In Short
- Codes of conduct can be legally binding if mandated by law or agreed upon in a contract.
- Voluntary codes offer flexibility but still require compliance if opted into.
- Breaching a code may result in penalties, making adherence crucial for businesses.
Tips for Businesses
Clearly understand which codes apply to your operations—whether mandatory or voluntary. Ensure compliance to avoid legal issues, especially if codes are part of contracts. Voluntary codes can enhance credibility but also carry obligations, so assess the implications before committing.
As a business owner, it is crucial to understand what a code (or codes) of conduct are. For instance, codes typically set the standard for relationships between various organisations. However, a code can also be mandatory or voluntary, depending on how you implement it in your organisation. This article will explore its implementation procedures and how a code can be legally binding.
Your business’ brand represents your values, identity and reputation. Learn how to create a successful brand and protect it.
What is a Code of Conduct?
A code is a set of rules, responsibilities, or standards that can apply across many organisation types. It can also set standards of conduct for relationships between such organisations, such as the relationship between industry participants and businesses.
Codes are helpful because they outline the minimum standards of conduct for the industry or organisation they cover. These practices often aim to:
- improve industry standards;
- support legal requirements; and
- guard against misconduct.
They can also apply to many organisation sizes, from multiple industries to subsets of employment groups in a business.
What is the Mandatory Code of Conduct?
Often, laws prescribe the regulations surrounding a mandatory code. Those following codes legally bind an industry or business that operates according to those laws.
Some examples of mandatory codes include:
- various codes under the Competition and Consumer Act 2010, which the Australian Competition and Consumer Commission (ACCC) regulates and enforces; and
- the Franchise Code of Conduct, which applies to all franchisors and franchisees.
Mandatory codes often address large-scale issues pertaining to a particular industry. For example, they can address power imbalances that exist during bargaining situations. They can also regulate behaviour to prevent or mitigate risk between the parties involved.
Example
Say you are applying to purchase a franchise from a large chain, perhaps a nationwide Pizza franchise, and you intend to lease the premises for your business from the franchisor (owner of the franchise). Under the Franchise Code of Conduct, the franchisor must supply you with either:
- a copy of the lease; or
- a copy of the agreement to lease.
If they do not, they will face a fine of $165,000.
Continue reading this article below the formWhat is the Voluntary Code of Conduct?
In contrast, laws or regulations do not typically prescribe voluntary codes. A business or organisation must ‘opt in’ to be bound by such codes. Often, to provide some incentive, joining a peak body or industry group will be required. These groups provide the business or organisation with a network of similar businesses. Moreover, it also may provide legitimacy to a business’s operations if customers know that your business is affiliated with this industry group.
However, just because a code is voluntary does not mean there are no ramifications if you fail to comply. If you opt-in to such a code for your business, you must perform and adhere to the regulations and standards that the code prescribes. You also may be subject to similar enforcement action as a mandatory code if your business is in breach.
When is a Code of Conduct Enforceable?
A mandatory code may be enforceable where your business is an entity that operates under specific regulations that prescribe a code. A voluntary code will be enforceable where you opt for the code for your business.
You may have multiple requirements prescribed by different parties or bodies. For example, if you are a takeaway food business, you may have to comply with:
- food health and safety codes;
- building codes;
- customer or consumer codes;
- advertising codes;
- individually prescribed codes by third-party suppliers; or
- the Franchise Code of Conduct (if you are a franchised business).
Operation of a Code of Conduct in a Contract
Voluntary or mandatory codes can be implemented in contracts. Often, they form a requirement of performance where parties agree to be bound by a code as part of the contractual relationship.
You will see these clauses where a party or business has specific standards and codes. You should pay particular attention to these codes, as a party may be able to use a breach of the code as a breach of a contract term. It would help if you were also considerate of the application of the code in conjunction with other prescribed codes and regulations.
Key Takeaways
You should know which codes or standards your business must comply with. Furthermore, failing to comply with a particular code may have significant implications for your business. Consider your contractual relationships with third parties to see if any internal codes apply to your business that only you and the third party would be aware of. If you need clarification on the particular codes that apply to your business, you should contact the industry bodies that are related to your business.
If you have queries about the legal implication or enforcement of specific codes, our experienced business lawyers can help as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
The primary difference is how the code will be enforceable on your business or organisation. A mandatory code will be binding as soon as you operate a business or organisation under a particular law or regulation. A voluntary code will only be binding once you opt into it.
A code can be implemented into a contract as an additional requirement for parties entering it. Acting in adherence to the code will be reflected as the performance of the contract, and non-adherence may be considered a breach of the contract.
We appreciate your feedback – your submission has been successfully received.
