Part 4: Disclosures of information

Inquiry into certain allegations about Housing New Zealand Corporation.

4.1
The contractor's allegations and later disclosures of information were widely described in the news media as "whistle blowing". Before our inquiry began, there was considerable negative publicity about the non-disclosure clause in the settlement agreement, under which the contractor agreed not to communicate any of his concerns about the Corporation with any Ministers, members of Parliament, or news media.

4.2
Legislation on "whistle blowing" has existed since 2000 - it is called the Protected Disclosures Act 2000 (the Act). It was enacted to provide safe and appropriate channels for an employee1 to report concerns about serious wrongdoing in an entity, without fear of the employer retaliating.

4.3
Our terms of reference included examining the Corporation's policies and procedures for the Act, and whether the contractor was aware of them. The Act was also relevant to assessing whether the non-disclosure clause that formed part of the contractor's settlement agreement with the Corporation was appropriate.

4.4
In this Part, we:

The Protected Disclosures Act 2000

4.5
The Act describes its purpose (in section 5) as follows -

The purpose of this Act is to promote the public interest-

(a) by facilitating the disclosure and investigation of matters of serious wrongdoing in or by an organisation; and

(b) by protecting employees who, in accordance with this Act, make disclosures of information about serious wrongdoing in or by an organisation.

4.6
The Act establishes an escalating series of channels through which information may be disclosed. Internal procedures (if any) must be used first, with the alternative of disclosure to the "head or deputy head of the organisation". Thereafter, an unsatisfied employee may take the matter externally, first to an "appropriate authority"2 and after that to a Minister of the Crown or an Ombudsman.

4.7
Alternatively, the employee may have direct recourse to a higher authority if the matter is urgent or exceptional, or if the person to whom disclosure must be made internally "is or may be involved in the disclosure" or is related to, or associated with, any such person.

4.8
Under section 6, an employee may disclose information using these channels if -

(a) the information is about serious wrongdoing in or by that organisation; and

(b) the employee believes on reasonable grounds that the information is true or likely to be true; and

(c) the employee wishes to disclose the information so that the serious wrongdoing can be investigated; and

(d) the employee wishes the disclosure to be protected.

4.9
Knowledge of the Act is an important (and obvious) precondition to its use. Section 11 imposes a duty on every public sector organisation (which includes the Corporation) both to establish internal procedures for receiving and dealing with disclosures and to publish information about those procedures, and how to use them, "widely in the organisation and . at regular intervals".

The contractor's disclosure of concerns

4.10
We identified the following questions about the Act's application in this case:

  • Were there internal policies for making disclosures about serious wrongdoing, and were they adequate for this situation?
  • How recently had the internal policies been published within the Corporation, and was the contractor aware of them?
  • Could the matters of concern to the contractor have amounted to "serious wrongdoing" as defined in the Act?
  • Did the contractor use the channels prescribed by the Act or the Corporation's internal procedures? If not, did the Corporation recognise that the Act may have been available to him?
  • Did the Corporation follow its internal policy in investigating the contractor's concerns?
  • Was there evidence of retaliation against the contractor for making his disclosures?

The internal policy

4.11
The Corporation has a policy for dealing with protected disclosures. We reviewed the policy and found it appropriate. The policy states that -

The Corporation is committed to encouraging, assisting and protecting those staff who identify and disclose instances of serious wrongdoing either within the Corporation or wrongdoing which is being committed by the Corporation.

4.12
The term "staff" is not defined, but can reasonably be interpreted to include contractors who work in the Corporation's offices as well as employees.

4.13
The policy requires any staff member who believes, on reasonable grounds, that serious wrongdoing is being, or has been, committed in or by the Corporation to disclose their concerns in writing to their General Manager, with a copy to the GM Assurance Services. Those managers, together, are responsible for arranging "for the allegations to be appropriately investigated".

4.14
The policy also permits disclosure to:

  • the Chief Executive directly, although only if the circumstances in section 8 of the Act apply (that is, that there are no internal procedures, the General Manager is believed to be involved in the serious wrongdoing, or the General Manager is not the appropriate person to make the disclosure to); and
  • an "appropriate authority", a Minister, or an Ombudsman.

4.15
The policy says that "all investigations . must follow the principles of natural justice", and gives the following options-

  • Setting up an internal investigation (where financial misuse is alleged this is likely to involve an internal audit)
  • Setting up an independent enquiry; or, in some circumstances
  • Referring the matter to the police.

