NEW LAW LEAVES WHISTLEBLOWERS AT RISK
Unfortunately, like most government acts, the recent legislation on whistleblowing is ill-considered and, as always, the law of unintended consequences is bound to prevail.
Following the success of the U.S. Securities and Exchange Commission’s legislation, the Ontario Securities Commission enacted its own, much heralded, analogous legislation. But it has more holes than an exploded water balloon.
If an employee risks career and reputation in his or her industry by exposing an employer’s secrets — even if it’s one of a lucky few cases the OSC ultimately proceeds with — and the ultimate administrative monetary penalty is less than $1 million, the whistleblower receives nothing. Even more ironic, if the information is so good the OSC decides on quasi-criminal prosecution, and is successful, again the whistleblower receives no reward even if a financial “fine” is levied.
But the bigger problem is that press flurry around whistleblowing protection gives employees the misapprehension that it’s OK to tattle.
Legally, employees have a duty of confidentiality, as well as fidelity (or faithfulness) to their employers. Those twin duties mean it is almost always cause for discharge to reveal your employer’s secrets. Worse, since both duties form a contract between Canadian employees and their employers (and there is an even greater duty to protect one’s employer’s interests if the employee is an executive fiduciary), if the employer suffers any damage as a result of the information’s release, the employee can be sued for potentially millions of dollars. Imagine, for example, if this confidential information were to reach the ears of a competitor.
The legal reality is that when employees have information that their employer, or a superior in the company, conducted a serious misdeed, they must report, at least initially, to the employer, and not to any regulatory body or the police. What the employer does with that information need never be disclosed to the employee. In almost all cases, the employer has no duty to inform the employee if they took any action as result of the information.
In almost every case, that is the end of an employee’s legal obligation. If the employee, dissatisfied in their perception that the employer has not acted appropriately, then proceeds to reveal the information to criminal authorities, regulators, or the press, it is generally cause for dismissal.
The new legislation captures those with inside information detailing that a company regulated by the OSC has breached securities laws. That covers only a fraction of one per cent of potential whistleblowing and provides no protection for most employees who “blow the whistle” on corporate predations.
But even in those rare cases where the information falls within the narrow confine of securities regulations but the OSC does not proceed with it, either because it lacks the resources to prosecute every potential violation or the infraction does not constitute securities fraud, what is the whistleblower’s protection? They won’t receive any windfall and might well have risked their job.
Unless employees are trained in securities regulations, they lack the expertise to know whether the wrongdoing they are revealing even qualifies for a payment. The alleged misconduct may not be a legal wrongdoing, or not be sufficiently revelatory or material to result in a payment under the legislation; the employer might have taken steps to deal with or reveal the matter; or it may be an impropriety that is not covered by securities legislation. In short, employees can never safely proceed with a complaint under this legislation unless they have first sought the advice of a securities lawyer and likely first contacted the employer.
Even appropriate complaints, which are not pursued, cannot be made in complete safety. Remember, an employer faced with embarrassing inquiries is likely to go to some lengths to ascertain the source, including checking emails of those employees who might have knowledge of the situation or hiring the services of a private investigator.