First revision of the Whistleblower Protection Act in 14 years
In 2006, the Whistleblower Protection Act was enacted in order to promote legal compliance among business operators and ensure the safety and security of the public. However, a significant amount of time passed without any revision thereafter. But, this revision eventually enabled to make the first step to a law that ensures the public interest in the proper sense of the term.
For any corporate employees, as well as the general public, there are several important points of the revision, so let me explain these to you.
There are four main points of the revision.
The first point is that a wider range of whistleblowers can be protected. Before the revision, only corporate employees were eligible for the protection, but now retirees and officers can also be protected.
Note that, however, the eligible retirees should meet the condition that one year or less has passed since their retirement.
As for officers, they bear in the first place the duty of care of prudent manager for corporate misconduct, so they must take certain corrective measures once they recognize misconduct. If such measures turn out to be ineffective and the relevant officer has no choice but to resort to external whistleblowing or the like, then the officer will be eligible for the protection under certain conditions.
Whistleblowing means reporting corporate misconduct which is a disservice to the public. Therefore, any whistleblower should be eligible for the protection.
For example, a family member of a corporate employee, a supplier or an ordinary consumer can notice corporate misconduct. Actually, suppliers are also eligible for the protection under the relevant EU directive and other regulations that govern whistleblowing in Europe. Here in Japan, we need to discuss, as a future issue, how to expand the scope of protection to such a level.
The second point is that the duty of constructing an internal whistleblowing system has been imposed on companies with more than 300 employees. In other words, such companies must put in place an internal system that enables employees to promptly report the matter when they recognize any corporate misconduct.
If this duty is neglected, the negligent company receives administrative measures, such as advice, guidance or recommendation. If the company does not even follow the recommendation, its name will be disclosed.
That will pose a considerable risk to the company’s reputation (lower business reputation and brand value). In this sense as well, we can expect the construction of the internal whistleblowing system.
In this regard, however, there will be a high cost because any relevant company needs to set up an in-house whistleblowing section staffed with the responsible personnel, lawyers, and so on. Since the burden is considered to be heavy for small and medium-sized enterprises (SMEs), it is a duty of companies with 300 employees or less to make efforts for the construction of such a system.
Complete confidentiality and eased requirements for external whistleblowing
The third point is that the revision has imposed confidentiality on the responsible personnel who receive information from whistleblowers. If this obligation is broken, a criminal penalty will be imposed.
The Act before the revision also imposed confidentiality, but in reality, whistleblowers were frequently identified by their supervisors or persons who had engaged in the misconduct and often ended up receiving a demotion or other retaliation.
That is why the revision has imposed a fine of up to 300,000 yen as a criminal penalty in the event of a breach of confidentiality.
Of course, confidentiality is extremely important, but there was the argument that it might have a chilling effect by which some people might be afraid of taking charge of a whistleblowing section if the responsible personnel could face a criminal penalty. If that was the case, building up an internal whistleblowing system would be difficult.
Behind this issue was another argument that a criminal penalty should be primarily imposed on the company that issued disadvantageous treatment such as a reprisal. Well, the relevant company could use the excuse that it just transferred the person in question as part of normal personnel rotation, without knowing he or she was the whistleblower. Meanwhile, from the perspective of the whistleblower, the transfer would seem to be a reprisal. It would be difficult to prove which is true.
For this reason, the revision has obliged complete confidentiality to prevent the identity of any whistleblower from being leaked as a way of eliminating the root cause of the problem.
In other words, if the relevant company has transferred personnel without really knowing who is the whistleblower, its reason can be considered as valid.
However, the essence of this rule is to protect whistleblowers. To that end, even if a criminal penalty or a fine is imposed on a person in charge of the whistleblowing section, what makes the responsible personnel cower is probably not the penal provision but the fear that they might be requested to leak the identity of a whistleblower by their company. Such a request should never be made.
The reason is that although this revision of the Act is also designed to create a framework that will lead to the protection of companies, the main purpose is to protect whistleblowers.
This leads to the fourth point, which is to ease the requirements for external whistleblowing.
The Whistleblower Protection Act defines in-house whistleblowing as Type 1 whistleblowing; whistleblowing to administrative organizations as Type 2 whistleblowing; and whistleblowing to mass media, news outlets and other similar organizations as Type 3 whistleblowing. When an employee blows the whistle to an external entity, we must consider the balance between corporate interests and whistleblowers interests. Accordingly, requirements for whistleblowers to be protected are different, depending on who or which organization receives such whistleblowing.
