Most major multinationals—particularly those based in the United States—have issued global codes of conduct spelling out baseline rules that apply across their worldwide operations. But these conduct codes vary substantially as to their purpose, content and focus. In fact, “code of conduct” is not even a term of art; it is just a broad label applied to a range of multinational and nongovernmental organization policies. The International Labour Organisation website used to say that “global codes of conduct do not have any authorized definition…[T]here is a great variance in the way these statements are drafted.” For that matter, many policies labeled “code of conduct” have little to do with employment relationships: There are antitrust compliance codes of conduct, environmental-protection codes of conduct and advisory codes of conduct on topics like intellectual property and computer programming. These non-employment-related codes, while vital, are only loosely connected to a multinational’s cross-border efforts at legal and ethical human resources compliance.
Our discussion focuses on global conduct codes in the international employment context. We begin by drawing the critical distinction between external supplier codes of conduct that protect the staff of a multinational’s suppliers from so-called “sweatshop” conditions, versus internal codes of conduct or ethics that impose compliance rules on a multinational’s in-house personnel worldwide. In a sense, these two types of conduct codes are actually opposites: External supplier codes seek to protect employees not on the code issuer’s payroll, while internal ethics codes seek to restrain a code issuer’s in-house staff. Sometimes a multinational tries to cobble these two very different documents together into a single text, but effectively merging them is hard because both the goals and intended audiences differ.
A multinational ready either to issue a new global code of conduct or to update an old one needs to take three steps: First, clarify which of the two types of conduct codes is necessary. Second, determine what the code should say. Third, implement the code across global operations. Accordingly, part 1 of our discussion distinguishes the two types of conduct codes with a focus on supplier (“sweatshop”) codes. Part 2 offers a checklist of topics to address when drafting an internal code of business conduct or ethics. Part 3 lists the steps to take when launching or implementing an internal code of business conduct or ethics.
Part 1: Distinguishing the Two Types of Codes of Conduct
Because external supplier codes of conduct differ substantially from internal codes of business conduct or ethics, any multinational employer contemplating a conduct code first needs to decide which of these two very different types of codes it needs—or whether it needs both.
External supplier (“sweatshop”) code of conduct
Global supplier or “sweatshop” codes of conduct first got traction in the 1990s when American human rights activists championed them as a weapon to fight perceived overseas labor abuses and to promote workers’ rights in the developing world. US labor union activists interested in job security for American workers— “protecting American jobs”—jumped on this bandwagon and promoted supplier codes, too. Then California passed a law effective since 2012, the Supply Chain Transparency Act, that required companies to confirm they are not complicit in human trafficking or slavery. More recently, the 2013 Rana Plaza factory collapse in Bangladesh actually reinvigorated the supplier code of conduct movement, even though a building collapse has nothing to do with labor standards and everything to do with real estate construction code standards.
Today, human rights activists and US organized labor continue to urge those multinationals that resell third-world-sourced product in rich first-world markets to impose supplier codes of conduct and to police the labor conditions of the overseas workers working for companies that sell goods to multinationals. (See W. Martucci, et al., “International Workers, Companies and Consumers,” Law360,
Aug. 19, 2013) That said, trade unions in developing countries tend to oppose overzealous American attempts to protect third world workers—too much protection threatens the jobs of the very workers ostensibly protected. (See Thomas Friedman, “Don’t Punish Africa,” N.Y. Times, Mar. 7, 2000)
The multinationals that issue robust supplier codes of conduct tend to be businesses that source low-cost manufactured product from the developing world—technology hardware marketers
like Apple and Samsung, athletic shoe companies like Nike and Adidas, mass-market retailers like Wal-Mart and Target, mid-market fashion marketers like Liz Claiborne and Donna Karan, sports equipment and toy makers like Mattel and Reebok. Some oil and mining companies and some global manufacturing conglomerates (General Electric, for example) also impose supplier codes. And supplier codes pop up in unexpected sectors, like the Starbucks “fair trade” sourcing protocols and New York University’s Statement of Labor Values (which made headlines in May 2014). But supplier codes of conduct are far from ubiquitous. They remain relatively rare in industries from food and restaurants to finance, professional services, industrial supply, business-to-business sectors and most all services industries. In fact, supplier codes
of conduct are not even much of an issue among high-end luxury goods brands that source product from rich countries.
