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Czech Republic - Whistleblowing: What New Duties Will Arise for Employers?

Czech Republic - Whistleblowing: What New Duties Will Arise for Employers?

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The Chamber of Deputies is currently discussing at first reading a bill on the protection of whistleblowers. This act should implement the European directive on whistleblowing, and should therefore become effective within the implementation period, i.e. no later than 17 December 2021.

What is the subject of the bill?

The subject of the bill is the regulation of the protection of whistleblowers against retaliatory measures, i.e. de facto penalties for whistleblowing reports made by them.

The aim is to increase the protection of people in the private and public sector who draw attention to illegal actions or practices that they became aware of in connection with their work, thereby allowing for such offences to be addressed, the damage from them to be mitigated, and the perpetrators to be captured. The bill should encourage whistleblowers to come forward by providing them with protection against possible retaliation, in particular by their employers.

Which areas will be affected by the bill?

The protection of whistleblowers should be formally limited to the areas of activity listed in the bill. However, these fields are so vaguely and broadly defined that in practice the law is applied to most areas of business activity. Whistleblower protection applies, for example, in the area of consumer protection and safety and compliance with product requirements, in the area of financial services, corporate income tax, etc.

Who should the new regulation protect? Who is a whistleblower?

Only a natural person can be a whistleblower, typically an employee. However, they can also be persons working under agreements on work performed outside of employment, cooperating freelancers or members of the company's statutory body.

However, besides whistleblowers, many other people are protected too, such as the whistleblower's family.

On the other hand, a person who has knowingly made a false report will not be protected.

What are retaliatory measures?

Retaliatory measures are any measures taken in direct causal correlation to a report that may cause damage to the whistleblower or other protected persons. These will usually involve termination of employment, either directly in the form of firing or by simply not renewing a fixed-term employment contract. However, it can also consist of a financial intervention in the form of non-recognition of personal evaluation, reduction of wages determined in the wage statement, etc.

On whom does the new regulation impose obligations?

The new regulation concerns all employers with more than 25 employees. Its impact is therefore significant, as it also concerns smaller and medium-sized employers, which often had no internal compliance system so far.

It also concerns public procurement and special kinds of businesses, such as providers of consumers loans as well as insurance and reinsurance companies, but also public authorities.

What new obligations will employers incur?

a. Internal reporting system

The above-mentioned persons will have to implement an internal reporting system no later than 31 March 2022. This system should allow for reports to be submitted either in writing or orally, and at the whistleblower's request, also in the form of a personal meeting (this will probably not be common). Information about the internal reporting system must be published on the internet.

b. Designation of a relevant person

The actual operation of the internal reporting system will be executed by a so-called designated person, i.e. a person who accepts the report and will further process it. Only a person with no criminal record and full legal capacity who has been duly instructed about the reporting system (including the obligation of strict confidentiality) can be a designated person. In practice, this duty will typically fall to the head of the legal department, the corporate ombudsman or the head of HR.

c. Internal implementation

From a practical point of view, an internal reporting system will typically be implemented by an internal regulation. In it, the employer describes the entire mechanism of making the report in detail, i.e. how, to whom and by what means the report can be made. It is also appropriate to draw attention to the consequences of knowingly making a false report.

It is advisable to consult about the internal reporting system with the employee representatives prior to its implementation. The measure will have an impact on all employees, and more importantly, the employee representatives may have comments and recommendations on how to introduce the reporting system as effectively as possible.

What about confidentiality clauses?

Confidentiality clauses do not apply in relation to the protection of whistleblowers. In other words, the employer cannot claim that the employee (acting on a legitimate basis) has breached a contractual non-disclosure clause and has disclosed classified information. The bill even provides that banking secrecy can be overcome in this way.

Under no circumstances, however, can attorney privilege be violated. It is also prohibited to make a report that would violate confidentiality in relation to some key aspects of the functioning of the Czech Republic, such as classified information or national security.

How will the whistleblower be protected?

The whistleblower will be protected primarily by a ban on retaliation. The use of retaliatory measures will be in breach of the bill and fines may be imposed. The maximum amount of the proposed fines is enormous – up to 5 % of the net turnover of the liable person for the previous year.

Another protection will be the possibility to seek reasonable monetary compensation in case any harm was inflicted on the whistleblower. The employer may therefore be obliged to pay the employee financial compensation for the non-pecuniary damage caused. Another option is to impose a corrective measure. Control over compliance with legal obligations is to be exercised by the Ministry of Justice or the regional labour inspectorate, and these bodies are also entitled to impose corrective measures.

In addition, procedural protection should be provided to the whistleblower in the form of a reversed burden of proof. Together with the bill on the protection of whistleblowers, an amendment to the Code of Civil Procedure is also proposed, which regulates a special burden of proof. In particular, if the whistleblower states in court facts from which it can be inferred that he faced retaliation for his report, the defendant (typically the employer) is required to prove that the alleged measure was objectively justified by a legitimate aim and constituted a proportionate and necessary means.

This is another essential mechanism for protecting whistleblowers. However, it should be kept in mind that this institute may be abused by a dismissed employee. It is easy to imagine a situation where an employee suspecting that the employer will soon terminate him will make a report via the internal reporting system. The report may indicate some discrepancies on the part of the employer (e.g. non-compliance with recording of overtime work, which is a common practice for managers in many companies), but its aim will be nothing more than to create employee protection as a whistleblower. The question then arises as to the extent to which the court should consider the content of such a report in any proceedings on the invalidity of a report, i.e. whether it will be able to assess the relevance and veracity of the report. The current wording of the draft amendment to the Code of Civil Procedure does not allow such a possibility. It is based only on whether the report was made by the employee and whether retaliatory steps were taken against the employee.

However, by the logic of the case, the court should address the causal link and apply the reverse burden of proof only if the employee can prove that the retaliation took place due to their report and the report was true and relevant.

In addition to reversing the burden of proof, however, much more extreme ways of protecting whistleblowers have emerged in the discussions about a new law. For example, the joint opinion of three non-profit organisations suggested that certain legal acts towards the whistleblower could only be taken if the supervisory authority had given its permission (according to the current proposal, the Ministry of Justice). The Slovak regulation is the model for this approach. Clearly, the subject of these acts would be dismissal or termination of employment in general. However, the current bill did not adopt this procedure.

Conclusion

The new legislation on the protection of whistleblowers entails a number of duties for which employers will have to be thoroughly prepared. Especially small and medium-sized companies that do not yet have an internal control mechanism may have a hard time implementing a functioning system. But we believe the energy and time put in will pay off. If the whistleblowing report leads to a reduction in damage, it was worth the effort, especially if there may be a threat to life or health. The new regulation must therefore be approached not as an additional burden, but as something that can significantly help society.

By Helena Hangler, Attorney at Law, and Rudolf Bicek, Attorney at Law, Schoenherr

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