4.16
The General Manager to whom a disclosure is made must report the fact of the disclosure to the Chief Executive, keep them advised of progress, and report on the outcome at the appropriate time.

Publication and awareness of the internal policy

4.17
The contractor did not undergo the Corporation's formal induction programme, which included training on the policy underlying the Act. However, there is evidence that he was made aware of the Act, although not directly by the Corporation's staff, on more than one occasion.

4.18
It does not appear that the policy on protected disclosures is specifically circulated to staff on any regular basis, but its coverage in the induction process and its ongoing availability to staff through the intranet is consistent with the requirement in section 11 of the Act to disclose it at "regular intervals".

Application of the Protected Disclosures Act in this case

4.19
It is not possible to form a definitive view on whether the subject matter of the contractor's allegations amounted to "serious wrongdoing" in terms of the Act at the time they were made. Nor does it appear that the contractor consciously set out to use the Act when raising his concerns, or that the Corporation consciously treated the disclosure as having been made under the Act.

4.20
There is no case law on whether or how the Act applies in these circumstances. However, in our view, if the subject matter of an employee's concerns meets the test of "serious wrongdoing" and the employee follows the procedures prescribed by the Act (including the organisation's internal policies), then the disclosure should be treated as if it had been made under the Act.

4.21
Whether or not the parties consciously used or applied the Act in this case, it is clear to us that both the ultimate method of disclosure and the managerial response (including the method of investigation) were broadly consistent with the Corporation's internal policy. The evidence shows that the contractor initially raised his concerns with colleagues and line managers. When that did not produce a useful outcome for him, he raised them directly with the Chief Executive. This was not consistent with the policy, but the contractor's action of copying his e-mail to various other senior managers (including the responsible General Manager) was. The management response of referring the financial matters to the internal auditor was exactly consistent with the policy.

Retaliation

4.22
We reported in Part 2 that there was a lack of agreement about what happened between 18-19 July 2005 (when, according to Corporation staff, the contractor and his managers met to discuss the issues that had arisen between staff) and the contractor's departure on 8 August 2005. The managers we spoke to told us that the meeting was informal, and that it resulted in a suggestion to the contractor that he might wish to apologise to colleagues who had been offended by the way he raised his concerns.

4.23
The contractor disputes that a meeting took place. However, he told us that he believed he had been ordered to apologise or go.

4.24
The lack of a written record - which would have been good management practice - makes it impossible to know whether the meeting took place, or, if it did, whether there was simply no common understanding of what was said.

4.25
Whatever the case, we consider it unlikely that the contractor was subjected to retaliatory action, as the term is understood in the Act, for having raised his concerns.

Non-disclosure clauses

4.26
An employer is entitled to safeguard its reputation and the value (commercial or otherwise) of its information, which can easily be damaged by unauthorised or inappropriate disclosures of the employer's business or affairs. An employee has implied obligations of fidelity to, and trust and confidence in dealings with, their employer. The courts have been prepared to enforce those obligations, particularly in cases where an employer's commercial position is at risk.3

4.27
Accordingly, employment agreements routinely prohibit employees from disclosing the employer's information without proper authorisation. An employer may legitimately extend a prohibition beyond the employee's term of employment. The duty of fidelity also survives the ending of an employment relationship.

4.28
An employee in the public sector also has certain legal and ethical duties in handling official information and political neutrality. For example:

  • The Public Service Code of Conduct (the Code) says that -

    It is unacceptable for public servants to make unauthorised use or disclosure of information to which they have had official access. Whatever their motives, such employees betray the trust put in them, and undermine the relationship that should exist between Ministers and the Public Service.4

  • The Code applies only to the core public service, not to Crown entities such as the Corporation. However, this and other guidance in the Code could be used to inform approaches taken in the wider state sector - including any future codes of conduct for Crown entities5 - on this type of issue. We were informed by the Corporation that it has integrated the Code into a number of its human resources policies, and that the Code is available on its intranet.
  • The Official Information Act 1982 provides statutory processes for disclosing official information. However, under the Official Information Act, an employee must have delegated authority to disclose information on their employer's behalf. There are also criminal sanctions against the corrupt use or disclosure of official information6 by officials.7

4.29
An employee (or former employee) who has information about serious wrongdoing in an organisation may be considered to have an ethical duty to bring it to the attention of the organisation or its stakeholders. The Protected Disclosures Act is the means for an employee who wishes to act in good faith to disclose the wrongdoing. If the employee has other motives, or does not see the Act as a useful or appropriate mechanism for disclosure, they can pose risks for a public sector employer.