Before drafting, updating or adopting any supplier “sweatshop” code of conduct, consider five issues:
External focus: Supplier codes of conduct are external, neither addressed to nor meant to protect the multinational issuer’s in-house staff on its own payroll. Rather, supplier codes protect workers on the payrolls of the multinationals’ unaffiliated suppliers. While some codes purport to reach both supplier employees and the multinational code issuer’s own staff, internal compliance rarely matters to anyone, because any multinational that goes to the trouble of issuing a supplier code thinks of itself as a conscientious employer not operating “sweatshops” of its own. Indeed, even the activists and labor unions that complain about foreign sweatshops rarely accuse multinationals themselves of shoddy labor practices in their own in-house operations (but there are a few exceptions, like discount retailers).
Poor-country focus: External supplier codes of conduct almost always purport to reach a multinational’s suppliers worldwide, across rich and poor countries alike. But as a practical matter, these codes only concern suppliers in the developing world. While labor abuses occur everywhere, no activist who decries sweatshops sees domestic labor abuses as a pressing
social issue in, say, Canada, Denmark or Japan. So while multinationals nominally extend their sweatshop codes to suppliers in rich countries, rich-country suppliers often ignore them. No one seems to complain.
Supplier code content: Supplier codes of conduct require the multinational’s sellers to meet whatever minimum labor protections the code spells out. The specific minimum labor standards covered differ widely from code to code. Some supplier codes focus on just a single issue or two—child labor,
slave labor or human trafficking, for example. But most supplier codes cover a range of potential workplace abuses, like these topics plus rest periods, bathroom breaks, anti-discrimination, health/safety, unionization, work hours, pay rates and payroll.
An emerging additional issue, especially in the Arab world, is recruitment fees and withholding immigrant workers’ passports.
Not surprisingly, when organized labor champions supplier codes, the most vital provision becomes the code clause on union organization (“right to organize”). Be strategic in addressing unionization within a supplier code. Consider merely committing to follow applicable labor unionization laws. Indeed, a conservative but viable approach to drafting an entire supplier conduct code is to anchor it in a commitment to follow applicable law without second-guessing local legislatures by adding too many additional rights.
While some supplier conduct codes list core labor protections specifically, others incorporate by reference model industry code templates, local employee-protection laws or International Labour Organisation (ILO) conventions. Many of the industries in which supplier conduct codes are common have issued sample codes—forms, models and examples setting out recommended content, or entire codes meant to be incorporated by reference. Be careful adopting some interest group’s or industry group’s model code; it may contain provisions unworkable in your operations. In particular, the too-common practice of incorporating ILO conventions into a global supplier conduct code can cause unintended consequences. ILO standards are a bad fit for a multinational’s supplier code of conduct because the ILO addresses its conventions to nation-states, not corporations. Just as no US domestic employee handbook would ever incorporate the US Constitution’s bill of rights, to incorporate ILO standards into a supplier conduct code misconstrues what ILO standards are meant to do. (In 2006, the ILO did issue a “Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy,” but this declaration merely offers broad suggestions and is directed only to multinationals, not to their overseas suppliers.) Incorporating the core ILO right to freedom of association opens the door to the argument that the multinational code issuer estopped itself and its suppliers from opposing union drives and resisting certain union initiatives worldwide. “Freedom of association” has widely divergent meanings around the world, and academic literature within the labor movement interprets the free association concept expansively. Never incorporate ILO standards, particularly not the “free association” right, into a supplier code of conduct without embracing the significant ramifications.
Implementation and monitoring: Multinationals usually impose supplier conduct codes as appendices to the supply contracts and sourcing agreements they enter into with the “business partners” around the world that sell them goods. This structure is a lot more awkward and a lot less effective than proponents of supplier conduct codes ever seem to admit. The lurking legal challenge here is privity of employment contract: Multinationals that buy product in arm’s-length
sales transactions from unaffiliated foreign sellers are mere customers in cross-border sales of goods transactions. In the normal course of business, a customer—especially one overseas—has little information about and zero say over the
seller’s internal terms and conditions of employment. Legally as opposed to economically, customers tend to be powerless to dictate and monitor day-to-day human resources conditions and operations inside the businesses that sell them goods. Indeed, in most all other contexts, business partners are careful to avoid setting terms and conditions of workers they do not employ, as a precaution against findings of co-/dual-/joint-employer liability.
