Employee Conduct Code

1. Basic Rules of Conduct

Companies have a right to insist that their employees, including managers, engage in ethical decision making. To help achieve this goal, most businesses provide a written code of ethics or code of conduct for all employees to follow. Recall that at the company level, a code of conduct is an agreement all employees enter when they take on a new job, essentially stating that employees refrain from acting in a manner contrary to the employer’s interest. This assures that employees understand the rules and provides employers with enforceable rights against employees who violate them.

These cover a wide variety of topics, from workplace romance and sexual harassment to hiring and termination policies, client and customer entertainment, bribery and gifts, personal trading of company shares in any way that hints of acting on insider knowledge of the company’s fortunes, outside employment, and dozens of others. A typical code of conduct, regardless of the company or the industry, will also contain a variety of standard clauses, often blending legal compliance and ethical considerations.

Two areas that deserve special mention are cybersecurity and harassment. Recent news stories have highlighted the hacking of electronic tools such as computers and databases, and employees and managers can indirectly contribute to such data breaches through unauthorized web surfing, sloppy e-mail usage, and other careless actions. Large companies such as Equifax, LinkedIn, Sony, Facebook, and JP Morgan Chase have suffered the theft of customer information, leading to loss of consumer confidence; sometimes large fines have been levied on companies. Employees play a part in preventing such breaches by strictly following company guidelines about data privacy and confidentiality, the use and storage of passwords, and other safeguards that limit access to only authorized users.

We are also witnessing an increased level of public awareness about harassment in the workplace, particularly because of the #MeToo movement that followed revelations in 2017 and 2018 of years of sexual predation by powerful men in Hollywood and Washington, DC, as well as across workplaces of all kinds, including in sports and the arts. A victim of sexual harassment can be a man or a woman, transgender, and/or the same sex as the harasser. The harasser can be a supervisor, coworker, other employee, officer/director, intern, consultant, or nonemployee. Whatever the situation, harassing and threatening behavior is wrong (and sometimes criminal) and should always be reported.

hint

Most corporations make their code of conduct available online. You can review the codes of conduct for some reputable companies at the links below. You can also search for codes of ethics in your field, or for a company you would like to work for. At the end of the unit, you will analyze one of these codes of conduct, so if you see one you particularly like (or have issues with), bookmark it!

• 3M www.3m.com/3M/en_US/ethics-compliance/code/
• IBM www.ibm.com/partnerworld/program/code-of-conduct
• Berkshire Hathaway www.berkshirehathaway.com/govern/ethics.pdf
• Starbucks livingourvalues.starbucks.com/en-us/
• Society for Human Resource Management www.shrm.org/about-shrm/pages/code-of-ethics.aspx
• American Society of Association Executives www.asaecenter.org/about-us/policies/code-of-conduct
• The United Way s3.amazonaws.com/uww.assets/site/Code_of_Ethics_Guide2013.pdf
• American Red Cross www.redcross.org/content/dam/redcross/about-us/governance/Code-of-Business-Ethics-and-Conduct.pdf

2. Competition

The common law of most states holds as a general rule that, without asking for and receiving the employer’s consent, an employee cannot hold a second job if it would compete or conflict with the first job. Even without such a law, many fields have a non-compete clause, which states that employees cannot work simultaneously for a competitor, or even after they leave, for six months to a year.

Thus, although the precise boundaries of this aspect of the duty of loyalty are unclear, an employee who works in the graphic design department of a large advertising agency may not be able to work as a contractor for a competing advertising agency, but they may be able to work for a friend on the weekend in a web design business, since the two businesses don’t likely compete with each other. Employers often grant permission for employees to work in positions that do not compete or interfere with their principal jobs. The graphic designer might work for a friend’s catering business, for example, or perhaps as a wedding photographer or editor of a blog for a public interest community group.

What is clear is that it is wrong for employees to make work decisions primarily for their own personal gain, rather than doing what is in the employer’s best interest. An employee might have the authority to decide which other companies the employer will do business with, for example, such as service vendors that maintain the copiers or clean the offices. What if the employee-owned stock in one of those companies or had a relative who worked there? That gives them an incentive to encourage doing business with that particular company, whether it would be best for the employer or not.

However, some companies have begun requiring these agreements even from mid- and lower-level workers in an attempt to prevent them from changing jobs, including those who have no access to any confidential intellectual property. About 20% of the U.S. private-sector workforce, and about one in six people in jobs earning less than $40,000 a year, are now covered by non-compete agreements (FTC, 2023). The increased use of such agreements has left many employees feeling trapped by their limited mobility.

An ethical question arises regarding whether this practice is in the best interests of society and its workers, and some states are responding. California enacted a law in 2017 saying that most non-compete agreements are void, holding that although an employee may owe the employer a responsibility not to compete while employed, that duty ceases upon termination of employment. In other words, an employee does not “belong” to a company forever. In California, therefore, a non-compete arrangement that limits employment after leaving the employer is now unenforceable. Does this law reflect the approach that most states will now take? A California company may still legally prohibit its employees from moonlighting during the term of their employment, particularly for a competitor.

