You're correct on virtually all counts. All airlines have dress and conduct codes for employee pass travel and all employees should  make themselves aware of those rules or face the consequences of not following them. The most common consequence is denied boarding but I've heard of employees losing their pass privileges because one of their "friends" on a buddy pass gets out of line at the airport or on a flight. In this situation it looks like some busy body lady, Shannon Watts, took it upon herself to get critical about the airline enforcing their rules.