Supplier codes of conduct try to change all this by usurping human resources powers from sellers and bestowing them on customers. But even a customer empowered to set a seller’s labor terms has a tough time establishing and then policing them. The Wall Street Journal has acknowledged “the difficulties Western companies sometimes face in assessing working conditions at the foreign plants that manufacture their products.” (M. Bustillo, “Sex Abuse Alleged at Apparel Maker,” 6/20/11) According to “an extensive investigation by The
New York Times,” many “Western companies’” supplier code of conduct “inspection systems intended to protect [suppliers’] workers and ensure manufacturing quality [are] riddled with flaws.” (S. Clifford, “Fast and Flawed Inspections of Factories Abroad, 9/1/13)
After a multinational customer drafts a supplier code of conduct and gets its overseas sellers to agree to it, then what happens? How does the customer (or its agents) access the foreign seller’s premises to monitor their work conditions? What does a customer do if it finds minor violations at a seller’s overseas factories that otherwise are better than industry standards, or if it finds violations that do not justify cutting the seller off? These questions get asked a lot, but there are no easy answers.
Supplier codes rarely ever—and certainly should never—require the multinational customer to monitor sellers’ code compliance. Some class action lawsuits filed in US courts, albeit almost uniformly unsuccessful ones, have sought to enforce supplier codes against multinational customers on behalf of overseas supplier factory workers by asserting a third-party-beneficiary theory, arguing the multinational failed to monitor. (See Doe v. Wal-Mart, 572 F. 3d 677 (9th Cir. 2009)) The best defense to these lawsuits is to be able to show the monitoring provision in the operative code was voluntary, not mandatory.
Service sector codes: Until now the supplier code of conduct movement has targeted institutional buyers of tangible goods, even though most all of the social, compliance, public relations and business-case arguments for supplier conduct codes apply equally powerfully to sellers of services. Will the next frontier be imposing supplier codes on outsourced call centers and other low-wage, back-office services operations from India to the Philippines and beyond?
Internal codes of business conduct or ethics
Moving beyond external supplier codes of conduct but keeping within the international human resources context, we confront the distinct phenomenon of internal codes of conduct, also called codes of ethics or codes of business conduct. These are human resources policies by which multinational headquarters of a global conglomerate imposes ethical and compliance standards on its
own staff across its worldwide network of subsidiary and affiliate workforces. Internal ethics codes impose detailed rules—lists of “thou shalt nots”—on the multinational’s own staff. The idea is that the internal code reins in employee misbehavior by prohibiting illegal, unethical and inappropriate acts. Unlike external supplier “sweatshop” codes, internal business ethics codes grant no affirmative rights to workers—to the contrary, they restrict and threaten to punish misbehaving staff.
Internal codes of ethics, unlike supplier conduct codes, do not trigger a privity of employment contract problem. But internal ethics codes present the separate challenge of a multinational headquarters trying to force a one-size-fits-all behavior code on employees who subscribe to local home-country values in places where the code standards might not be a natural fit. Global codes of ethics inevitably impose rules that seem perfectly logical back at headquarters but that, overseas, seem culturally inappropriate and may even be illegal.
The rest of our discussion addresses how to draft and implement an internal code of business conduct or ethics.
Part 2: Checklist of Topics for an Internal Code of Business Conduct or Ethics
When launching or updating an internal code of business conduct or ethics designed to impose compliance standards on staff across a multinational’s worldwide operations, the first question that gets asked is inevitably the question of code content: What should our code of ethics say? Which topics should we include? Which topics can we omit?
A Google search for “code of conduct” yields dozens of excellent sample internal ethics codes. The easy temptation in drafting one of these codes is just to copy somebody else’s document—or
at least to use someone else’s code as a first draft. Resist this temptation. The problem with cloning another organization’s code is that each multinational’s particular business operation spawns unique business needs. A code of business conduct should confine itself only to those topics the issuing organization really needs to regulate. Yet business needs differ widely from one multinational to the next. Needs of government contractors differ from needs of professional services organizations, which
differ from needs of manufacturers. The needs of a publicly-traded company differ from those of a privately held business, which
in turn differ from those of a nonprofit. Needs of businesses operating in the world’s business centers differ from needs of organizations serving the world’s trouble spots. Needs differ by business sector—an oil company’s needs differ from a bank’s. Needs also vary by headquarters country—a Japanese trading company drafting an internal code of ethics has very different priorities from a US-headquartered conglomerate.
A well-drafted internal code of ethics meets the issuing organization’s own business needs by tailoring a provision on each topic the code issuer needs to align across borders while omitting each topic the issuing organization can afford to leave out. Copying some other company’s ethics code (or adopting the code of some trade organization or advocate group) is dangerous because the model code was drafted by an outsider responding to the outsider’s own agenda. A code drafted by an outsider will inevitably omit necessary provisions and will contain superfluous provisions. For example, a global, privately held shipping company’s ethics code needs a human trafficking provision but does not need an insider trading clause. The opposite is true of
a publicly traded professional services firm.
