A park staffer was given a three-day suspension for freelancing work traditionally done by the city at last year's Festival of Friends.
Sources say councillors were advised of the disciplinary measure while also being told the city's code of conduct does not clearly prohibit the unusual deal.
The city will not comment on the apparent contradiction, saying it is a personnel matter. Officials are reviewing the code of conduct to see if it should be expanded.
Several councillors are calling on the festival's director, Loren Lieberman, to also face consequences or apologize for his role in the controversy.
"He should have known better," Councillor David Mitchell said of the initial labour deal and subsequent public accusations.
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