Group-wide whistleblowing systems not proven sufficient according to EU Commission

• Germany

• Corporate

27-10-2021

Many globally active corporations which had already established centralized group-wide whistleblowing systems were led by the hope that such group-wide reporting systems would also meet the requirements of the EU Whistleblowing Directive (No. 2019/1937, “the Directive” in the following) and the respective national laws which have to be implemented by 17 December 2021 at the latest. However, a group-wide whistleblowing system may not be enough for the EU Commission which – for the first time since the adoption of the Directive – recently rendered two opinions on the interpretation of certain aspects of the Directive.

Central reporting systems not proven sufficient

According to the EU Commission, it is absolutely mandatory for every legal entity with more than 49 employees to provide its own whistleblowing system. The EU Commission clarified that according to the wording of the Directive (cf. Article 8 (3)), this was unambiguous and applied to independent companies as well as to group companies and regardless of whether a group-wide whistleblowing system already existed. It was affirmed by the EU Commission that the need for every legal entity to provide its own whistleblowing system was justified both for reasons of efficiency of the reporting systems as well as the anticipated multitude of ways of implementation of the Directive at national level.

Relief for medium-sized subsidiary companies 

Despite the strict requirements set out above according to the EU Commission, it should still be possible for medium-sized companies with 50 to 249 employees to use a cross-company reporting system regarding the receipt of reports and any investigation to be carried out. At least for subsidiaries with less than 250 employees, it is therefore possible to set up a regional whistleblowing system in which one (group) company acts as a reporting and investigation office for several other group companies. Furthermore, the EU Commission affirmed that it would be possible for medium-sized (group) companies to have recourse to the group's central investigative body and not to conduct their own investigation. However, this would only be possible under the following conditions:

• the reporting systems of the subsidiary must remain in place and available;

• the reporting person must be clearly informed and give consent that the designated person or department in the headquarter is authorised to access the report;
• the responsibility to maintain confidentiality and provide feedback to the whistleblower and to remedy or sanction the reported misconduct remains with the subsidiary.

It needs to be noted that the aforementioned reliefs explicitly shall not apply to subsidiaries with more than 249 employees. Companies of this size are required to maintain their own separate whistleblowing system. Existing reporting systems throughout the group may continue to be used in parallel, but they certainly do not replace the need for a separate whistleblowing system.

Outlook

The above-mentioned opinions rendered by the EU Commission can be seen as a strong signal to companies falling within the scope of the Directive and may in many cases give rise to reconsidering current practices with regard to whistleblowing and the corresponding implementation of whistleblowing systems. Although it remains to be seen in exactly which way national legislators will implement the Directive, companies falling within the scope of the Directive should not delay necessary adjustments to their whistleblowing system.

Corporate Law as well as Compliance and Investigation Advice from one hand: We can support you! 

Our partners Dr. David Rieks (Head of the Corporate Crime & Investigations Practice) and Dr. Maximilian Findeisen (Co-Head of the Dusseldorf office and partner in the Corporate M&A Practice) are here for your support to:

• discuss with you whether and to which extent your whistleblowing systems might be adjusted;

• assist you with regard to setting up new whistleblowing structures in order to fulfil the prerequisites set out by the Directive and the opinions by the EU Commission;

• actively support you with regard to handling reports of whistleblowers and to draw appropriate consequences from such reports received;

• help you maintain a compliant whistleblowing system in everyday business.