Whistleblowing – Reforms in German law

Whistleblowing is when employees report their employers for actual or alleged abuses, making these abuses public. German law has few rules on whistleblowing; there is no specific act on the subject. In Germany, whistleblowing can have significant consequences for employees, e.g. they can receive a written warning or even face dismissal. In such cases, the courts are guided by the jurisprudence of the European Court of Human Rights in their assessment of whether a written warning or letter of dismissal is effective: according to this case law, while whistleblowing is protected by the freedom of expression, it requires a balancing of the interests of the parties and a prior attempt to clarify the matter internally before it is made public. In addition, the whistleblower must not be acting, e.g., out of revenge.

Reforms to German law based on EU Directive

On 5 July 2016, the European “Directive on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure” entered into force; a draft German bill on this issue was presented on 18 July 2018. This draft bill transforms the provisions of the Directive on whistleblowing into a single provision, which states in part:

“The acquisition, use or disclosure of a trade secret is justified where it occurs in order to protect a legitimate interest, in particular (…) 2. to expose unlawful conduct or professional or other misconduct, when the person acquiring, using or disclosing the trade secret acts to protect the general public interest (…).”

The justifications listed in the draft bill are not conclusive (“in particular”), so that there could conceivably be other grounds of justification in the future. Future case law will likely establish these additional grounds; there is no legal certainty at present.

Practical tip: In light of the above, we recommend that you continue to establish whistleblower systems in an effort to avoid uncertainties. According to the wording of the draft bill, whistleblowers do not have to attempt to clarify matters internally, but can immediately make the matter public. The explanatory memorandum, rather than the draft bill, confirms that the principle of proportionality still has to be respected.

Need for action by companies

According to the draft bill, whistleblowing necessarily results in the disclosure of a trade secret. There will only be a trade secret if the employer has taken “appropriate measures to maintain the secrecy” and protect the trade secret. It will therefore not be sufficient in the future for an employer to simply declare that something is a trade secret; instead, special, demonstrable arrangements are necessary, e.g. the introduction of different classification levels for certain information and secure access restrictions (e.g. permits) for specific groups of employees.

In order for a claim for damages against a whistleblower to be successful, the employer must also demonstrate and prove that the employee is at fault: German legislators have established that employees, who make trade secrets public without authorisation, only have to pay compensation when they have breached a duty. According to the explanatory memorandum for the draft bill, reduced liability applies in favour of the employee. This is known in German case law as the principle of “internal compensation for damages”. According to this principle, an employee is only liable for intentional acts and gross negligence.

Summary

A closer look at the draft bill shows that employers will continue to find it difficult to enforce their rights in the future where employees disclose trade secrets. Unfortunately, German legislators missed the opportunity to clarify the numerous draft provisions on whistleblowing for both employers and whistleblowers. It remains to be seen, whether further clarification will follow, including through European standards.

If you have any questions related to this topic, please feel free to contact Dr Sarah Reinhardt-Kasperek (Lawyer, Licensed Specialist for Labour Law).