When drafting an internal code of ethics, steer clear of provisions addressing everyday human resources topics best relegated to local HR policies, individual or collective
employment agreements, or employee handbooks. An internal ethics code differs fundamentally from an employee handbook, although there is some overlap. Employee handbooks generally address quotidian aspects of human resources that differ from country to country—topics best relegated to local employee communications, like employee benefits, dress code, smoking, office hours, performance evaluations, expense reimbursement, holidays, vacation, payroll and overtime. (See our Global HR Hot Topic of April 2014) By contrast, a well-drafted internal code of conduct or ethics addresses minimum baseline compliance standards that reach across borders.
To take an organic approach when drafting or revising a code of business conduct or ethics, use a topic-by-topic checklist to craft a bespoke code that meets your actual business needs without including anything superfluous. Consider the business case for each of the following topics commonly found in ethics codes, then tailor provisions on these topics to meet your specific business needs:
Introduction stating core values: Internal codes of business conduct or ethics usually open with a statement, typically from the president or chief executive officer, explaining the organization’s core values and reasons for imposing the code, sending the message “from the top” that code compliance is a vital business priority.
Statement of compliance philosophy: Any multinational that imposes a global code of ethics across its worldwide workforces does so both to impose its own policies and in an effort to comply with applicable laws. This raises the question of what laws in the global context are “applicable.” Drafters of global ethics codes too often forget that the overwhelming majority
of applicable laws are the local laws of the host countries where the multinational operates. Yes, certain “extraterritorial” (internationally applicable) laws of the multinational’s
headquarters country are often vital as well. Indeed, it is overseas compliance with the handful of US extraterritorial business laws reaching the overseas workplace (FCPA, SOX, Dodd-Frank, securities laws, international trade sanctions and “trading with the enemy” laws, employment discrimination laws and a few others) that pushes many American multinationals to implement ethics codes in the first place.
The code-drafting issue here is that multinationals too often get their compliance priorities backwards. Too many American- drafted codes focus so intently on compliance with less than a dozen US extraterritorial laws that they all but ignore the tens of thousands of local laws that apply across every overseas workplace. Avoid this mistake. Craft a global code that enforces not only the few vital headquarters extraterritorial laws,
but also the huge number of applicable overseas local laws.
A related mistake is for a global conduct code to instruct employees worldwide that they have to follow all American “state and federal” laws. That instruction is wrong. Only a few American laws reach extraterritorially and into workplaces
overseas. A code of conduct should never by its terms extend all American laws abroad.
One often-overlooked challenge as to applicable laws in a global code of ethics is explaining to overseas employee readers that headquarters-jurisdiction extraterritorial laws really do reach abroad. Without explaining extraterritoriality to overseas staff, foreign readers of a US multinational’s conduct code will doubt they really have to follow US laws—just as, for example, auto workers at Toyota’s plant in Georgetown, Kentucky and secretaries at Toyota’s regional headquarters in California inevitably assume their actions stateside lie beyond the reach of Japanese law.
In wording any compliance mandate in a code that addresses extraterritorial laws, be careful not to violate doctrines in some Eastern European and other countries that prohibit imposing foreign laws locally.
Discrimination/equal employment opportunity: Because prohibiting illegal discrimination across worldwide operations is a vital, legally mandated goal, US multinationals sometimes transplant their robust American anti-discrimination (“equal
employment opportunity”) provisions from their US handbooks straight into their global codes of ethics. But in drafting an ethics code, first deconstruct US-drafted discrimination rules, then rebuild them to account for the global context.
A key issue here is listing protected groups. While US discrimination laws focus on protected groups, some countries (Belgium and Chile, for example) actually impose a vague, all- but-chaotic obligation of total equality, prohibiting employers from singling out any group that a judge agrees to protect—
even a group not mentioned in applicable discrimination statutes. Another hurdle here is the problem that certain groups protected in the United States are not protected abroad (for example, veteran status, genetic makeup, workers compensation claimant status), while many countries outside the United States protect their own categories not protected stateside (for example, family status, traveler status, political opinion, caste). And age discrimination clauses in codes of conduct raise big problems in countries where multinationals
impose mandatory retirement, from the UK to India to Germany and beyond. (See our Global HR Hot Topic of September 2013)
The knee-jerk solution is to insert a catch-all clause in the ethics code discrimination provision’s listing of protected groups (“…or any other group protected by applicable law”).
