a question of business judgment. And obviously too, no rationally designed information and reporting system will remove the possibility that the corporation will violate laws or regulations, or that senior officers or directors may nevertheless sometimes be misled or otherwise fail reasonably to detect acts material to the corporation's compliance with the law. But it is important that the board exercise a good faith judgment that the corporation's information and reporting system is in concept and design adequate to assure the board that appropriate information will come to its attention in a timely manner as a matter of ordinary operations, so that it may satisfy its responsibility.

When we interviewed Mr. Spratling in July 1997, he described this judgment as a very influential one, which was viewed by some legal commentators as imposing a "national code of honour" on U.S. corporate directors.

While internal disclosure programs have much to recommend them, they may not always be the most appropriate way to encourage employees to come forward with information of serious wrong-doing. Unless the company has established an effective mechanism, like an ombudsperson, to ensure that the complaint is dealt with confidentially, many employees will be very reluctant to report any wrongdoing to their superiors, even if corporate policy assures them that there will be no repercussions. As the U.K. charitable group, Public Concern at Work, which acts on behalf of whistleblowing employees, has emphasized:

To succeed, such procedures -- be they in the public, private or voluntary sector -- should be neither exhausting nor adversarial and their use must be accepted throughout the organisation. It is also vital that the procedures are seen as safe, if people are to have the confidence to use them. (Public Concern at Work, Second Annual Report (1996), p. 6).

In addition, the idea that problems can be reported and remedied internally, with no involvement from outside authorities, may not always be appropriate when an alleged criminal offence is involved. Suppose, for example, that an employee has strong evidence that his or her firm has engaged in bid-rigging. The employee takes the matter up with the firm's internal ombudsperson, who confirms the allegations and helps take whatever steps are necessary to ensure it will not happen again. But it can be argued that the matter should not end there. If a serious violation of the Competition Act has occurred, there is a strong argument that it should be properly investigated and prosecuted.

D. Immunity programs

The models considered above have concentrated on protections and remedies available for "innocent" employees who decide to blow the whistle on their employer. It is also useful, however, to consider what incentives can be provided to "guilty" employees or firms to come forward to disclose information. This is particularly important in the field of competition law, where offences are often conducted through a conspiracy among a number of firms or individuals. Perhaps the best "carrot" to encourage persons to blow the whistle on themselves and their co-conspirators is to offer them immunity or at least some kind of reduction in sentences. During the 1990s, immunity programs have become an important part of competition law enforcement in both Canada and, particularly, the United States.

Canada

Canada's Competition Bureau's immunity policy is a relatively recent one. It was initiated in 1991, when then Director Howard Wetston outlined nine factors that "could be relevant in determining whether to recommend immunity from prosecution to the Attorney General" (Wetston, "Notes for an Address to the Canadian Corporate Counsel Association", Aug. 19, 1991). These factors are:

(a) the firm must be the first to approach the Bureau with evidence of the offence;

(b) the firm must provide full and frank disclosure of the facts;

(c) the firm must co-operate fully with the Bureau's investigation, and with any ensuing prosecution;

(d) the evidence provided by the firm must be important and valuable in terms of any prosecution or other legal proceeding;

(e) the firm must be prepared to make restitution commensurate with the facts and its responsibility in the matter;

(f) the evidence must confirm that the firm took immediate steps to terminate the activity and report it to the Director as soon as it was discovered by its senior executives;

(g) a prior record of antitrust violations will be a significant factor in deciding whether to recommend immunity;

(h) the firm should usually be prepared to consent to the issuance of a prohibition order; and

(i) the role of the firm in the conduct in question.

It should be noted, of course, that although the Director can recommend immunity, only the Attorney General can grant immunity from prosecution. However, as we understand it, the Attorney General has always given careful and serious consideration to the Director's recommendations regarding immunity.

One of the most crucial criteria of the nine listed above is that the firm "must be the first to approach the Bureau with evidence of the offence". In his speech at that time, the Director stated that he did not view it as appropriate to recommend immunity if there was an existing complaint or investigation. However, other federal officials subsequently indicated that there may be cases where post-detection immunity can be granted. In a Canadian Bar Association speech in October 1993, Francis Rioux, Senior Counsel at the Department of Justice, suggested four factors that would be taken into account to determine whether immunity could be granted in these cases:

1. At what point in time did the corporation come forward as compared to others.

2. Whether at the time the corporation comes forward there exists sufficient evidence against the corporation to sustain a conviction against it or other parties to the conduct.

3. The importance, degree and completeness of the cooperation and the importance of the evidence offered, if any.

4. The corporation's relative culpability in the conduct and past record.

As the Bureau has indicated on a number of occasions, there are important links between its corporate compliance program policies and its immunity policies. First, if a corporation has a corporate compliance program in place, it will be better able to fulfil criteria (f) listed above -- to take immediate steps the terminate the activity and report it to the Director. Second, the existence of an effective corporate compliance program serves as an important means of flushing out information about wrongdoing from within the company, enabling it to be the first to get into the door to ask for immunity. As the Bureau's Bulletin on compliance programs explains at p. 6:

Although a compliance program is not a prerequisite to a request for immunity, without it the impugned conduct might not be detected early enough to enable the company to report it to the Bureau for the purpose of making the request. Because the timeliness of the provision of evidence is relevant to the Director's deliberations concerning immunity recommendations, the absence of a quick response capacity may compromise a firm's request.

