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Business law: codes, policies and standards

Codes of practice have been growing over many years in the Australian legal environment for business.

Though useful, they can be a problematic development in the context of legal tradition dominated as it is by two sources of law. These are of course common law (ie court decisions) and statutory law (eg Acts and regulations made by parliament).

These two great rivers of law now meet a flooded delta. The delta is flooded by numerous thin tributaries, legal and non-legal instruments bearing keywords in their titles such as code, policy, standard or even technical protocol. This post examines the flood.

Recent developments in business law

The growth of the tributaries started to escalate perhaps 20 years ago. This is only a recent development given the 1,000 year history of Anglo-Australian law

As I was graduating from law school in the early 1980s there were debates in legal literature about whether or not it was a good thing that more and more legislation had separate explanatory notes or statements. These notes are now common, they are often almost speeches by a minister overviewing proposed new law.

The thread of debate, at least in my post-graduation readings, then shifted to what on Earth are we business lawyers going to do about the snowballing group of codes being introduced, sometime by parliaments and other times by government or industry bodies. Where do they sit against common and statutory law the writers wondered? How can we maintain coherence between them and the two traditional sources of law? Disappointingly I've found little substantive discussion of these questions about codes, policies and standards. For example there is no reference to the words "code", "policy" or "standard" in the senses discussed in this post in the 58 page New South Wales Parliamentary Counsel's Office Manual for the Preparation of Legislation.

Research for this post was prompted by the introduction of the new Insurance Code of Practice. There are innumerable codes in operation in business today. Some other codes of practice which I've read include:

  • Content Code of Practice (pursuant to the Broadcasting Services Act 1992 (Cth))
  • Spam Code of Practice (of the Internet Industries Association)
  • Code of Conduct of Copyright Collecting Societies
  • Australia New Zealand Food Standards Code

Interpretation of the legal status of a code, policy or standard requires care. Here are brief summaries of three factors which make such legal interpretation a job for those with experience, not novices.

  • MANDATORY OR NON-MANDATORY First, some codes are mandatory, ie legally binding, while others are not.  The Franchising Code of Conduct,  is a mandatory code, it is mandated under the Trade Practices Act 1974 (Cth) and can be enforced by the Australian Competition and Consumer Commission. The non-mandatory codes are sometimes called "industry codes".  Often they are published by an industry association and accepted by its members, eg the Bankers Association Code of Banking Practice and the Internet Industry Code of Practice.
  • CONFUSING TITLES Second, certain keywords in the titles of instruments can connote legal relevance to untrained readers, yet there may be no legal status. I've had clients who have read the words "code", "policy", "standard" and "protocol" and thought of law. I've had cases of clients who have laboured for years under the false belief that some policies relevant to their  work and organisation have legal standing when on examination our advice has been that they don't. The problem of titles also appears in legislation when an instrument of statutory law is called a "code" and not an "Act" or a "Regulation". For example there is the Criminal Code.
  • REFERENCE TO NON-MANDATORY CODES IN LITIGATION It gets more complex. Third, even a code which has no legally binding status can come to bite because of the way things work, especially in court in commercial litigation. Assume you are in a case where there is no clear beach by you of a contract, legal right or obligation, legislation or case law cited against you. You may still find yourself on the defence if a non-mandatory code is referenced in evidence from an expert witness, with the consequence that it may sway a judge. Hence there is a place for compliance even with non-mandatory industry codes.

Given these messy circumstances, the bottom line conclusion is that to align law with codes, policies and standards a case by case application of legal principles and advice is necessary.

When law meets policy take care it's not in a killing field

Misunderstandings or ignorance about the legal status of business policies has become a killing field in business law litigation. In many areas of the law a breach of a policy has few legal consequences. Yet in some areas of the law, eg employment law, breaches of a company policy (ie adopted by a company for mandatory application to its employees) have often been found to be very significant when claims are made by employees.

There is a steady stream of cases nowadays in employment law where the employer has operated on the assumption that all that mattered was a formal signed contract of employment, not a conflicting company policy.

If nothing else I hope I've been clear that coherence is important when law is involved. There are other hidden traps where law and policy meet. An example arrived on my desk this week involving NCR Australia and a sacked employee, Mr Richard Budlong, aged 56.

NCR Australia's code of conduct was centre stage before the NSW Industrial Relations Commission this week. Back in 2005 NCR had dismissed an employee of 31 years standing on the basis that he had viewed and stored 175 pornographic images on his work laptop, including images portraying acts of bestiality. NCR contended it had a "zero tolerance policy" to accessing pornography. Mr Budlong responded that in his NCR workplace there was a prevailing culture of tolerance towards such images. The Commission found that Mr Budlong was under a contract of employment and that NCR had a code of conduct. However the Commission reinstated Mr Budlong noting that the annual signing off of employees on NCR's code of conduct involved "a degree of mechanical, unthinking routine". This result underlines a lesson often given by judges. It is a lesson about doing things in substance not just in form. In other words if your organisation has a code or a policy then abide by it as you would with a law, provide proper training, and take it seriously. Otherwise it won't be legally enforced.

Four benefits of being proactive in obtaining practical legal advice

Rather than allow a barrister, commissioner or judge to determine the legal status of your policies after the fact, it is better and more economical to draft them and apply them to clearly and expressly indicate their intended status in law. Being proactive in obtaining legal advice for codes, policies, standards and protocols helps:

  • make better business decisions;
  • minimises aggravation, employee complaints, misunderstandings, disputes, litigation and bad publicity;
  • conduct improved risk management;
  • add certainty for the life and continued good health of an enterprise to which a code, policy or standard may be relevant.

Four practical steps to test your existing situation

Given the complexity of the situation, test any code, policy, standard or protocol that may be relevant to your business, company or organisation - by applying these four steps:

  • promptly examine and determine its legal status. Otherwise you will fly blind with it in the legal environment of business and this never helps, especially in disputes and litigation;
  • ask whether it is legally mandatory or non-mandatory;
  • at all times determine its precise legal status, seek legal advice when needed; and
  • take steps to integrate your legal documents with your management documents, recognising that there is an overlap between them which needs management

Our work includes preparing policy and procedure documents

In our practice the observations in this post have involved us a variety of work for clients. For example, we prepare policy and procedure documents for, among others, company employees, those who wish to apply a privacy policy for customers, intellectual property commercialisation companies, obtaining IP permissions, and companies seeking to comply with the Trade Practices Act 1974 (Cth) and the Franchising Code.

More and more  codes, policies and standards and self-regulatory or semi-legal mechanisms are being introduced into the Australian environment for business. While they meet contemporary needs they add complexity that can and must be managed to maintain coherence in your organisation's legal environment.

 


Further reading - business law theory and frameworks series


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