This article was written by Greg Golding and Justin McDonnell.
In the United States, it is not unusual for class actions to involve information uncovered through whistleblowers. To date a limited number of Australian class actions have followed whistleblower disclosures.
Reform of Australia’s corporate whistleblower laws is a regulatory priority in 2017. More effective laws to protect and encourage corporate whistleblowing can therefore be expected to lead to an increase in class actions. Certainly with the introduction of the Queensland class action legislation and the widely publicised twenty-fifth anniversary of the Federal Court regime, reforms in whistleblowing will be closely watched.
The corporate whistleblower laws currently contained in the Corporations Act (Part 9.4AAA) have been described as ineffective because:
- the scope of protections only extend to existing employees and consultants;
- the protections only extend to breaches of the Corporations Act;
- the whistleblower is required to identify themselves; and
- the disclosure must be made in good faith.
It is only if these requirements are satisfied that the whistleblower receives statutory immunity from liability, protection against victimisation, confidentiality rights and compensation if there is employer retaliation.
It is probable that there will be changes to the regime, particularly given the prominence of whistleblowers in enforcement outcomes in overseas jurisdictions. Likely areas for legislative attention include the following:
- broader categories of persons who are protected as whistleblowers;
- a broadening of the regulators to whom protected whistleblowers disclosures can be made;
- removal of the requirement that the motive of the whistleblower be relevant to whistleblower protection;
- the possibility of facilitating anonymous whistleblowing; and
- easier and more cost effective access to legal remedies if employer retaliation is engaged in (including no risk of adverse cost orders).
All of these suggestions are likely to lead to greater protections for whistleblowers and open up the possibility of further class actions. Naturally, actions with a continuous disclosure focus would benefit from a wider whistleblowing regime. However, it could also be an emerging factor in class actions concerning product liability, against Government bodies for natural disasters or against institutions. Certainly, some of the recent Royal Commissions and Commissions of Inquiry demonstrate the powerful effect of people coming forward with evidence.
The most contentious issue to be debated as part of the reform agenda is whether Australia should introduce a whistleblower rewards system like the bounty system adopted by the Securities Exchange Commission in the United States in 2012. Under this regime whistleblowers are entitled to a 10% to 30% share of any penalty exceeding US$1 million paid by reason of information provided by the whistleblower. After a reasonably slow start (reflective of the lead time taken to pursue enforcement actions) significant payments of more than $130 million have now been made under this scheme. Last year Australia was the third largest source of tips to the SEC outside the United States.
An area of debate as regarding the bounty system in the United States was whether the SEC would require people to go through their own internal reporting first, before reporting to the SEC, because of the pressure placed on SEC resources by the number of employees coming forward. In the end, the SEC took the position that if whistleblowers report internally and then report within 120 days to the SEC, they could claim the SEC bounty (and claim the date of the original disclosure) but left it open for whistleblowers to go directly to the SEC. It remains to be seen how Australia’s legislators deal with determining the issue of rewarding whistleblowers.