4.30
Indiscriminate or inappropriate disclosures can be highly damaging. The damage might occur, for example, if an employee discloses information about alleged wrongdoing directly to the news media rather than to an "appropriate authority", or to an Opposition MP rather than to the responsible Minister. The issue for an employer facing such risks is what steps it may legitimately take to address them without, at the same time, suppressing information (or opportunities to disclose information) that it may be in the legitimate interests of the organisation's stakeholders or the public to know about.

4.31
A public sector employer in this situation may be justified in restating to an employee the continuing nature of the employee's legal and ethical obligations. If circumstances justify it, the employer may also ask the employee to agree to extend the duty of confidentiality beyond the end of the employment relationship, in the form of a non-disclosure clause in a severance agreement.

4.32
However, a non-disclosure clause has limits. It cannot undermine the right of an employee, or a former employee, to disclose information under the Act. In other words, the parties to an employment relationship cannot "contract out" of the Act. Any non-disclosure clause must be regarded as subject to at least an implied term preserving the Act's application.

Using non-disclosure clauses when resolving employment disputes

4.33
Employees do sometimes become concerned about their employer's actions or practices. The employee may raise the concern with their employer or manager. How the employer responds - or is perceived by the employee to respond - to the disclosure can be crucial in determining the employee's future actions. If the employee does not feel that the concern has been addressed, they may decide to leave - or to stay and "live" with it. Alternatively, the employee may decide to raise the concern externally - whether by using the Act or some other means.

4.34
These situations can easily cause disaffection for either or both of the parties to the employment relationship. If the matter becomes a dispute, the Employment Relations Act 2000 encourages the parties to explore the possibility of resolution without litigation. If the relationship is beyond repair (as it often will be after a "whistle-blowing" episode), a severance agreement may be the end result.

4.35
Both parties will value their reputation in such a situation - when deciding to settle and when negotiating the terms of the agreement. Typically, an agreement will contain undertakings by the parties not to disclose the terms of the agreement to anyone else. Sometimes, the parties may also agree to a non-disclosure clause where they undertake not to say anything about each other publicly except what they have agreed to say (for example, in a prepared statement or media release).

4.36
We discussed these issues in our 2002 report on severance payments in the public sector. The report noted (at paragraph 2.38) that, although there may be good reasons for a severance agreement to contain a confidentiality clause, including protecting either or both parties' reputations, there are risks for both parties in binding themselves to secrecy. We urged public sector employers to include confidentiality clauses only when genuinely necessary, and in the interests of both parties.

4.37
Our report did not contain any specific guidance about non-disclosure clauses under which departing or former employees agree not to disclose anything about the employer's affairs after their departure. In the short time available to us to undertake this inquiry, we have consulted with Crown Law and the State Services Commission (which administers the Act) to consider what an acceptable approach might be to such clauses.

4.38
In our view, a public sector employer should take the same approach that our report took to the question of confidentiality clauses generally, by considering in each case:

  • what information-related interests it needs to protect in the circumstances - for example, the commercial or political sensitivity of information to which the departing employee has had access;
  • whether a non-disclosure clause of some kind is genuinely necessary to achieve that protection; and
  • how that protection can be achieved while, at the same time, ensuring that the employer's actions will receive the appropriate form of external scrutiny.

4.39
Finding the right balance will always be a matter for judgement in the particular circumstances of each case.

4.40
In summary:

  • An employer cannot contract out of the Act. Neither can it contract out of the Official Information Act 1982 nor any other means of public accountability8 through a non-disclosure clause applying to the terms of the agreement. Yet it would be good practice to make any non-disclosure or confidentiality clause subject to those matters. That is best achieved by a general condition stating that nothing in the non-disclosure clause prevents the parties making any disclosure of information permitted or required by law.
  • In appropriate cases, it will also be reasonable for an employer to place restrictions on employees or former employees disclosing confidential matters. An employer is entitled to take reasonable steps both to safeguard its reputation and to protect its information from indiscriminate disclosure. It is also entitled to rely on former employees continuing to observe relevant legal and ethical duties. However, any restriction on disclosure must not only be lawful, proportionate, and for a justifiable reason, but should also be subject to a condition of the kind set out in the previous point.
  • As with any other contract, an employer could not lawfully enforce a former employee's undertaking of confidentiality unless it gives consideration for it. Consideration need not be monetary - mutual undertakings would be sufficient to create a binding contract. Yet, as a matter of practice, severance agreements commonly involve some payment to the departing employee. In our view, in appropriate cases it is acceptable for a non-disclosure clause to be included in an agreement as one of several terms, and for the agreement to include payment by the employer to the employee. But the agreement should not be written in such a way that links (or gives the appearance of linking) the payment expressly, or solely, to the non-disclosure clause.

