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Whistleblowing law reform will reduce "tactical advantages" for aggrieved employees, according to expert

Out-Law News | 01 Jun 2012 | 3:22 pm | 2 min. read

A reported £10 million settlement granted to the former Olympus chief executive demonstrates the "tactical advantage" bringing such claims can have for employees, an employment law expert has said.

However, proposed changes to the law by the Government will prevent employees from bringing a claim for unfair dismissal after they "blow the whistle" on employers unless they can show they reasonably believed that the disclosure was in the public interest said Helen Farr of Pinsent Masons, the law firm behind Out-Law.com.

Michael Woodford was dismissed a mere two weeks into his 44 month contract with the Japanese electronics giant on the basis, he claims, of his making public an accounting scandal worth $1.7m. According to press reports the settlement he received is for the balance due on his contract and could be worth up to £10m.

Any deal is subject to ratification by the company's board, which is due to meet on 8 June. The case could be reopened if the board does not agree to the settlement.

The term 'whistleblowing' refers to an employee telling the public or a person in authority about alleged dishonest or illegal activities occurring within an organisation or company. Whistleblowers may make their allegations to other parties within the company, known as 'internal' whistleblowing, or to external regulators, law enforcement or the media.

Legal protection for whistleblowers was introduced in the UK in 1999 as an amendment to the Employment Rights Act. The Act covers employees who make disclosures of certain types of information, including evidence of illegal activity or damage to the environment, from retribution from their employers such as dismissal or being passed over for promotion. In addition, where an employee is dismissed for making a protected disclosure, this dismissal is automatically unfair.

Farr said that the introduction of legal protection for whistleblowers had led to an "increasing trend" for employees with less than two years' service to claim that they had been dismissed for exposing employer wrongdoing, therefore avoiding the minimum length of service requirements needed to bring an ordinary unfair dismissal claim. In addition, any compensation awarded is not limited by the statutory cap.

The draft Enterprise and Regulatory Reform Bill (224-page / 825KB PDF), currently before Parliament, would restrict the disclosures which qualify for protection to those which the employee reasonably believes are "made in the public interest" if enacted in its current form.

"The Government is keen to ensure that employees can only sue if they reasonably believe that their disclosure is in the public interest," Farr said. "This amendment is designed to limit the current legal position where an employee can allege that she or he has blown the whistle by making a disclosure about a breach by an employer of an employee's contract of employment."

The change would not necessarily have stopped Woodford's claim but will "put an end to claims where the employee has made a disclosure that is not in the public interest but relates to alleged wrongdoing on the part of the employer", Farr said.

Olympus has since admitted to "past misconduct" and made a public "commitment to compliance" by its newly-appointed board on its corporate website. It has also introduced new compliance measures, including an expanded internal whistleblowing system and the establishment of an internal Compliance Committee which reports to the company's board.