Companies tweaking staff contracts to manage whistle-blowers

MUMBAI: If your employer is asking you to sign a ‘modified’ contract, read the fine print carefully. Many Indian companies are inserting secrecy clauses which industry trackers say could act as a deterrent for some employees to report company anomalies to government authorities. This, at a time when India is strengthening corporate governance standards, is happening under the guise of safety measures to protect trade secrets.

In this April, the Securities and Exchange Board of India asked listed companies to form a mechanism through which employees and directors can complaint about frauds, corruption, company’s code of conducts or ethical codes. But the new clauses being introduced by some companies may allow them to manage any whistle blowing.

If you have signed ‘protecting a trade secret’ contract, companies can keep you on a legal leash because the definition of trade secret changes contract to contract. “No one can directly put these modifications in black and white as it may attract a backlash from the government. But companies are finding ways, like making it mandatory to approach internal (whistle blowing) mechanisms first, or hiding behind the vague definition of trade secret or just stating that employees would abstain from doing anything that would harm the company,” an analyst at a professional services said.

So, how are these contracts supposed to work? The companies feel that employees wouldn’t risk breaking any contract they have signed. The fact that most whistleblowing cases reported internally are hushed up is one of industry’s worst kept secrets, say people in the know. In a recent case, an employee of a Pune-based manufacturer complained through the whistle-blowing mechanism that his senior had taken money from a vendor, but no action was taken in spite of an external agency getting involved. “Our investigations revealed that the senior employee was at fault. But the top managers told us not to look further in the matter and not name anyone else, neither was this (accused) employee sacked. It was quite surprising to us,” said a senior forensic official with a big four audit firm that investigated the case.

Companies could also be playing around with the scope of whistleblowing policies. According to a recent report by Grant Thornton, of the top 150 companies by market capitalisation in India, 85 per cent have some sort of internal whistleblowing mechanisms but very few allow employees to report issues related to bribery or corruption under these systems. Legal experts say while the term ‘trade secret’ can be vaguely defined by employers, the employees can still blow the whistle as companies cannot just define anything and everything as a trade secret under law.

“To prove that a company executive or official has revealed a trade secret, it is first necessary to prove that the revealed information was a business secret and the company treated it as secret. The information should have been clearly marked and protected as a secret,” said Poorvi Chothani, founder and managing partner of LawQuest, a law firm specialising in employment and immigration law.

The article appeared in the Economic Times. The article can be found here.