Whistleblower protection: danger to trade secrets or an appropriate balance of interests?

With Directive (EU) 2019/1937 of 23 October 2019 on the protection of persons notifying violations of Union law (Whistleblower Directive), the member states have agreed on a uniform protection of whistleblowers insofar as they expose violations of EU law. The Directive is to be implemented into national law by the end of this year.

Both in Germany and in France, the planned implementation has led to controversial discussions. While some call for protection beyond the scope of the Directive, others are concerned about the welfare of companies and their trade secrets.

At the end of April, for example, the German press announced that negotiations on the Whistleblower Protection Act (Hinweisgeberschutzgesetz, HinSchG) within the German coalition between the SPD and CDU had initially failed.

Balancing the conflicting interests in national law

The Whistleblower Directive has not yet been transposed into national law in either France or Germany. It has to be implemented by 17 December 2021, which means that we can expect the legislative process to be completed within the next few months.

Germany

The Trade Secrets Directive was already implemented in Germany in 2019 with the entry into force of the German Trade Secrets Protection Act (Geschäftsgeheimnisschutzgesetz, GeschGehG). The GeschGehG also contains a special provision on the protection of whistleblowers. The provision limits the protection of secrecy in favour of freedom of expression where a legitimate interest exists. When examining the legitimate interest, a balance must be struck between the entrepreneur's constitutionally protected interest in safeguarding its trade secrets and the whistleblower's interest in expressing his opinion.

At the beginning of the year, the German Federal Ministry of Justice and Consumer Protection (Bundesministerium der Justiz und für Verbraucherschutz, BMJV) drafted a Whistleblower Protection Act (Hinweisgeberschutzgesetz, HinSchG-E). Compared to the Whistleblower Directive, the draft law provides in particular for an extension of the material scope of application, also protecting indications of violations of national law. However, whistleblower protection is not all-encompassing: The whistleblower will not be granted protection if he discloses the irregularities directly to the public (§ 31 HinSchG-E) or discloses information that is classified or is subject to the secrecy of judicial deliberations or the confidentiality obligation of doctors or lawyers (§ 5 HinSchG-E). Furthermore, whistleblowers must ensure that trade secrets are only disclosed to the extent necessary to expose a violation (§ 6 (1) HinSchG-E). Notifications containing trade secretsare to fall within the scope of protection of the law only if the whistleblower had "reasonable grounds to believe that their sharing or disclosure was necessary to expose a violation".

To date, however, the draft has met with considerable opposition from some quarters of the government. 

France

In France, the Trade Secrets Directive has been implemented by Loi No. 2018-670 relative à la protection du secret des affaires.

In addition, since 2017, the Loi Sapin II provides for an obligation of certain companies to establish compliance programmes with a whistleblower system.

At the beginning of this year, the Ministère de la justice invited associations, organisations, trade unions, professional associations and private individuals to submit their comments on the planned implementation of the Whistleblower Directive. The results are to be published in a summary after examination by the Ministry. 

Background

EU directives for better protection

With the Whistleblower Directive, the European Union is pursuing the goal of providing whistleblowers with greater protection. This should create an incentive to ensure that violations of the law are discovered and prosecuted at an early stage. Up to now, protection of whistleblowers has been very heterogeneous in the member states and in some cases only partial or even non-existent. Although many companies in Germany have already set up whistleblower hotlines as part of their compliance procedures, enabling whistleblowers to report violations anonymously, there is no legal obligation to do so. In France, in contrast, the so-called Loi Sapin II has already stipulated a certain internal company whistleblowing procedure since 2017.

On the other hand, from as early as 2016 the EU has also placed greater focus on the protection of trade secrets. With the adoption of Directive (EU) 2016/943 of 8 June 2016 (Trade Secrets Directive), the EU is pursuing the goal of providing greater security and civil protection for investments and innovations in a knowledge-based economy. In addition, a uniform standard of protection is to be established for trade secretswhich, due to their nature, do not fall within the scope of other protection mechanisms, such as patents or copyright law. The standardisation of the handling and protection of trade secretsis necessary for a science-driven EU in view of the competition with other major economic players.

Consequently, the two Directives pursue different regulatory purposes: While the purpose of the Trade Secrets Directive is to protect trade secrets, the Whistleblower Directive aims at strengthening the private enforcement of Union law.

Conflicting priorities between secrecy and clarification

When whistleblowers notify irregularities, they often have conflicting priorities between duties of confidentiality regarding trade secrets and their interest in exposing misconduct. Of course, compliance violations per se cannot be classified as trade secrets. However, the question often arises as to how much classified content may lawfully be disclosed in the context of a notification.

In view of the advancing implementation and integration of compliance structures, especially in medium-sized and large companies, there is an increasing need to protect whistleblowers better. This should prevent irregularities from developing into a scandal that could jeopardise the company. This does not mean, however, that companies may protect trade secretslessstrictly if they are to be able to continue to ensure their protection.

Balancing the conflicting interests in the system of the Directives

The Trade Secrets Directive stipulates the obligation of the member states to refuse legal remedies to protect trade secrets if the disclosure is made in the context of whistleblowing (Article 5 (b) and recital 20). One requirement is that the defendant acted with the intent to protect general public interests. The Trade Secrets Directive does not contain any further provisions on the protection of whistleblowers. The European legislator had fundamentally left the formulation to the member states. A narrower framework for this is now being provided by the Whistleblowing Directive.

According to the provisions of the Whistleblowing Directive, a whistleblower may not suffer any disadvantages such as dismissal, demotion or other discrimination as a result of reporting a violation of Union law.

A notification or disclosure of information containing trade secretsis also considered lawful under the Whistleblower Directive insofar as the conditions of the Directive have been met. In this context, the European legislator is fundamentally aware of the conflicting priorities between disclosure and the company's interest in maintaining secrecy: It has explicitly included in the recitals that the two Directives should be seen as complementary.

Outlook

It remains to be seen how national jurisdictions will implement the Whistleblower Directive and strike a balance between the protection of trade secrets and the protection of whistleblowers.

In a (virtual) event in June, we will be discussing this topic with a guest from France and look forward to welcoming many of you. We will be posting more information soon on our Oppenhoff French Desk page and on LinkedIn.  

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