Applying this practice to non-employees

4.41
The circumstances in this case involved a contractor who was employed by a leasing company, not the Corporation. Employee leasing arrangements are commonly used in the public and private sectors. It is also common practice to engage some personnel under contracts for services rather than as employees. These people may spend time in the entity's workplace, mix with its employees, and have access to the entity's information on a similar basis as employees.

4.42
An entity needs to bear in mind that the duties of fidelity, trust, and integrity that are implied terms of every employment agreement may not necessarily be implied in an employee leasing contract or a contract for services. This may influence the approach that the entity takes in response to a dispute with the contractor. Subject to this, the practice outlined in paragraphs 4.38-4.40 should be followed to the extent it is applicable.

Our views on the non-disclosure clause

4.43
The non-disclosure clause was included in the agreement at the initiative of the contractor, not the Corporation.

4.44
We consider that the GM Assurance Services included the non-disclosure clause in the agreement out of his wish to secure the contractor's co-operation in moving the matter forward and enabling an orderly investigation. The GM Assurance Services was also aware of the contractor's repeated indications that he would approach the Minister of Housing or the news media if he was not satisfied that his allegations had been adequately investigated. The GM Assurance Services told us that he attempted to create a transparent process through the reference to the review being completed to the satisfaction of Ernst & Young.

4.45
We note that the contractor had been required by the leasing company to sign a confidentiality statement, which included a restriction on disclosing any information obtained by the contractor during his assignments. The non-disclosure clause in the settlement agreement reflected the substance of the contractor's existing contractual obligations.

4.46
The non-disclosure clause purported to prevent the contractor from raising his concerns with any Ministers. In this regard, it was inappropriate because it was inconsistent with the contractor's rights under the Act.

4.47
To the extent that the non-disclosure clause prohibited the contractor from approaching the news media or members of Parliament other than Ministers, it was not inconsistent with the Act, because the Act does not provide protection for employees who make disclosures in that manner. But the Corporation was concerned that the contractor would make indiscriminate disclosures of information. Given this, the GM Assurance Services was justified in seeking to manage those risks by including the prohibition in the agreement in response to the contractor's undertaking that he would no longer publicly discuss his concerns. However, it is likely that the clause would have been framed differently if the parties had been more conscious of the ongoing relevance of the Act.

4.48
The placement of the non-disclosure clause immediately after the reference to a payment of money to the contractor was unwise, because it created the basis for a perception that the payment was being made in return for the contractor's silence. Had that been the intention of the parties, it would have been highly inappropriate. However, we found no indication that either the contractor or the GM Assurance Services intended or understood that to be the case.

4.49
Overall, we agree with the public statements by the Minister of Housing and the Corporation's Chairperson that including the non-disclosure clause in the agreement was unwise. The form in which it appeared was inappropriate because it purported to close off avenues that would be available under the Act. However, we consider that there was some justification for a non-disclosure clause in some form. Had the clause been drafted in terms that preserved the right of the contractor to make any disclosure permitted by law, it would have been acceptable. Consultation with the Corporation's Human Resources team about the text of the agreement might have achieved this.

1: The Act defines "employee" to include a contractor. We use the term in the same sense in this Part.

2: The term "appropriate authority" covers a wide range of agencies including the Police, the Serious Fraud Office, the Chief Executive of a government department, the Controller and Auditor-General, and the State Services Commissioner.

3: Nedax Systems Ltd v Waterford Security Ltd [1994] 1 ERNZ 491 (WEC20/94).

4: State Services Commission, Public Service Code of Conduct , page 16.

5: See State Sector Act 1988, as amended in 2004, section 6(ha).

6: Crimes Act 1961, section 105A.

7: For the purposes of a Crown entity, "official" includes its members, office holders, and employees - Crown Entities Act 2004, section 135.

8: For example, scrutiny by a parliamentary select committee, or recourse to an Ombudsman or the Auditor-General.

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