But a catch-all clause may not be fully effective under the canon of construction by which included factors control over omitted ones (inclusio unis est exclusio alterius). One viable if less-than- ideal strategy is to omit mention of specific protected groups entirely, and simply prohibit all discrimination illegal under “applicable law.” (See our Global HR Hot Topic of August 2013)
Another issue when drafting a discrimination provision in a global code is accounting for the extraterritorial reach of US discrimination laws. US discrimination laws reach abroad only in the limited respect that they protect a tiny sub-set of most US multinationals’ overseas workforces: overseas-working US
citizens. Too many global conduct code discrimination provisions extend American-style discrimination protections to everyone abroad. This lets the “tail wag the dog.” (See our Global HR Hot Topic of August 2013)
Harassment: Harassment provisions lifted from US handbooks and dropped into international codes of conduct fall far short in jurisdictions like Brazil, Chile, Venezuela and much of Europe that impose a broad concept of “moral harassment,” “bullying,” “mobbing,” “psycho-social harassment” or “employee dignity” and “personality rights” (concepts that used to be known stateside as non-actionable “equal-opportunity harassment” and that US states have proven reluctant to regulate as “abusive work environment”). Too many US multinationals’ international harassment provisions persist in defining “harassment” narrowly, as unwelcome behavior based on
the victim’s membership in a protected class. This definition falls short in the growing number of overseas jurisdictions that legislatively protect employee dignity and prohibit abusive workplace behavior unlinked to protected-group status.
Global conduct codes that use the restrictive American-style harassment definition simply miss lots of behaviors illegal abroad that would be perfectly legal stateside. An effective harassment prohibition needs to be broad enough to prohibit
all actionable harassment. A broader definition of harassment is necessary in many jurisdictions. (See our Global HR Hot Topic of March 2013)
A separate problem is that US-drafted code of conduct harassment provisions tend to impose overly aggressive co-worker dating restrictions. In many countries, these provisions (even ones that merely require reporting a relationship to management) are offensive and all
Diversity: US multinationals sometimes include diversity provisions in their global codes of ethics, often lifted directly from the organization’s domestic US handbook or diversity program communications. But robust US-style diversity programs need radical reinvention outside the United States. Never include a diversity provision in a globally applicable code of conduct unless the international diversity program, goals and metrics have been tailored for the international environment. (See our Global HR Hot Topic of January 2013)
Conflicts of interests: Many global codes of conduct and ethics include provisions on employee conflicts of interest and prohibit, for example, contracting with relatives on behalf of the organization and hiring certain relatives and former government officials. These provisions also may address moonlighting—employee holding a side job or position on a board of directors at a competitor, supplier or customer. Craft a cross-border conflict of interest clause to be flexible enough
for regions like the Middle East and Latin America where family relationships play a vital part in everyday business.
Bribery and improper payments: Multinationals—particularly those that sell to or need licenses from foreign governments— must communicate, train on and enforce tough bribery and improper payments prohibitions, both because local laws around the world prohibit bribing local government officials
and because extraterritorial laws in the United States, the UK and Organisation for Economic Cooperation and Development (OECD) countries prohibit multinationals from making improper payments to foreign government officials. The
US extraterritorial bribery law, the Foreign Corrupt Practices Act, is an aggressively enforced statute that prohibits both bribes and deceptive accounting notations of improper payments. And the UK Bribery Act, in some respects tougher than the US FCPA, might reach bribery outside
the UK committed by US entities with UK offices. For these reasons a conduct code bribery provision is vital, unless the organization has a separate, freestanding bribery/improper payment policy. (See M. Swanton, “Combating Corruption: GCs Aim to Establish Global Ethics Codes,” InsideCounsel, Jan. 2011)
Business gifts to nongovernment contacts: US FCPA law prohibits improper payments only to overseas government and political officials. A growing trend is for conduct codes (and
even some countries’ local laws) to prohibit improper payments to nongovernment recipients. These prohibitions may reach payments made to nongovernmental customers and gifts received from nongovernmental suppliers.
A payment to procure business from a private company differs in important respects from a bribe or an improper payment to a government official or political party. Never improperly conflate these concepts. Think through any business gifts provision in a code of ethics.
