Laws Requiring Employers to Conduct Code of Business Conduct and Ethics Training

Tuesday, November 1, 2011
Federal Sentencing Guidelines

The Federal Sentencing Guidelines are rules that set out a uniform sentencing policy for convicted defendants. They were amended in November of 2004 to include critical training requirements. The Guidelines now require employers to adopt comprehensive ethics and compliance programs, and to train everyone on the fundamental components of those programs.

The Guidelines make clear that employers can be held liable for their employees' illegal conduct. If employers take proactive steps to prevent unethical and illegal conduct through an effective ethics and compliance training program, employers can substantially mitigate potential fines and punishment for criminal violations. The Federal Sentencing Guidelines apply to all employers.

Federal Acquisition Regulations

Amendments to the Federal Acquisition Regulations (FAR) now affirmatively require most companies doing business directly or indirectly with the federal government to: (1) adopt a code of business ethics and conduct ("Code"), and (2) educate all employees on its provisions.

FAR regulations make clear that training must be periodic, and appropriate to each individual's duties; and it must go to all "principals and employees" and where appropriate, to all "agents and subcontractors."

FAR requires companies to have an anonymous internal "hotline" or other reporting mechanism. ?Companies must also provide for disciplinary action for improper conduct or for failing to take reasonable steps to prevent or detect improper conduct.

The December 2008 Amendments also create a new "self-reporting" obligation for contractors. Specifically, the new amendments require contractors to disclose in writing to the Office of Inspector General of the federal government whenever they have reasonable grounds to believe that a principal, employee, agent or subcontractor has violated the False Claims Act or other provisions of federal law relating to the award or performance of a government contract including fraud, conflict of interest, bribery or gratuity rules. FAR regulations apply to government contracts of at least $5,000,000, and which require at least 120 days to perform.


Section 406 of The Sarbanes-Oxley Act of 2002 (SOX) requires disclosure of whether a code of ethics has been adopted.

Expanding upon the Section 406 concept, the SEC approved new NYSE and NASDAQ Governance Standards. Both exchanges require a "Code of Business Conduct and Ethics" covering all employees, officers and directors. Each listed company must make its Code available to the public.

The NYSE requires CEO's to certify compliance with these listing standards on an annual basis. The NYSE requires more than a Code. It mandates compliance standards and procedures that will facilitate effective operation of the Code. These procedures are largely interpreted to include training and education.
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