Human resources professionals may be asked to develop a “code of conduct” (a “Code”) for their organization. Codes are an expression of an organization’s values and they outline the behaviour expected of employees and others.

In recent years, the impetus toward developing Codes has been fuelled by corporate scandal and the regulatory response (e.g. the Sarbanes-Oxley Act). Codes of conduct have evolved into an element of good corporate governance.

Codes typically cover key principles of how an organization will conduct business, comply with legal requirements, provide a reporting process (“whistle-blowing”), conduct an investigation and enforce rules.

Codes can vary from simple statements of an organization’s values to omnibus documents designed to cover a broad array of workplace misconduct such as conflicts of interest, computer usage, financial controls and reporting, gift giving and receiving, business expenses, harassment and workplace violence.

Designing a Code for organizations that operate in more than one jurisdiction presents an additional challenge in that political systems, laws and culture vary and, as a result, what may be considered “right” behaviour in one jurisdiction may be considered unethical in another.

Separate and apart from any regulatory response to corporate scandals, federal and provincial statutes contain provisions affording protection to employees who provide information to law enforcement officials or assert a right regarding treatment in the workplace. Most provincial employment standards legislation and occupational health and safety statutes contain such a “provision”, as does the Canada Labour Code. These laws are constantly evolving, making it challenging to create a Code.

Given the myriad of laws governing workplace ethics and conduct, care must be taken not to create workplace standards that contradict legislation, or prescribe outcomes that are incompatible with applicable laws.

When an organization decides to have a Code, it must understand the applicable terms and conditions of employment, risks and liabilities associated with an organization’s unilateral imposition of new rules/policies, and risks associated with conducting investigations of alleged wrongdoing.

The employment relationship in Canada is based on contract law. All employees have a contract of employment consisting of express and implied terms and conditions. Union employees’ terms and conditions of employment are contained in a collective agreement. The only employment contract for union employees is the collective agreement. Accordingly, management’s right to introduce new rules, including a Code, in a unionized workplace is not absolute.

Different considerations apply when introducing a Code that will apply to non-union employees if it involves the implementation and enforcement of new policies by an employer. If a new Code/policy is unilaterally implemented by an employer, it may not be enforceable if there is a lack of consideration and acceptance, if it is unreasonable or contrary to law, or if it causes a repudiation of the employment contract (i.e. constructive dismissal).

Proponents of Codes may take heart from the 2009 decision of the Alberta Court of Appeal in Poliquin v. Devon Canada Corporation, 2009 ABCA 216. The employer dismissed Mr. Poliquin for cause following an investigation that determined that he had accepted free services from Devon Canada’s suppliers at his personal residence, and had used the company’s computer equipment and Internet access to view and transmit racist and pornographic material, contrary to corporate policies and the employer’s Code.

The Court found that the Code clearly formed part of Mr. Poliquin’s employment contract, and that the disciplinary decision must satisfy a test of proportionality.

The Court considered the essential conditions of the employment contract, whether the faith inherent in the employment relationship had been breached, and whether the misconduct was fundamentally inconsistent with the employee’s obligations to the employer. The Court concluded that the Code was an essential provision of Mr. Poliquin’s employment contract, and that his actions had not only violated the Code, but a common law duty of loyalty and faithful service he owed to his employer. The Court noted that employers have the right to set and enforce ethical standards, and if they fail to do so, are at risk that “ethical and professional boundaries will, by reason of … perceived tolerance … be more readily crossed … by others within the organization, or even perhaps outside it (like suppliers to a company)”.

The significance of other common features of Codes, specifically processes of investigation and enforcement, has been considered in wrongful dismissal cases in Ontario. In Poulos v. Toronto and Region Conservation for the Living City, [2009] O.J. No. 6066, the employer terminated Mr. Poulos’ employment for just cause because of his breach of the Code, specifically, workplace harassment. In failing to conduct a full and fair investigation of the harassment allegation, including a failure to interview the employee to obtain his version of events, the employer breached the employment contract, which incorporated the Code. The Court awarded damages for wrongful dismissal and mental distress caused by the employer’s flawed investigation of the Code violation.

In Fewer v. Toromont Industries Limited, [2009] O.J. No. 3383, the employer terminated the Plaintiff’s employment because of various activities that constituted a breach of the company’s Code. The Court found that the employee’s failure to comply with his obligations under the workplace Code was not, by itself, sufficient reason and justification for a dismissal for cause. Rather, the factual context had to be examined. In this instance, the Court found that there wasn’t a culture of strict adherence to the Code in the organization. Employees considered the Code “a guide, not as terms to be strictly applied without application of any discretion”. The judge considered it significant that, not unlike the Plaintiff, the company’s president did not follow the terms of the Code to the letter. The Court concluded that Mr. Fewer had been wrongfully dismissed.

Designing a Code for an organization inevitably prompts questions as to the necessity, utility and enforceability of such a policy. Assuming that implementing a Code is necessary, designing an appropriate Code tailored to the organization is possible. However, its utility and enforceability in a Canadian workplace context may depend on the organization’s success in: making the document part of the terms and conditions of employment/engagement of those to whom the Code will apply; designing rules and processes that are congruent with applicable laws in all of the jurisdiction(s) covered; informing employees of the Code’s terms; following appropriate processes of receiving and investigating allegations of Code violations; and enforcing the Code promptly and consistently.