The watchdog says hundreds of complaints were filed after O'Leary called the Pulitzer Prize-winning journalist "a nutbar" during CBC News Network's "The Lang & O'Leary Exchange" on Oct. 6
The remark came during a seven-minute segment about the Occupy Wall Street protests unfolding in the United States.
"There is room at the inn for a range of views, but there is no room for name-calling a guest," CBC ombudsman Kirk LaPointe writes in a decision dated Oct. 13.
"O'Leary might have been genuinely curious about Hedges' views, but his opening salvo only fed contempt, which breached policy."
LaPointe says CBC News correctly issued a private apology to Hedges after the interview but should also have apologized on air.
A CBC spokesman was not immediately available Friday to say whether that recommendation would be implemented.
O'Leary is best known as an outspoken judge on CBC's "Dragons' Den."
His Oct. 6 interview with Hedges devolved into an argument after he referred to demonstrators as "nothing burgers," called the protests "very weak, very low-budget" and said Hedges sounded like a "left-wing nutbar."
Hedges responded by saying he doesn't usually go on shows where people "descend to character assassination."
"If you want to discuss issues, that's fine. I mean, this sounds like Fox News and I don't go on Fox News," he said.
LaPointe says emailed complaints began to arrive that evening and continued for several days, while video of the exchange was posted widely online.
"This Office and CBC News received hundreds of comments, many of them demanding an apology and some demanding that O'Leary be fired for suggesting Hedges was a 'left-wing nutbar,'" he writes.
It's not the first complaint over O'Leary regarding an outburst on the news talk show. The National Union of Public and General Employees says it filed a complaint Friday over comments O'Leary made Sept. 19, when he said that if he were elected prime minister, he would "make unions illegal" and union members should be "thrown in jail."
The O'Leary controversy came in the wake of widespread outcry over CBC hockey commentator Don Cherry's rant against former NHL enforcers.