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Record retention is complex and time consuming. However, in addition to complying with various federal and state laws, keeping good, well-organized records can be very helpful in documenting and supporting an organization’s employment actions.
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2. Employment Relationships
3. Termination Records
4. Litigation Issues
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6. Tips for Better Recordkeeping
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November 11, 2004
Does Your Ethics Program Meet the New Federal Rules? (Part 2)

Legal Editor, Business and Legal Reports

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(Editor's note: This is the second article in a two-part series on new rules in the Federal Sentencing Guidelines that concern employee ethics. Read the first article here.)

It takes only one employee, or even an agent of your company, to commit a crime, and your entire company may be held liable. With liability, your company face very large fines, a 5-year probationary period, recompense for the victim of the crime, and more.

There is good news, though. You can reduce your organization’s fines by showing that you have established an effective compliance and ethics program in your company. To do this, you must train your employees at all levels, and your agents, on ethics.

Training is a required element of an effective ethics program

Beginning November 1, 2004, under the amended Federal Sentencing Guidelines, organizations that wish to reduce potential fines imposed for the criminal activities of their employees must show that they have an effective compliance and ethics program—and ethics training is now a required element of an effective program. The Federal Sentencing Commission has stated that a company with an effective program may reduce its fines by up to 90 percent.

Who must be trained?

According to the amended Federal Sentencing Guidelines, the following individuals must be trained:

  • Members of the organization’s governing body

  • High-level personnel

  • Personnel with substantial authority

  • Employees

  • Agents

How often must training occur?

The amended Guidelines state that training must occur “periodically.” One-time training does not meet the federal requirements. To ensure the continual improvement of employees’ ethics skills and knowledge over time, it may be best to use a multi-year program in which a rotation of supplemental issues are emphasized in addition to the core training issues, different mediums are utilized (video, online training, instruction in a classroom environment), and new legal developments are reviewed.

Who must conduct the training and how?

The Application Notes to the Guideline’s Commentary specifically state that the training plans of organizations may vary depending on the following factors:

  • What is customary in the industry

  • What the applicable state or federal regulations require

  • The size of the company

  • The rate of recurrence of similar acts of misconduct

The Guidelines distinguish between what is required of large vs. small organizations, because the resources available to create compliance and ethics programs will vary by the size of the company. Small organizations are required to train their employees with “less formality and fewer resources” than large companies. For instance, in small companies:

  • The governing body of the company may actually manage the company’s compliance and ethics efforts, rather than just oversee the program.

  • Employees may be trained in informal staff meetings.

  • Monitoring can be accomplished during regular walk-throughs or by continual observation during the general management of the company.

  • Personnel on staff may conduct the training, rather than hiring trainers outside the company.

  • Compliance and ethics programs may be modeled on those of other, similar companies with successful, well-regarded programs.

What content should be included in the training?

Ethics training not only protects an organization from overwhelming fines but also can enhance and improve company morale. Bottom line—it is teaching people what is right and wrong and how to follow the ethical path when things are not always perfectly clear, as is often the case in a corporate environment.

HR professionals, corporate executives, and middle managers deal with myriad ethical problems daily and must be clear on how these situations should be effectively, efficiently, and ethically handled. One cannot predict or prepare for every possible ethical dilemma, though, so it is important that training instills a “moral compass” for individual members of the organization to follow. When faced with an ethical dilemma, these individuals should be able to guide themselves down the ethical path. For that reason, training should be geared to the level of the employee, because lower level employees will not face the same ethical issues as high-level managers. In addition, supervisors, managers, and executives must understand that they are to set an example for all other employees with their own ethical behavior.

When establishing a training program, be sure to include the following elements:

  • Information on the policies and procedures of the ethics program

  • Handouts of the organization’s code of ethics and code of conduct

  • The creation of an overall awareness and understanding of ethics in all employees

  • A review of the applicable laws related to ethics

  • A discussion of actual ethical dilemmas that employees have faced in their jobs

  • A series of hypothetical ethical dilemmas used to create an interactive training environment with a discussion of possible solutions

  • An outline and discussion of specific risk areas common in the company or industry

Specific issues that should be covered include, but are certainly not limited to:

  • Holding a second job

  • Authority of employees to grant discounts to customers

  • Gifts (there may be a limitation on receiving all gifts or gifts over a certain value)

  • Whether employees may have personal financial dealings with or invest in companies that supply materials to or buy materials from your company

  • Office romances

  • Confidential information

  • How to use company funds

  • Privacy policies

  • Whether employees’ families may take advantage of employee discounts

  • Whether employees may use fictitious names while conducting business

  • Harassment of all types

  • Employees performing acts of hospitality toward public officials

  • Bribery

  • Prohibitions on all illegal activity

  • Kickbacks

  • Competing with the company

  • Insider information

  • Borrowing or lending money

  • Recruiting employees to work for another organization not related to the company

  • Conflicts of interest

  • Campaign contributions

  • Investigations of ethics violations

  • Disciplinary action for ethics violations

It is also important that training programs are reviewed periodically for effectiveness, currency, and reference to new laws.

Supreme Court review

Employers should note that the United States Supreme Court is in the process of reviewing the Federal Sentencing Guidelines discussed above.

On June 24, 2004, the United States Supreme Court ruled in Blakely v. Washington that Washington State’s Sentencing Guidelines violated the Sixth Amendment right to a jury trial. The Court reasoned that allowing the court to impose a sentence greater than that allowed by the standard range outlined in the Sentencing Guidelines, based on facts that the jury did not consider, was a violation of a defendant’s right to a jury trial.

Two additional cases have raised a similar issue—except these cases concern the Federal Sentencing Guidelines. United States v. Booker and United States v. Fanfan were consolidated into one case, and on October 4, 2004, the United States Supreme Court heard the case. A decision is expected by the end of the year, and the outcome may affect whether training remains a required element of an effective compliance and ethics plan. Stay tuned for more information.

KF 11-04

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