Type 1 whistleblowing has the lowest hurdle. The requirement for employees is just to consider that this issue is wrong. Then, they can report the matter and also be protected.
In contrast, under the Act before the revision, Type 2 whistleblowing had been accepted only if the whistleblower showed reasonable belief, that is, reasonable evidence.
However, the revision has lowered the hurdle so that such whistleblowing can be accepted and the whistleblower can be protected if he or she reveals his or her name and submits a document that describes the situation to be addressed and the reason for such judgment of the informer. In short, the submission of hard evidence and the like is not required any longer.
Moreover, it is assumed that each municipal office will serve as a liaison outlet to receive such whistleblowing, of which management will be centralized in the Consumer Affairs Agency. So, it is expected to create a framework where people can comfortably report incidents in their backyard and the subsequent investigation will surely be conducted.
Requirements for the protection in Type 3 whistleblowing will also be eased. “Cases where in-house whistleblowing leads to information leakage” and “cases where an urgent risk of difficulty in recovering property or serious damage to property is about to be caused” have been added. However, confidentiality cannot be imposed on the private-sector mass media, and the reported situation is most likely to be broadcasted. For that reason, careless whistleblowing to mass media could cause extensive damage to the relevant company. Therefore, with regard to the fact to be reported, as well as with regard to the added requirements for the protection, the existence of “reasonable grounds to believe,” that is, reasonable evidence, remains a requirement for protection.
However, making such external whistleblowing easier means paving the way to facilitate whistleblowing even for employees of an SME, although the relevant duty of any SME with 300 employees or less is limited to making efforts for the construction of an internal whistleblowing system as mentioned earlier. I believe this is significant.
Also, if a company has only a nominal internal whistleblowing system and does nothing even when it has received internal information from a whistleblower or the identity of a whistleblowing employee may easily come to light, employees of such a company are more likely to avoid internal whistleblowing and resort to Type 2 whistleblowing for which protection requirements are relatively light.
Accordingly, such a company will have a higher risk of falling behind the administrative organization that gets to know about any deplorable event ahead of the company itself, or in the worst case, the event could abruptly go public through mass media coverage.
Internal whistleblowing will improve risk management capabilities
In the past, there were cases where a company sued a whistleblower for damage caused by whistleblowing, but the revised Act has stipulated that no company may lodge a claim against any whistleblower who is eligible for protection.
This revision of the Act will further facilitate whistleblowing and enhance the protection of whistleblowers. Accordingly, in my view, companies with a tendency to regard internal whistleblowing as a breach of faith will have to change such mindset.
In essence, internal whistleblowing will enable companies to detect in-house misconduct or illegal acts at an early stage with a perceivable sign and then to address the issue before it is externally reported.
Furthermore, the construction of an internal whistleblowing system will lead to a prompt information transmission system from field staff to top management. This will enable top management to perceive not only information about misconduct but also change felt by the field staff or when they feel something is off.
Such system construction is extremely important for top management to make a speedier and more accurate decision about an ever-changing corporate environment as globalization progresses and even under the recent COVID-19 pandemic. It will also help companies put an invaluable system for management in place.
In essence, this revision of the Act can be said to address the issue of how compliance management should be conducted.
Compliance management involves not only how to avoid risks but also how to manage a company so that it can quickly respond to both signs of positive and negative changes, which I believe is a true risk management capability to be required of companies in the future.
Finally, to all employees.
If you believe in things like “this is what everyone around me is doing” or “it is the traditional way taught by my seniors,” have you just followed these norms without thinking, even if you felt it was odd? If so, I would like you to change your mindset so that you can recognize such an attitude as a breach of faith against your company.
It is important to be aware that reporting on what you find suspicious will improve the power of field staff and will ultimately enhance the power of your company. I believe that this revision of the Act will be the first step to support such a change in mindset.
* The information contained herein is current as of September 2020.
* The contents of articles on Meiji.net are based on the personal ideas and opinions of the author and do not indicate the official opinion of Meiji University.
* I work to achieve SDGs related to the educational and research themes that I am currently engaged in.
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