IN CONTEXT

After an investigation by then-New York attorney general Eric Schneiderman, fast-food franchisor Jimmy John’s announced in 2016 that it would not enforce non-compete agreements signed by low-wage employees that prohibited them from working at other sandwich shops, and it agreed to stop using the agreements in the future. Jimmy John’s non-compete agreement had prohibited all workers, regardless of position, from working during their employment and for two years after at any other business that sold “submarine, hero-type, deli-style, pita, and/or wrapped or rolled sandwiches” in a geographic area within two miles of any Jimmy John’s shop. Jimmy John’s has more than 2,500 franchises in forty-six states, so its agreement meant it would be difficult for a former worker to get a job in a sandwich shop in almost any big city in the United States.

Schneiderman said of the agreements, “They limit mobility and opportunity for vulnerable workers and bully them into staying with the threat of being sued.” Illinois Attorney General Lisa Madigan had also initiated action, filing a lawsuit that asked the court to strike down such clauses. “Preventing employees from seeking employment with a competitor is unfair to Illinois workers and bad for Illinois businesses,” Madigan said. “By locking low-wage workers into their jobs and prohibiting them from seeking better-paying jobs elsewhere, the companies have no reason to increase their wages or benefits."

think about it

Suppose an executive chef or vice president of marketing or operations at Jimmy John’s or any large sandwich franchise leaves the firm with knowledge of trade secrets and competitive strategies. Should he or she be compelled to wait a negotiated period of time before working for a competitor? Why or why not? What is fair to all parties when high-level managers possess unique, sensitive information about their former employer?

To be enforceable, non-compete agreements are usually limited by time and distance (i.e., they are in effect for a certain number of months or years and within a certain radius of the employer’s operations). Employers may also insert a non-solicitation clause, which protects a business from an employee who leaves for another job and then attempts to lure customers or former colleagues into following. Though these clauses have limitations, they can be effective tools to protect an employer’s interest in retaining its employees and customers. However, they are particularly difficult for employees to comply with in relatively closed markets.

terms to know

Non-Compete Clause

A clause in an employee agreement or code of conduct that states employees cannot work for a competitor while they are employed there, and usually for a limited time afterwards.

Non-Solicitation Clause

A clause in an employee agreement or code of conduct that states employees who do leave cannot solicit former clients or customers.

3. Confidentiality

In the competitive world of business, many employees encounter information in their day-to-day work that their employers reasonably expect they will keep confidential. Proprietary (private) information, the details of patents and copyrights, employee records and salary histories, and customer-related data are valued company assets that must remain in-house, not in the hands of competitors, trade publications, or the news media. Employers are well within their rights to expect employees to honor their duty of confidentiality and maintain the secrecy of such proprietary material. Sometimes the duty of confidentiality originates specifically from an employment contract, if there is one, and if not, the duty still exists in most situations under the common law of agency.

Most companies do not consider U.S. common law on confidentiality sufficient protection, so they often adopt employment agreements or contracts with employees that set forth the conditions of confidentiality. Typically, an employment agreement will list a variety of requirements. For example, although in most situations the law would already hold that the employer owns copyrightable works created by employees within the scope of their employment (known as “works for hire”), a contract usually also contains a specific clause stating that the company owns any and all such works and assigning ownership of them to the company. The agreement will also contain a patent assignment provision, stating that all inventions created within the scope of employment are owned by or assigned to the company.

U.S. companies have long used non-disclosure agreements as a way to provide another layer of confidentiality, ensuring that employees with access to sensitive information will not share the information with any outsiders. The stated purpose of such agreements is to protect the company’s intellectual property, which is the manifestation of original ideas protected by legal means, such as patent, copyright, or trademark.

Employers also want to protect their trade secrets—that is, information that has economic value because it is not generally known to the public and is kept secret by reasonable means. Trade secrets might include technical or design information, advertising and marketing plans, and research and development data that would be useful to competitors. Often, non-disclosure agreements are used to protect against the theft of all such information, most of which is normally protected only by the company’s requirement of secrecy, not by federal intellectual property law. Federal law generally protects registered trademarks (commercial identifications such as words, designs, logos, slogans, symbols, and trade dress, which is product appearance or packaging) and grants creators copyrights (to protect original literary and artistic expressions such as books, paintings, music, records, plays, movies, and software) and patents (to protect new and useful inventions and configurations of useful articles).

EXAMPLE

In the entertainment industry, non-disclosure agreements are often required for any level of work and may even be signed before candidates formally enter work, such as a job interview where the company’s upcoming projects are discussed. This is not just to prevent anyone “stealing” ideas in development but to control the way those projects are revealed to the public.

In some cases, you may not sign a non-disclosure agreement but will be expected to keep certain information confidential all the same. For example, new hires in key positions may be announced to staff but kept secret until the organization can issue a press release.

A final clause an employee might be required to sign is a non-disparagement clause, which prohibits defaming or deliberately running down the reputation of the former employer. There are specific legal exclusions to this rule regarding the disclosure of illegal activity by the company, which will be discussed in a subsequent tutorial.

hint

In the era of social media, it is important to understand the expectations of the company regarding public disparagement and err on the side of caution. Employees can be in violation of this clause and lose their job for what feels like harmless “rants” online about their annoyances at work.

terms to know

Non-Disclosure Clause

A clause in an employee agreement or code of conduct that employees will not divulge any sensitive information to outsiders. This may include trade secrets, future plans, or customer data.

Non-Disparagement Clause

A clause in an employee agreement or code of conduct that employees will not disparage the company in public or harm its reputation.

REFERENCES
Federal Trade Commission (2023, January 5). Non-Compete Clause Rulemaking. https://www.ftc.gov/legal-library/browse/federal-register-notices/non-compete-clause-rulemaking