The blunt, US-centric approach here is simply to have the code prohibit all business gifts worth more than some set nominal value. But cultural issues come into play: “[I]n Asia, gift giving is customary on the occasions of marriage and death. This
presents a tricky situation [where] company policy may [prohibit] gifts from customers, vendors or suppliers [while] refusal of such an offering may be interpreted as a hostile or insulting gesture.” (S. Hirschfeld, “Global Employee Handbooks Must Balance Compliance with Culture,” SHRM online, 11/18/13)
Money laundering/financing terrorism: Employers in the financial services sector need to impose “know your customer/ client” mandates and rules or code provisions on money laundering. Codes of ethics also commonly address compliance with the US executive orders and regulations meant to restrict terrorism financing—so-called “list-scrubbing” obligations that prohibit payments to and from named suspected terrorists (an issue particularly acute for nonprofits).
Trade sanctions and embargo/anti-boycott: Extraterritorial US trade laws embargo or boycott (prohibit doing business in) black-listed countries. US law also prohibits complying with the Arab boycott of Israel. US multinationals often impose code of
conduct provisions that address compliance with these US trade laws. But some jurisdictions, particularly in Eastern Europe, prohibit multinationals from requiring locals to follow foreign laws; code provisions that strictly require following US trade laws can cause problems in these jurisdictions. The text of any trade provision in an ethics code needs to be nuanced enough to account for this.
And overseas jurisdictions impose their own trade sanctions. Never draft a cross-border trade sanctions clause cognizant only of US trade law.
Antitrust/competition, non-collusion and trade practices: Global codes of conduct often instruct employees not to commit basic antitrust violations like collusion and price fixing. Codes often tell employees where to find further guidance on these matters. Antitrust laws differ from country to country, and so these code provisions must take a broad view.
Insider trading: Publicly traded multinationals need global rules or code provisions that ban insider trading in the company’s own stock. And professional services firms that offer their employees access to inside information about publicly traded clients need to impose tough client insider trading restrictions.
Audit/accounting fraud, SOX and Dodd-Frank: Sarbanes- Oxley–regulated multinationals are subject to audit/accounting rules that reach company operations worldwide. Conduct codes often impose global SOX and Dodd-Frank accounting and compliance standards that explain why compliance is vital. Indeed, as a best practice even certain non-SOX-regulated multinationals insert audit/accounting provisions into their codes. Again, though, some jurisdictions, such as in Eastern Europe, prohibit imposing foreign laws locally; code text needs to account for this.
US federal sentencing guidelines: Violations of some US laws with extraterritorial effect can lead to US criminal liability and convictions. Multinationals should therefore draft global codes of conduct cognizant of the US federal sentencing guidelines that offer credit for certain human resources policies meant to curtail illegal conduct. Of course, codes of conduct do not mention
US federal sentencing guidelines explicitly; the drafting issue is imposing human resources rules and punishments robust enough to earn sentencing credit.
Data privacy/processing: Data protection laws in the European Union, Argentina, Canada, Hong Kong, Israel, Japan, Mexico, Peru, Philippines, Uruguay and beyond impose tough rules on multinationals that run global human resources information systems. Multinational compliance initiatives should impose guidelines or rules on employees who “process” personal data such as employee, supplier and customer data. International conduct codes often (but not always) set out data privacy
rules. Some organizations, though, handle data law compliance outside the code. (See our Global HR Hot Topic of May 2007)
Monitoring communications and reserving right to search: A best practice for a US domestic employee handbook is to defeat employees’ “expectations of privacy” in employer-provided communications systems. US handbooks expressly reserve the employer’s right to monitor employee emails, handheld devices, telephone calls and the like. Some US employers also reserve
a right to search offices, desks, lockers—even lunch boxes. Additional monitoring issues come up in the BYOD (bring your own device) context, and as to drug testing.
American employers that draft global codes of conduct and ethics want to extend their American-style right-to-monitor/ search provisions globally. The challenge is that in many jurisdictions these provisions are not, themselves, very effective. The American approach of using an employee communication to defeat expectations of privacy falls short in many countries.
There is no “magic bullet” here, no single clause with which a code of conduct can confer on a multinational power to
search employees worldwide however it wants. An employee- monitoring provision in a global conduct code needs careful structuring to account for the employer’s needs and for restrictions in the jurisdictions at issue. The multinational
must understand that its search clause is just a starting point, not an end point, in the legal analysis of whether and when
it can electronically monitor or search overseas employees. Regardless of what employer monitoring rights a global code of conduct purports to reserve, employers in many jurisdictions will need legal advice before invoking purportedly reserved
monitoring rights. Before monitoring overseas, understand how employer monitoring plays out in each relevant jurisdiction.
