In Search of Balance - Why Germany is Struggling to Protect Whistleblowers
On February 10, 2023, there was a bang: The Bundesrat rejected the whistleblower protection law passed by the Bundestag. Although the law, which implements an EU directive, has been discussed for years, it failed due to the veto of the Union-led states. What happened and what happens next?
After years of discussion about its design, the Whistleblower Protection Act was passed in the Bundestag in December 2022. But in February 2023 - just a few weeks later - it was stopped (for the time being) in the Bundesrat. The CDU/CSU-led states, together with the Green-led state of Baden-Württemberg, where the CDU/CSU is the junior partner, voted against the hard-fought compromise proposal put forward by the SPD, FDP and the Greens. The main reason cited by the CDU/CSU for rejecting the bill was the excessive bureaucratic burden it would impose on small and medium-sized companies.
Why is whistleblower protection so complicated?
The Whistleblower Protection Act is intended to ensure that whistleblowers are better protected than before from reprisals when they report wrongdoing and violations of the law. The law implements a European directive from 2019. Among the traffic light partners, the FDP insisted on a one-to-one implementation of the EU directive. This view was also held by the CDU/CSU in the Bundesrat. However, the other governing parties wanted to go beyond the requirements of the directive, which stood in the way of a one-to-one implementation.
A major bone of contention between the governing coalition parties was the scope of application: the EU directive refers to infringements of EU areas of law such as product safety, environmental safety and consumer protection. Since each member state defines areas of law itself, these are rarely congruent with those of EU law. Meaningful transposition into national law was therefore a challenge. The SPD and the Greens insisted on extending the scope of application to all German law. This would have had the consequence that, for example, even reporting a violation subject to a fine, such as parking on company property, would lead to full whistleblower protection for the reporting person. A clear disproportion would arise between the immunity of the whistleblower and the damage caused. In the end, it was decided not to include it in all German law.
Another point of contention was whether companies should be required to follow up on anonymous tips as well. The law provides for the possibility of anonymous reporting of legal violations, which the CDU/CSU criticized. Practice shows that anonymous whistleblowers usually reveal themselves soon, but it is costly for companies to implement a whistleblower protection system that maintains anonymity throughout.
It was also discussed whether an internal report should be made first before the whistleblower is allowed to contact third parties. It is helpful for companies if the whistleblower first reports internally so that they can check whether there is any truth to the report. Internal legal departments are familiar with the company's processes and are therefore in a much better position to check reports than external reporting offices. In the case of external reports, there is a risk that the company's reputation will be damaged prematurely without first ensuring that the report is well-founded. Under the law, whistleblowers can now decide for themselves whether to report internally or externally.
Whistleblower protection is a balancing act. On the one hand, whistleblowers should not have to fear reprisals if they report legal violations. On the other hand, companies must be protected from unjustified accusations. By rejecting the bill in the Bundesrat, the CDU/CSU is taking up many of the arguments already put forward by the FDP in the parliamentary negotiations, some of which were outvoted.
Instead of calling on the mediation committee to reach an agreement with the states, the federal government has decided to split the law into an objection law and a consent law, thus pushing the legislative process further. This approach is upsetting the states because it bypasses the Bundesrat on important parts of the law.
Legislation in Germany should now be completed quickly to give companies legal certainty for the design of their whistleblower protection. While larger companies can build on established whistleblower systems, smaller companies will have to contend with the high bureaucratic burdens and additional costs.