Tesco hit the headlines following the discovery of a £263m accounting problem in its profit forecasts. This apparently came to light when a senior member of the finance team disclosed a file to Tesco’s in-house legal department. The evidence reportedly suggested that profits had been incorrectly included in the half year accounts and associated costs left out, artificially inflating the numbers. The original aim behind the whistleblowing legislation was to encourage individuals to speak up to disclose information where it was in the public interest to do so, by offering them legal protection against retribution. Perhaps this was one of the factors that led to the individual’s disclosure at Tesco. But, given the circumstances, would this individual qualify for protection as a ‘whistleblower’ and if they do, how can Tesco avoid falling foul of the law in respect of its treatment of this individual?
Who is protected?

The Employment Rights Act 1996 (as amended by the Public Interest Disclosure Act 1998) protects only employees against dismissal whilst all workers are protected from being subjected to a detriment. ‘Workers’ include short-term appointees such as agency workers, homeworkers and even individuals attending at an employer’s premises for training courses or work experience. There is no minimum service requirement. This individual will therefore be covered by at least one, if not both of these categories.

What counts as a whistleblowing disclosure?

Only a worker who has made a ‘protected disclosure’ will be protected. A ‘protected disclosure’ is a ‘qualifying disclosure’ that also meets certain other conditions.

What is a ‘qualifying disclosure’?

A qualifying disclosure must involve a disclosure of information. The information disclosed must, in the worker’s reasonable belief, tend to show that there has occurred, is occurring or is likely to occur, one or more of the following:

  • a criminal offence;
  • a failure to comply with a legal obligation;
  • a miscarriage of justice;
  • a danger to the health and safety of any individual;
  • damage to the environment; or
  • deliberate concealment of information relating to any of these things.

In Tesco’s case, if the individual reasonably believed that the information disclosed was evidence of fraud then this would be covered even if an investigation subsequently established no wrongdoing.

Disclosures made since 25 June 2013 are also subject to a third condition; that the worker has a reasonable belief that disclosure is in the public interest. Tesco’s profits make a vital contribution to all of our pension funds and the government’s income so this test is easily met. However, it is possible workers could even rely on a disclosure about a breach of their own contract if the point they raise also applies more widely, perhaps to a category of workers.

What is a protected disclosure?

A protected disclosure is a qualifying disclosure that is also made to an ‘appropriate person’. The appropriate person will depend on the circumstances but will nearly always mean the employer itself. Although the legislation provides for disclosure outside the employer’s organisation, the circumstances in which a worker may do so, and still retain protection, are quite narrow and detailed, and are most likely to arise where, at the time of making their disclosure, the worker has a reasonable belief that they would be subjected to a detriment if they made it to their employer. In this case, it seems that the disclosure was made to Tesco, albeit indirectly through its legal department, rather than directly to the Board.
What counts as a ‘disclosure’?

We do not know the exact form which this individual’s disclosure took. Merely collecting evidence or alleging wrongdoing will not suffice. Some facts must be communicated. It does not matter if the employer already knows those facts; what is important is that the worker communicates them.

The worker is not required to establish the truth of the information he discloses. As long as his belief in the relevant wrongdoing is an objectively reasonable one, it does not matter if he turns out to be completely wrong.

A worker’s disclosure can be made by way of a single email or letter. However, a combination of oral and written communications could together qualify as a disclosure.

Assuming this individual qualifies as a ‘whistleblower’ who made a protected disclosure, what are the potential consequences for Tesco?

What counts as ‘detrimental treatment’?

Detrimental treatment could arise through the employer’s actions or through its omissions. As ‘detriment’ is not defined in the legislation, the courts have borrowed from discrimination cases and held that detriment occurs if a reasonable worker would, or might, reasonably conclude they have suffered a disadvantage in their employment. An unwarranted sense of grievance won’t be enough. So if this individual is denied a promotion, receives a lower than expected bonus, is ostracised by his colleagues or criticised in his appraisal for ‘not being a team player’ these would all amount to detrimental treatment.

Is the causation test the same for detriment as well as dismissal cases?

No. In cases about detriment, it must be shown that the worker was subjected to detrimental treatment on the grounds that they made a protected disclosure. This is a lower test than that in unfair dismissal cases, because it requires only that the disclosure played some material part in the employer’s detrimental treatment of them.

In contrast, dismissals are automatically unfair only if the employee’s disclosure was the sole or principal reason for their dismissal; establishing only that it had some material influence is not enough.
What are the penalties for breaching the protections?

Compensation for successful detriment claims is assessed on a similar basis to discrimination claims including any loss of earnings and an injury to feelings award. In successful dismissal claims, the statutory cap limiting the maximum amount of compensation is lifted. The potential financial risks should therefore not be underestimated.

How can businesses avoid falling foul of the law?

The most important steps are to develop and implement an appropriate, effective whistleblowing policy, which makes it clear that retaliation will not be tolerated, and to reinforce this with appropriate training for all staff. This is likely to decrease the risk of managers or other staff taking action against whistleblowers, through ignorance of their own obligations or of the risks and consequences both for the organisation and for them personally.

Employers who can show they took all reasonable steps to prevent the detriment occurring may be able to rely on the statutory defence in detriment claims.

Deloitte’s ongoing investigation into the Tesco affair has reportedly found that the practice of overstating profits in Tesco’s accounts goes as far back as 2012. To date, eight executives have been suspended in connection with this investigation and the Chairman is preparing to step down. In addition, shares have fallen more than 8%. Tesco’s plight is a helpful reminder of the importance of whistleblowing for all organisations. If you have an effective policy in place this will encourage workers to report concerns to you sooner rather than later. Just remember not to shoot the messenger.

This article appears in the November issue of BWB Corporate and Commercial department's BWB Biscuit: Business issues to chew on. To subscribe to these regular e-newsletters, please email marketingdepartment@bwbllp.com.

Posted on 23/11/2014 in Legal Updates

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