Environmental protection: Some global ethics codes require employees to comply with local environmental laws, and some codes require compliance with the most protective of local environmental law, US law or global environmental standards. Obviously environmental clauses are vital in industries like manufacturing, oil and mining, but are mostly irrelevant in service industries.
Intellectual property: Some global codes of conduct contain intellectual property provisions that instruct employees to respect others’ copyrights, such as in photocopying, copying software, or emailing copyrighted materials.
Restrictive covenants and trade secrets: Some global conduct codes purport to impose on worldwide workforces restrictive- covenant-like prohibitions—confidentiality, post-termination non- compete and non-solicitation of employees and customers. But for the most part, a code of conduct is the wrong medium to impose these restrictions. Remember that ethics codes do not bind ex-employees. Restrictive-covenant-like rules are best built into employment contracts. Enforceability standards for these covenants differ widely by country; many countries require
extra consideration paid after separation, which makes a one- size-fits-all global approach to restrictive covenants infeasible. (See our Global HR Hot Topics of June and July 2012) It often makes sense to omit entirely from a code of conduct restrictive covenant topics (at least beyond a confidentiality clause),
other than perhaps a short statement in the code declaring the employer’s commitment to enforce any employee-signed covenants.
Workplace safety and pandemic response: Most every country imposes detailed workplace safety laws broadly analogous to US OSHA. A global code of conduct cannot replicate every jurisdiction’s safety rules, but many conduct codes contain provisions requiring compliance with applicable safety rules and imposing accident reporting procedures. Some multinationals impose detailed global safety frameworks and crisis response protocols that address, for example, pandemic or
disaster response and “cardinal safety rules”—but usually these appear separate from the conduct codes in a freestanding global safety policy. (See our Global HR Hot Topic of June 2011)
Another safety issue is on-premises possession of guns and weapons. This may be less of an issue outside the United States, perhaps more appropriately relegated to domestic US employee handbooks.
A related issue is duty of care—protecting business travelers and expatriates. This is a vital issue, but one that does not usually merit coverage in a global conduct code. (See our Global HR Hot Topic of March 2011)
Drugs and alcohol: While the recent trend of US states legalizing marijuana may change things, for years US domestic employers have been inclined toward a “zero- tolerance” approach to drugs and alcohol in the workplace, refusing to hire applicants who test positive even where
positive test results offer no evidence of work-time impairment. US domestic employers even occasionally fire good performers whose drug test results demonstrate only off-hours drug use. And countless US employers have fired staff caught drinking on the job, even while still sober.
Outside the United States and Canada, on-job alcohol use
is less of an evil and workplace drug testing is often virtually impossible. Zero-tolerance workplace alcohol policies outside the United States are impractical and come across as puritanical; in countries like Germany and Mexico, company cafeterias and vending machines serve beer and wine, and alcohol can be ubiquitous at business lunches and company parties. Further, some drugs that remain illegal in much of the United States are legal elsewhere and so are all but impossible for employers to prohibit using off-hours. A zero-tolerance cannabis policy, for example, makes little sense in the Netherlands where menus in the ubiquitous “coffeehouses” openly offer varieties of hash and marijuana across a range of price points. Dismissal for off-hours drug use abroad would not amount to good cause, even if an ethics code tried to maintain otherwise. See our
Global HR Hot Topic of February 2013)
Rethink any US domestic zero-tolerance drug/alcohol policy for the global context. Do a reality check by running a draft of a proposed drugs and alcohol conduct code provision past overseas local human resources overseas.
Labor rights: Some internal ethics codes of business conduct contain clauses on labor rights, ILO standards and freedom of association, although (as addressed in our discussion of supplier codes) these provisions are often a bigger issue in “sweatshop” codes. In an ethics code just as in a supplier code, beware
of adopting a free-association clause or any provision that incorporates ILO standards.
Child labor, human trafficking and slavery: Codes of ethics in industries where child labor, human trafficking and slavery (forced and prison labor) are a risk, like shipping, fishing and mining, might contain clauses on these topics. But otherwise, child labor, human trafficking and slavery may be too remote to merit a mention in many employers’ internal ethics codes. An
internal code should not address a topic just to “touch the base” if that topic looks silly in context. A child labor, human trafficking and slavery provision might look silly in the internal code of ethics of, for example, a financial services or professional services firm or a media sector business.
