Telling it how it is

The significance of the Public Interest Disclosure Act 1998 (Pida) – otherwise known as the ‘Whistleblowing Act’ – should not be underestimated. Not only because of the potentially serious financial implications, but also because of the potential adverse publicity.

In particular, the interpretation relating to ‘disclosure’ within the meaning of the act has been a grey area of law ever since the whistleblowing legislation came into force. However, a December 2003 decision by the Employment Appeals Tribunal (EAT) in the case of Kraus v Penna Plc & Syltone plc appears to clarify this particular ambiguity.

In summary, Penna, an HR consultancy, employed Paul Kraus and supplied his services at short notice to Syltone to help the transportation company carry out a redundancy programme.

The assignment was for two months, during which Kraus would need to liaise with senior executives of Syltone. On his first day with the company, Kraus attended an executive team meeting. He made no contribution to the general discussion on downsizing, but following the meeting spoke to the chairman of Syltone and explained that he thought the general proposals for downsizing “could breach employment legislation” governing redundancy procedures.

The following day, Kraus was told by the chairman that the executive team did not have sufficient confidence in him (for a number of reasons, including his demeanour and lack of participation in the meeting) to warrant him continuing with the assignment, and that this would be terminated with immediate effect. Syltone telephoned Penna to terminate the assignment, explaining that Kraus had failed to create a sufficiently favourable impression with the executive team, and that generally he had not made any contribution to, or shown any real enthusiasm for, the project.

Kraus was disappointed and brought a claim in the employment tribunal pursuant to Pida (now inserted into the Employment Rights Act 1996 (ERA)), claiming a detriment as a result of having made a protected disclosure (ie the possible breach of employment legislation).

Legal summary
In the Kraus case, the EAT has clarified the law on three particular grounds:

  • The meaning of “protected disclosure” under Section 43A of ERA.
  • The meaning of “likely not to comply with legal obligations” within the meaning of Section 43B(i)(b) of ERA, and in particular what ‘likely’ means.
  • Whether Section 139(i) of ERA (concerning the definition of redundancies) imposes any legal obligations on an employer.

In order to be a ‘protected disclosure’ within the meaning of Pida, the disclosure must first be a ‘qualifying disclosure’.

In summary:
1. Under Section 43B(1), a “qualifying disclosure” means “any disclosure of information which, in the reasonable belief of the worker making the disclosure, tends to show… that a person has failed, is failing, or is likely to fail, to comply with any legal obligation…”. Therefore, there are two basic limbs to the condition – first, whether there is a reasonable belief, and second, whether it is ‘likely’ that there would be a failure to comply with a legal obligation on the part of the employer.

Under Section 43C, “a protected disclosure is made… if the worker makes the disclosure in good faith… to his employer”.

Kraus was able to satisfy the first limb of the ‘qualifying’ condition because he had a ‘reasonable belief’ that Syltone was ‘likely’ to fail to comply with its legal obligations.

Kraus also clears the ‘protected disclosure’ hurdle, because he made his comments to the chairman of Syltone, which for the purposes of Pida was his employer. The fact that he was employed by Penna is irrelevant, because the relevant legal provisions cover ‘workers’ rather than employees.

2. The EAT found that the word ‘likely’ requires more than a possibility, or a risk, that an employer might fail to comply with a relevant legal obligation. The information disclosed should, in the reasonable belief of the worker at the time it is disclosed, tend to show that it is probable, or more probable than not, that the employer will fail to comply with the relevant legal obligation.

Kraus did not satisfy this condition because his belief was limited to the possibility of a breach of employment legislation, depending on what eventually took place, which falls short of the ‘likely’ test.

3. The EAT also decided that Section 139(i) of ERA imposes no legal obligation on an employer or on any other person. In view of this finding, it was irrelevant that Kraus believed there was such an obligation and his ‘disclosure’, although ‘qualifying’ in nature, was not ‘protected’ within the meaning of Sections 43A and B of ERA.

Furthermore, the EAT questioned whether an employee has a right not to be unfairly dismissed (Section 95), but unfortunately did not go on to address this issue specifically.

Key points
The Kraus case is a significant milestone in the interpretation of whistleblowing cases. Particular points of note from Kraus and from whistleblowing cases generally are:

  • Employers should note that Pida not only applies to employees, but to the wider group of workers, as defined by Section 230(3) and Section 43K of ERA.
  • Workers making a protected disclosure have the right not to be subjected to any detriment (including dismissal) on the grounds of having made a protected disclosure.
  • Employers should be aware that the test for qualifying disclosures is not difficult to satisfy and senior management should exercise caution if dealing with workers (including employees) who have raised concerns, particularly when terminating contracts.
  • The usual qualifying period and upper age limit for bringing claims for unfair dismissal do not apply.
  • There is no cap on compensation.
  • Employers should ensure that the company has an adequate whistleblowing policy in place and that employees receive appropriate training on how the policy should operate.

In many cases where detriment is alleged, direct evidence will be hard to come by. It will not be an easy task for an applicant to prove conclusively that the detriment was as a result of them having made a protected disclosure. Much will depend on the evidence that is available and a tribunal’s interpretation of that in the context of relevant circumstances. Therefore, caution should be exercised when terminating contracts, or taking action against an employee where a protected disclosure may have been made.

Finally, companies should ensure that they have adequate whistleblowing procedures in place. After all, not only will such a policy, as the Advisory, Conciliation and Arbitration Service (ACAS) states, provide “strong protection to workers who raise concerns about wrongdoing”, but they will also help to improve openness and accountability in the workplace and thereby reduce the risk of claims under Pida.

Rob Riley is a partner and Richard Port an associate in the employment group at Addleshaw Goddard