In other words, the Director's immunity program provides the greatest rewards for those who come earliest with information, and thus creates a strong incentive for companies to put into place compliance procedures that will disclose information about internal corporate wrongdoing as quickly as possible.

United States

In the United States, the Department of Justice's Antitrust Division's amnesty policy is a crucial part of its investigation and enforcement. Until 1993, the immunity policy was fairly limited, requiring, for example, that a firm come forward with evidence before the Division had begun an investigation. In that year, however, the Division adopted three major changes to its amnesty policy. Gary Spratling explains these in his 1995 speech, supra, at pp. 21-24:

The first major change is: Amnesty is automatic if there is no pre-existing investigation. If a corporation comes forward prior to an investigation, it receives amnesty if it satisfies six criteria -- actually five, in addition to coming forward before we have an investigation. The grant of amnesty is certain, no prosecutorial discretion involved. These six criteria are:

1. At the time the corporation comes forward to report the illegal activity, the Division has not received information about the illegal activity being reported from any other source.

2. The corporation, upon its discovery of the illegal activity being reported, took prompt and effective action to terminate its part in the activity.

3. The corporation reports the wrongdoing with candor and completeness and provides full, continuing and complete cooperation to the Division throughout the investigation.

4. The confession of wrongdoing is truly a corporate act, as opposed to isolated confessions of individual executives or officials.

5. Where possible, the corporation makes restitution to injured parties.

6. The Corporation did not coerce another party to participate in the illegal activity and clearly was not the leader in, or originator of, the activity.

The second major change is: Amnesty is still available after an investigation has begun. If a corporation comes forward after an investigation has begun, it still may qualify for amnesty if it is in a position to offer the Division important and valuable cooperation. It must satisfy seven criteria in this situation, four of which are the same as under the automatic amnesty, the first two of which are the most significant: (1) It must be the first corporation to come forward and (2) the Division at that point does not yet have evidence that is likely to result in a sustainable conviction against the firm.

The third major change is: If a corporation qualifies for automatic amnesty, then all directors, officers, and employees who come forward with the corporation, admit their involvement in the activity, and agree to cooperate, also receive automatic amnesty.

In addition, if individual executives of an organization seeking amnesty after an investigation has begun fully cooperate in the same manner, they will be given serious consideration for lenient treatment as well -- in the form of individual amnesty or individual immunity.

According to Mr. Spratling, the Division's amnesty program has been hugely successful. As he notes at pp. 23-24 of his speech:

The impact of the amnesty program has been very significant. Prior to August 10, 1993, the effective date of the new corporate amnesty policy, 17 corporations applied for amnesty, 10 corporations received amnesty, and three corporations inquired about the program but never formally sought admission into the program. That was over a period of 14 years.

In the two years since the announcement of the new Corporate Amnesty Policy, 15 corporations have applied to the program, five have already received amnesty, one was rejected and seven remain pending, awaiting satisfaction of the conditions (it is a conditional grant: the amnesty is not complete until all of the conditions are satisfied).

That means that, in the 14 years under the old policy, 17 corporations applied and, in the first two years of the new policy, 15 corporations have already applied.

During his interview with us, Mr. Spratling explained that during this current year the Division had received on average one application for amnesty each month.

E. Other Alternatives

In addition to the four main approaches to encourage whistleblowing discussed above, two other alternatives -- one from the United States, the other from the United Kingdom -- merit brief discussion.

False Claims Act Suits

In the United States, a new model has emerged that uses rewards as an incentive for whistleblowing. This approach is found in the federal False Claims Act, an act originally passed in 1863 in response to contractors cheating the government, that was amended in 1986 to make recoveries more generous. Under the Act, the whistleblower files a qui tam suit on the government's behalf. The Justice Department can join the suit if it desires. If the government joins the suit, the whistleblower can receive up to 25 per cent of the judgment if the case is successful; if the government does not join, the whistleblower can keep up to 30 per cent of the judgment. This kind of rewards-based whistleblowing scheme has also been incorporated within other federal regulatory statutes, such as the Financial Institutions Reform, Recovery and Enforcement Act -- the savings and loan "bailout" bill.

Non-profit whistleblower advice organizations

In the United Kingdom, a charitable organization, Public Concern at Work, has established for itself a unique role in both lobbying for legislation to protect whistleblowing employees and, perhaps even more importantly, providing advice and assistance to employees who have information about wrongdoing committed by their firm.

This charity was founded in part to work to eliminate the pejorative associations with the term "whistleblowing", and, instead, to provide public thanks and support, rather than punishment and humiliation, to employees who sound the alarm on serious malpractice, i.e. who raise "matters of public concern". The charity provides free legal assistance to employees who request their help, so long as they raise "public concerns that relate to serious malpractice endangering the public or threatening the public interest". In some cases, employees will come for assistance after they have suffered reprisals from their firm. In other instances, however, they will not yet have raised their complaint with their employer or other authorities. In those cases, the charity will contact the organization and other authorities as necessary.

Similar organizations -- like the General Accountability Project, based in Washington, and the Cavallo Foundation, which makes annual awards to workers who expose unsafe or illegal activities -- have been established in the United States.