The best recommenation is to treat all product that leaves the facility the same - as a product for consumption. Traceability needs to be maintained (at least to the general level - i.e. "employee giveaway", not necessarily to the indiviual employee or "donation to food bank X") so that full accountability is maintained. All product should have a specification, even downgraded product, so that it is clear what defects are allowed.
The other consideration is the impact on complaint data - if you are allowing substandard (according to first pass criteria) out of the faciity, and it makes its way into general trade (i.e. an employee is given substandard product and they give it to a friend) will it result in complaints or brand damage?
Lat but not least, especially for giveaway of substandard product, are there rules about qualtities or furnther use, for example could an employee take the product and resell it into the retail environment?
It is definatly not waste, even if it si going to non standard uses (like animal feed).
Everythign that leaves the facility should be either waste (i.e. going to landfill or recycling) or a product, no matter if it is first pass quality or something less.
John