Third Dimension: New whistleblower protection laws – are charities and not-for-profit organisations affected?

By Gabriella Janu, Law Graduate

The Treasury Laws Amendment (Enhancing Whistleblower Protections) Act 2019 (Cth) (Whistleblower Act) introduces increased protections for whistleblowers in the corporate and financial sectors. The Whistleblower Act will come into effect on 1 July 2019, implementing key amendments into the Corporations Act 2001 (Cth) (Corporations Act), and the Taxation Administration Act 1953 (Cth).

This article will focus on the amendments to the Corporations Act, and how they will affect charities and not-for-profit (NFP) organisations.

Whistleblower policy

Charities and NFPs that are public companies limited by guarantee, or large proprietary companies,[1] are required to adopt a compliant whistleblower policy as soon as possible, and no later than 1 January 2020.

A compliant whistleblower policy must include information on:

  • the protections available to whistleblowers;
  • to whom protected disclosures may be made, and how they may be made;
  • how the company will support and protect whistleblowers from detriment;
  • how the company will investigate disclosures that qualify for protection;
  • how the company will ensure fair treatment of employees who are mentioned in, or related to, disclosures that qualify for protection; and
  • how the policy is to be made available to officers and employees of the company.

Companies that fail to implement a policy by 1 January 2020 will be in breach of the Corporations Act.

Disclosures that qualify for protection under the Whistleblower Act

In order to encourage increased reporting of illegal and unethical conduct, the Corporations Act provides protection for disclosures of “disclosable matters” that are made by “eligible whistleblowers” to “eligible recipients”.

Each of these terms is explained below.

“Disclosable matters”

“Disclosable matters” refer to information that would give a person reasonable grounds to suspect misconduct, or an improper state of affairs in relation to the company or a related company.

Some examples of “disclosable matters” include conduct that contravenes the Corporations Act or any other Commonwealth law that is punishable by imprisonment for 12 or more months, and conduct that represents a danger to the public or financial system.

If the information to be disclosed falls within this description, it can be disclosed by an “eligible whistleblower” to an “eligible recipient”.

“Eligible whistleblowers”

“Eligible whistleblowers” are individuals who are, or have been:

  • an officer or employee of the company;
  • an individual (or their employee) who supplies goods or services to the company (whether paid or unpaid);
  • an individual who is an associate of the company; or
  • a relative or dependant of any of the above people.

If the discloser is one of these individuals, they can disclose a “disclosable matter” to an “eligible recipient”.

“Eligible recipients”

“Eligible recipients” include:

  • an officer or senior manager of the company or a related company;
  • an auditor or member of an audit team conducting an audit of the company or a related company;
  • an actuary of the company or a related company; or
  • a person authorised by the company to receive disclosures that may qualify for protection.

“Eligible whistleblowers” can also disclose “disclosable matters” to the Australian Securities and Investments Commission (ASIC) or the Australian Prudential Regulation Authority (APRA). A disclosure can only be made to a legal practitioner for the purpose of obtaining whistleblower related legal advice.

If the recipient is an “eligible recipient”, ASIC, APRA, or a legal practitioner, then an “eligible whistleblower” can make a disclosure of a “disclosable matter” to them, and their disclosure qualifies for protection under the Corporations Act.

Protections afforded to whistleblowers under the Whistleblower Act

If a person makes a disclosure that qualifies for protection:

  • they are not subject to any civil, criminal or administrative liability for making the disclosure;
  • contractual or other rights and remedies cannot be enforced against them on the basis of the disclosure; and
  • the information will not be admissible in criminal or penalty proceedings (other than in respect of the falsity of the information).

So, as long as whistleblowers comply with the procedure set out in the Corporations Act, they will be protected from the consequences that often act as a deterrent to the disclosure of company misconduct.

Non-compliance with the Whistleblower Act

Disclosure of the identity of a whistleblower

A person commits an offence if a disclosure is made to them that is protected under the Corporations Act, and they disclose the identity of the discloser. This offence is subject to a penalty of up to $200,000 (for an individual) or $1 million (for a body corporate).

However, it is not an offence to disclose this information to, for example, ASIC or APRA.

Victimisation or threatened victimisation of a whistleblower

A person commits an offence if they cause or threaten to cause detriment to a person, because they believe that this person has made, or may make, a disclosure that is protected under the Corporations Act.

Some examples of “detriment” are employee dismissal, harassment, intimidation and damage to reputation.

A court can make a number of orders in these circumstances, including an order for compensation (up to $200,000 for an individual or $1 million for a body corporate), an injunction, an apology and the payment of exemplary damages. If the detrimental conduct involved the termination of employment, a court can also make an order for reinstatement.

Advantages and disadvantages of the Whistleblower Act

Advantages

The Whistleblower Act may increase public confidence in charities and NFPs. Charities and NFPs are eligible for a range of tax and other concessions and exemptions, making them susceptible to significant public scrutiny.

The reforms introduced by the Whistleblower Act will make it easier for company misconduct to become known and to be acted on, and will therefore support greater accountability and transparency. Accordingly, as public companies limited by guarantee and large proprietary companies are subject to the Whistleblower Act, many of which are charities and NFPs with considerable annual income, the community can have greater confidence that these organisations, whilst enjoying some financial benefits on account of being charities or NFPs, are being well-managed and regulated.

More generally, the Whistleblower Act is advantageous in that it ensures that the rights and obligations of whistleblowers, and recipients of information from whistleblowers, are clearly outlined in the corporate sector. Mandating that whistleblower policies be implemented and made available to employees enables whistleblowers to confidently disclose information about misconduct, and for recipients of this information to identify protected disclosures and properly respond.

Disadvantages

It is arguably a disadvantage of the Whistleblower Act that it applies only to public companies limited by guarantee and large proprietary companies There are only around 11,000 public companies out of 600,0000 NFPs in Australia, and even fewer NFPs are large proprietary companies. Accordingly, only a small portion of the NFP sector will benefit from, and be held accountable under, the Whistleblower Act.

Other legal structures that are adopted by charities and NFPs with considerable annual income, most notably, incorporated associations (of which there are over 200,000 in Australia), are not regulated by the Corporations Act. These organisations are therefore unlikely to adopt a whistleblower policy, and benefit from the corresponding increased protection and accountability.

Conclusion

The amendments introduced by the Whistleblower Act are ultimately positive in that they provide increased protections for whistleblowers, and greater accountability for company misconduct, in a section of the NFP sector that generally comprises large organisations with high annual income..

Charities and NFPs that are public companies limited by guarantee, or large proprietary companies, should start preparing for the implementation of a compliant whistleblower policy, or be in contravention of the Corporations Act come 1 January 2020. Those organisations that already have whistleblower policies should review the terms of their policies, to ensure that they are compliant with the Whistleblower Act.

 

[1] Under section 45A(3) of the Corporations Act 2001 (Cth), a “large proprietary company” is a proprietary company that satisfies at least two of the following requirements for the financial year: (1) $25 million consolidated revenue; (2) consolidated gross assets valued at $12.5 million; and (3) 50 or more employees.

For further information, please do not hesitate to contact us.

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