Whistleblowing Payments in the UK and USA

29 May 2015

Reward vs Compensation

The recent news that the ‘Flash Crash’ whistleblower in the United States may be awarded between $4 million and $12 million highlights the differences in the way whistleblowing is dealt with in the United States and United Kingdom.

Whistleblowing in the UK is defined as when an employee, worker or contractor reports suspected wrongdoing in their workplace because it is in the public interest to do so.

The ‘Flash Crash’ Case

In the ‘Flash Crash’ case, it is alleged that Navinder Singh Sarao obtained $40 million in profits from illegal trading and that his actions contributed to the stock market crash on the 6th of May 2010.

Share prices plummeted by close to 1000 points in a matter of minutes, then quickly rebounded. Sarao was charged with offences relating to his contribution. He was arrested in London and faces extradition to the U.S. as the charges have been laid there. The Commodity Future’s Trading Commission (CFTC) lawsuit is claiming the value of the illegal profit and penalties worth up to three times that value. If the CFTC is successful in claiming this money, the payout for the whistleblower is set to be enormous.

US: Sanctions lead to Payouts to Reward Whistleblowers

In the US, if $1 million or more is obtained from the guilty party and the tip is “pivotal” in the government bringing the case, the CFTC grants 10-30 per cent of the sanction obtained to the tipster. The government can collect the money illegally obtained, plus interest and penalties.

In the US, there are two government programs that bring cases for illegal trading: CFTC and the U.S. Securities and Exchange Commission (SEC). The two programs are very similar but the CFTC takes on more complex cases, and the SEC has broader jurisdiction. Since 2011, the SEC has paid out more than $50 million among 16 whistleblowers.

UK: Compensation for Losses to Whistleblowers

The Public Interest Disclosure Act 1998 governs whistleblowing in the UK. Here in Britain compensation is assessed on losses suffered by the whistleblower; there is no reward for disclosures. Requirements must be met, including that the disclosure is of a type that is protected. The whistleblower must have a reasonable belief that the disclosure is made in the public interest and in one or more of the following:

  • a criminal offence has been committed, is being committed or is likely to be committed;
  • a person has failed, is failing or is likely to fail to comply with any legal obligation to which he is subject;
  • a miscarriage of justice has occurred, is occurring or is likely to occur;'
  • the health or safety of any individual has been, is being or is likely to be endangered;
  • the environment has been, is being or is likely to be damaged; or
  • that information tending to show any matter falling within any one of the preceding paragraphs has been, is being or is likely to be deliberately concealed.

The whistleblower must disclose the wrongdoing to his or her employer and follow the correct procedure for doing so. In certain circumstances, the disclosure should be made to a ‘prescribed person’, which normally means the regulatory body corresponding to the industry. These bodies are listed in the Act.

There are two possible claims in an Employment Tribunal relating to whistleblowing; one involving the issue of detriment and the other, unfair dismissal. There is a presumption of an unfair dismissal if the protected disclosure is the cause of the dismissal. There is no minimum service requirement for this claim, nor is there a cap on compensation. If the job was highly paid or there were significant losses, this can be reflected in the compensation.

Large payouts are possible in the UK depending on the nature of the losses being claimed. The other claim is for suffering detriment, for example, being denied training opportunities, demoted or refused a promotion.

Compensation for injury to feelings can be claimed for under detriment but not unfair dismissal. Notwithstanding this, if a whistleblower is pursuing a claim for unfair dismissal then he/she can also seek compensation for injury to feelings by pursuing an additional claim for any detriments he or she was subjected to before or after dismissal.

Which System is Better?

Whistleblowing in the UK is less lucrative than in the U.S. Essentially, one system rewards for whistleblowing, and other compensates for losses. Some argue the U.S. system is preferable because people are rewarded for coming forward, rather than compensating for the adverse consequences of whistleblowing.

On the one hand, rewards for reporting incentivise early detection and may avoid the consequences of workplace practices such as illegal behaviour and flouting health and safety procedures. On the other hand, it can be argued that reporting wrongdoing should be its own reward.

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