Media contact and social media: Multinationals are constantly subjects of stories in the business press, and employees might get contacted by professional reporters. But that scenario is remote compared to the much bigger issue of social media— employees tweeting and posting comments about the employer organization. For these reasons, global codes of conduct often contain provisions instructing employees on press relations, fielding media inquiries—and social media. Fortunately, the
US domestic labor law doctrine of “protected concerted activity” and social media policies tends not to be an issue abroad, not even in Canada. (See “NLRB and Social Media” page at www.nlrb.gov) Therefore, social media provisions in global codes need not account for this uniquely US-domestic issue, except to the extent the code applies domestically in the United States.
Compliance, cooperation and investigations: Some internal codes of conduct impose provisions that require employees to follow both the code and all company rules set out elsewhere (such as in the employer’s local human resources polices, handbooks, intranet, reimbursement procedures, clocking-in rules, safety protocols and the like). Separately, some codes purport to impose mandatory reporting rules that ostensibly require staff who find out about co-worker wrongdoing to denounce their fellows. Be careful with these clauses—they are not strictly enforceable in many jurisdictions. Indeed, including
a mandatory reporting clause sometimes can be grounds for a foreign court to invalidate a unilaterally implemented code of conduct. (See Wal-Mart, Wuppertal Labor Court, 5th Div., 5 BV 20/05 (June 15, 2005) (Germany))
Also, some ethics codes affirmatively require employees to cooperate in internal investigations. These cooperation clauses seem unobjectionable to Americans, but in many countries they may be unenforceable as improperly implemented mandatory reporting clauses. (Forcing a reluctant employee witness to cooperate in an investigation amounts to a mandatory reporting obligation.) Local laws overseas may not support discipline imposed for non-cooperation in an investigation, even where the code expressly purports to require cooperation. (See our Global HR Hot Topic of April 2013)
Sanctions clauses: Many US-drafted internal codes of conduct contain clauses exposing employees who violate the code to discipline up to discharge. Outside the United States, though, for an employer simply to declare that certain acts will be subject to punishment or discharge does not necessarily make it so. Local laws on good-cause discipline may prohibit employer sanctions even for blatant violations of rules clearly set out in an ethics code. (See our Global HR Hot Topic of February 2013) For example, a mandatory reporting clause in
a code of conduct may purport to force employee witnesses to denounce their co-workers who break rules, but local law in many jurisdictions will not support discipline for failing to blow the whistle, even if this failure violates an express reporting mandate. Also, in jurisdictions from the UK to France and beyond, locally mandated disciplinary procedures often
trump a discipline clause in a global conduct code.
In drafting any global conduct code sanctions clause, factor in the rules that regulate employer discipline outside
Complaint system/whistleblowing hotlines: Sarbanes- Oxley requires imposing “anonymous” whistleblower hotline “procedures,” and Dodd-Frank implicitly encourages company
whistleblower hotlines to the extent that the Dodd-Frank bounty program might lure whistleblowers over to the US SEC. These days even many non-SOX-regulated multinationals impose global reporting procedures, outsourcing hotlines to outside providers. But workplace whistleblower hotlines are
heavily regulated in the European Union and increasingly elsewhere. (See our Global HR Hot Topic of December 2011 and January 2012) Any global code of conduct provision that addresses reporting procedures and that describes a whistleblowing hotline needs careful strategy. Treat the launch of an international whistleblower hotline as separate from the launch of a global code of conduct.
Acknowledgment: Many global codes of business conduct end with an acknowledgement page for employees to
sign, agreeing to follow the code. But signed employee acknowledgements outside the United States raise a number of logistical problems. Acknowledgments overseas can actually backfire, offering ammunition to non-signers who violate the code. Carefully consider any acknowledgement provision. (See our Global HR Hot Topic of August 2014)
Part 3: How to Implement a Global Code of Business Conduct or Ethics
After crafting the text of a global code of ethics or business conduct, the next step is to pave a path for launching the code—a way to impose the code so that it sticks, requiring overseas employees actually to comply or be subject to discipline. An international code of business conduct or ethics is supposed
to be a set of human resources policies that subject violators to discipline, so multinationals need to implement their codes
without violating local-law restrictions against unilaterally imposing new work rules.
Launching any global code of business conduct or ethics (or a new version) requires a two-stage approach. Stage one is simply drafting code text, as just discussed. This is usually the easier stage because it gets done at headquarters by one person
or a small team. Stage two, usually the more complex stage, is launching the code effectively across all relevant overseas jurisdictions. This second stage is complex because it involves not only headquarters, but also foreign local human resources,
overseas employee populations, foreign labor representatives and sometimes overseas labor agencies and labor courts. In launching an internal code of business conduct or ethics internationally, account for nine steps and issues:
Number of versions
Communication, distribution and acknowledgement