Whistleblowers can be important in maintaining corporate integrity, especially when senior leaders engage in behaviour that violates ethical codes. Recently, the CFO of Royal Bank of Canada (RBC) was publicly dismissed after a whistleblower alleged the CFO had an undisclosed personal relationship with a colleague, leading to preferential treatment regarding promotions and compensation. Both employees were terminated, and the affair brought to light a misuse of corporate resources.

The Role of the Whistleblower

The situation at RBC could have remained hidden if it were not for the whistleblower who exposed it. The role of the whistleblower is crucial in circumstances where unethical conduct compromises professional judgment and could lead to significant damages to the employer.  The whistleblower’s actions can prevent such corporate damages.

However, two critical questions arise: First, does an employee owe the employer a duty to whistleblow? Second, if so, how can a healthy system be established to encourage whistleblowing?

The Whistleblower’s Responsibility

At the heart of the RBC case lies a question: What is the obligation of someone who becomes aware of their colleagues’ affair?

Legal Framework

Currently, Canada does not have legislation mandating employees to blow the whistle when they learn of another employee’s unethical conduct.

However, under common law, as affirmed in Prim8 Group Inc. v Tisi, 2016 ONSC 5662 and Mann Engineering Ltd. v Desai, 2021 ONSC 7580, employees owe their employers a general duty of good faith and loyalty (or fidelity) as an implied term of their employment contract. This duty includes working in the best interests of the employer, refraining from engaging in conduct harmful to the employer, and, in certain cases, reporting unethical or illegal activities within the organization. This fundamental principle influences when and why an employee may feel the need to report wrongdoing, emphasizing the expectation that employees contribute to a healthy and ethical organizational culture.

The Duty of Whistleblowing Depends on Context

Whether an employee is required to blow the whistle depends on the specific context.

For instance, an executive may be held to a higher standard compared to a clerk when it comes to reporting misconduct that is harmful to the company.

It also depends on the nature of the misconduct. In the RBC termination case, RBC’s policy clearly stated that any close personal relationship between colleagues must be disclosed, particularly when one individual has the power to influence the other’s promotion, compensation, or work conditions. The undisclosed personal relationship was not just unethical; it was potentially destructive to RBC’s decision-making process, as it created the appearance that promotions and financial rewards could be obtained through personal relationships rather than performance. Ignoring misconduct that undermines fair treatment, equal opportunity, and ethical standards can allow problems to persist, potentially harming RBC’s reputation and culture. In such a situation, it calls for a higher standard when determining the duty of whistleblowing, as the decision not to report unethical conduct can be just as damaging as the misconduct itself.

A Healthy System for Whistleblowing

Whistleblowers often step forward out of a sense of loyalty, particularly when the misconduct does not directly affect them. It often requires great courage to come forward, especially when wrongdoers hold positions of power, such as the CFO in the RBC case. Employers should establish a system that supports and protects whistleblowers.

Statutory Protections in the Public Sector

Although it is not mandatory for public servants to report wrongdoing, Canada’s public sector benefits from comprehensive legislative frameworks that encourage employees to do so. The Public Servants Disclosure Protection Act offers federal public employees the ability to report unethical behaviour with assurances against reprisal. It places a duty on federal public employers to conduct thorough investigations into any allegations and protect whistleblowers from retaliation. Similarly, Ontario provides analogous protections for employees working in the public domain.

Best Practices in the Private Sector

While private sector employers are not uniformly bound by the same statutory frameworks as the public sector, they should consider developing policies that not only align with legal expectations but also foster a culture of transparency and accountability. Implementing an effective whistleblowing system goes beyond regulatory compliance and demonstrates an organization’s commitment to ethical operations.

Prohibition against Reprisal

Like the legislation in the public sector, private employers should establish whistleblowing policies to protect employees who report wrongdoing.

Case law has confirmed that whistleblowers are protected from retaliation. In Bank of Nova Scotia v. Randhawa, 2018 FC 487, the Federal Court held that the termination was “tainted” because the escalation of disciplinary action was, in fact, reprisal for the employee’s whistleblower complaints. As a result, the bank was ordered to reinstate the employee and compensate her for over 3.5 years of lost wages.

Employers should clearly define what actions can be considered as retaliation, such as workplace harassment, unjust disciplinary measures, and termination.

Confidentiality is a crucial aspect of whistleblowing policies as it helps to safeguard whistleblowers from retaliation and alleviate their fears of reprisal. It is important to note that in some cases, investigations may necessitate revealing the whistleblower’s identity to the investigator. However, the investigator will not disclose this information to any third parties unless with the whistleblower’s consent or as required by law. Anonymity can also be an option in other cases, but employers must balance this with the potential limitations of the investigation.

Clear and Accessible Reporting Mechanisms

A strong whistleblower policy should be easily understood by all employees. It should outline the steps for reporting misconduct. Clear guidelines ensure that employees are aware of what can be reported, how to report it, and how the company will handle it.

Organizations should also create accessible reporting forums. These can be dedicated hotlines, secure online portals, or internal reporting systems. As mentioned above, policies should also reassure employees that the reporting will be confidential, regardless of the forum used.

Transparency and Impartial Investigations

Employees often avoid reporting misconduct due to concerns that their complaints will be ignored. Employers must foster a culture of transparency by showing a genuine commitment to addressing reports of wrongdoing.

For some cases, especially those involving high-level executives, appointing independent external investigators can ensure neutrality, maintain the integrity of the process, and assure employees that their concerns are handled fairly. In RBC’s case, the whistleblower triggered an investigation that involved external legal counsel, to avoid conflicts of interest and ensure objectivity. Independent assessments enhance credibility and demonstrate a commitment to fairness.

Also, involving legal counsel early in the process can help preserve the integrity of the investigation and ensure that any communications and reports generated are protected by legal privilege where applicable.

In addition to the investigation process, an effective whistleblowing system should also include provisions for taking action after an investigation. The policy should outline how investigations are conducted and ensure that those involved in misconduct are held accountable. Employees need to have confidence that their concerns will lead to appropriate corrective measures, whether that means disciplinary action or changes to prevent future issues. Transparency about the outcomes of investigations, when appropriate, can further bolster trust in the system.

The RBC case underscores the pivotal role that whistleblowers play in upholding corporate integrity and governance. It brings to light the complexities surrounding the duty of whistleblowing and the need for a supportive framework that encourages individuals to come forward with information about unethical conduct. Both public and private sectors can benefit from establishing a policy and system that not only protects but also values the courage of whistleblowers. By doing so, organizations can ensure that they operate not just within the bounds of legality but also within the realms of ethical responsibility, thereby safeguarding their reputation, culture, and ultimately, their success.