German legislation and its impact on employees’ rights in internal investigations
September 2019 | EXPERT BRIEFING | LABOUR & EMPLOYMENT
In recent years, internal investigations have become common practice across continental Europe, and particularly in Germany. However, German legislation has not yet provided comprehensive and unanimous regulations. Currently, statutory provisions on internal investigations are stipulated inter alia in corporate, employment and criminal procedural law. These laws contain, in part, divergent requirements that, in practice, must sometimes be balanced in a very creative way. In cross-border internal investigations, the picture becomes even more complex, for instance with a view to attorneys’ documents and records being exempt from confiscation.
In Germany, internal investigations will gain new momentum in the future, while the potential for new conflicts will arise. Currently, a law is being prepared to establish a new procedural framework for imposing corporate sanctions. In parallel with this, a new sanction system is to be designed which will drastically increase sanctions to up to 10 percent of a company’s total turnover per offence. In this context, incentives for conducting internal investigations are to be provided.
Particularly with the latter, legislators face a balancing act between overregulation, in which case the use of the term ‘internal’ investigation would be rather inappropriate, and establishing legal certainty. The legislator must achieve a solution that encourages companies to effectively run their self-cleaning processes while simultaneously maintaining the companies’ freedom of choice.
The envisaged regulations to protect employees’ rights have the potential to conflict with the operational conduct of internal investigations and cooperation with investigating authorities, especially those from foreign jurisdictions. Companies are to receive cooperation credit, and thus reduced sanctions, only if they grant their employees privilege against self-incrimination in internal interviews. In the future, employees will be allowed to remain silent in response to any question, if the answer potentially exposes them or one of their relatives to the risk of criminal prosecution.
The defined political goal of strengthening employee protection suggests that this issue has been neglected in the past. However, the opposite is true. In recent years, a best practice in protecting employees’ rights has evolved that includes the aspects outlined below.
First, in internal interviews, the employee may – if requested – consult his or her own legal counsel. The expense may even be borne by the company. The employee is summoned for the interview well in advance so that he or she will be able to adequately prepare.
Second, the employee is informed about the subject matter of the internal investigation, as well as its context. He or she is informed about the fact that the attorneys conducting the interview represent the company and not the employee and that, therefore, they may be pursuing other interests.
Third, the employee is notified that notes will be taken by the attorneys and that, under certain circumstances, contents of the interview may be forwarded to German or foreign authorities. The employee’s legal counsel may be given the opportunity to inspect the notes.
Fourth, during the interview, the employee is treated altogether fairly. He or she must not be influenced in an unfair manner. The employee’s freedom to determine his or her own will must not be affected. No improper pressure may be brought to bear on the individual.
This best practice is a flexible means of considering the circumstances of the individual case. It is based on fundamental legal requirements to be met by the attorney as a member of the legal profession. In addition, it is a manifestation of the company’s duty to care for its employees. Finally, compliance makes fact-finding more effective. On the one hand, employees who are involved in the internal investigation, in observance of the aforementioned principles, often cooperate more confidently with the attorneys. On the other hand, they contribute to the company gaining more insights. For these reasons, and as statements made in such investigations may provide clear evidence, German public prosecutors are also increasingly interested in allowing employees to be assisted by their own legal counsel in internal interviews.
The envisaged regulations to protect employees’ rights restrict the scope of discretion, thus making internal investigations, in part, less flexible. To date, unlike in interrogations conducted by investigating authorities, employees have no right to refuse to provide any information in internal interviews. To the contrary, the employee is obliged to provide comprehensive information on the type and scope of his or her tasks and responsibilities, his or her sphere of work and any observations made in connection with his or her tasks and responsibilities.
The envisaged regulations which lead to conflicting interests between the employee in not having to incriminate him or herself and the company in fully investigating the facts unilaterally disadvantage the company’s interests. There is the risk that employees will rashly invoke their right to refuse to provide any information, making it difficult or even impossible for the company to obtain information. By its very nature, the information provided by employees working in the area or the immediate vicinity of the area where the violation of law occurred contributes substantially to clarifying the facts. It is, however, particularly these employees who are assumed to be most likely to incriminate themselves by providing information. However, the attorney conducting the interview is able to review the assessment of the employee only to a limited extent. In any event, the request to make a sworn statement about the reasons for withholding information, which is a means granted to judges under the German Code of Criminal Procedure as an efficient instrument for cases of doubt, is not available to the attorney.
The envisaged regulations to protect employees’ rights further places the company in a dilemma during cross-border investigations, for instance when the US Department of Justice (DOJ) has jurisdiction. Admittedly, the DOJ no longer goes as far as to grant full cooperation credit only where the company provides “complete factual information about the individuals involved” or “all relevant facts with respect to individuals”. As a consequence of the revised Corporate Enforcement Policy announced by deputy attorney general Rod Rosenstein in November 2018, it should be sufficient if the information relates to the “individuals substantially involved”. Furthermore, in measuring cooperative efforts, it should now also be taken into consideration that due to the non-cooperation of particular employees or due to legal circumstances, companies may be unable to clarify the facts in every detail. However, the prevailing requirements for receiving a cooperation credit are still very strict and at least compel the company to provide explanations. That is because the DOJ “will not simply accept a blanket assertion of non-disclosure. As in math class, we will want cooperating companies to show their work to explain the constraints they face and work with us to try to find solutions”. It may even be the case that a questioning by the DOJ itself will become necessary. German authorities also may, of course, conduct interrogations themselves, but to the disadvantage of the company, which, in this respect, cannot expect to receive cooperation credit.
Finally, it should be noted that the right to refuse to provide any information incorporating the privilege against self-incrimination is, in terms of concept, a right under the rules of criminal procedure that applies to individuals when governmental bodies and institutions are involved. In contrast, an internal investigation is a process conducted by attorneys on behalf of a company. In Germany the background is primarily the company’s obligation under corporate law to identify and analyse past compliance violations. The envisaged regulations to protect employees’ rights demonstrate the legislator’s willingness to bring internal investigations more closely in line with criminal procedural law.
Dr Sven H. Schneider is a partner and Dr Mathias Priewer is an associate at Hengeler Mueller. Dr Schneider can be contacted on +49 (0)69 17 095 143 or by email: email@example.com. Dr Priewer can be contacted on +49 (0)30 203 74 248 or by email: firstname.lastname@example.org.
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Dr Sven H. Schneider and Dr Mathias Priewer