In this guide for employers, we consider the risks associated with conflicts of interest at work, and the steps you can take to manage conflicts of interest and to mitigate legal and commercial risk.
What are conflicts of interest at work?
A conflict of interest arises where an employee’s personal interests are at odds with those of the business or organisation they work for. At times, these interests may even undermine or disadvantage the business or organisation.
These conflicts are inevitable and can occur at any level of the business – whether the individual is a permanent employee (full-time and part-time), casual employee, director or board member, or independent contractor.
Examples of conflicts of interest at work
Employee actions can cause a conflict of interest either intentionally or unintentionally. Instances of conflicts of interest include:
- Working for a competitor.
- Opening a business which is in competition with your own.
- Sharing confidential and/or damaging information about your company on social media.
- Failing to disclose hiring or working with a relative.
- Providing consulting advice and pay from a competitor.
- Not investigating a coworker’s misbehavior due to a personal relationship.
- Using knowledge or information about the company for their own financial benefit.
Why you need to prevent conflicts of interest
A conflict of interest can have a negative impact on the workplace in a number of ways.
It can create an unfair competitive advantage for those involved in the conflict. It can also lead to decreased productivity as employees focus on their own interests rather than the work at hand. Additionally, a conflict of interest can erode trust between employees and employers.
If things get really bad, a conflict of interest can result in legal action being taken against an individual or organisation. Basically, a severe conflict of interest can create a hostile work environment and cause morale, along with a company’s bottom line, to suffer.
Types of conflicts of interest
There are four main types of conflicts of interests you should be aware of when running your business:
Actual conflict of interest
This occurs where there is a real clash between an employee’s personal interests and the best interests of your business. For example:
- One of your employees starts their own business which offers similar products as your company.
- Your business is expanding and you have advertised for a job opening publicly. However, you employ your cousin without undertaking a competitive and formal selection process.
Potential conflict of interest
Potential conflicts happen in cases where there is no actual conflict right now, but it is foreseeable that a conflict of interest may arise in the future. For example:
- Your friend tells you that their marketing agency is considering applying for a contract to provide services to your business.
- One of your employees works as a freelance designer. One of your business’ clients asks that employee to provide paid services outside of business hours.
Where there is a potential conflict, it is important to take steps to mitigate the future risk.
Perceived conflict of interest
Perceived conflicts of interest arise where there is no actual or potential conflict, however it would be reasonable for someone else to think that a conflict does indeed exist. As such, identifying and dealing with these types of conflict can sometimes be slightly more difficult. For example:
- Your partner won an Instagram giveaway run by a business that has a contract to supply goods to your company.
- A friend of your relative applies and is successful in landing a job at your company, however you played no role in the hiring decision.
Conflict of duty
A conflict of duty generally arises in situations where a person has to fulfil two or more roles that are incompatible or clash with each other. For example:
- An employee begins casual employment at another business that operates in the same market as your company and offers the same or similar goods and services as you.
How to deal with conflicts of interest at work
If you suspect a conflict of interest, it can damage your company in a number of ways. From financial implications, leaked data or damage to overall morale, leaving these situations unmanaged can have long-term impacts on your business.
There are a number of steps that employers can take to prevent conflicts of interest in the workplace.
First, it is important to have clear policies and procedures in place regarding conflicts of interest. These policies should be communicated to all employees and enforced consistently. Additionally, employers should provide training on what constitutes a conflict of interest and how to avoid them.
A conflict of interest is not always easy to recognise. If your company policies and procedures are not clearly laid out, they may not understand what is and is not appropriate information to share. They may also not grasp the ways in which their personal relationships at work (with relatives, for example) create a conflict of interest that may be problematic for the structure and morale of their workplace.
Second, employers should encourage employees to disclose any potential conflicts of interest. This will help to ensure that conflicts are dealt with before they become a problem.
Finally, employers should monitor the situation closely and take disciplinary action if necessary. This may include anything from verbal and written warnings to termination of employment.
Learning about a conflict of interest in the workplace can be stressful for everyone involved, whether you are an employer or an employee. So do your best to have a protocol set for what to do when you find a circumstance of conflict.
As a manager, how to handle an employee with a conflict of interest
If you are a manager and you have an employee with a conflict of interest, there are a few steps you can take to handle the situation.
First, talk to the employee about the conflict of interest and explain why it is a problem. It is important to be clear and concise in your explanation.
Next, give the employee an opportunity to correct the situation. If they are unable to do so, then you may need to take disciplinary action, up to and including termination of employment.
It is important to document everything throughout the process. This will help to protect you and your organization if the situation escalates.
As an employee, what do if you see another employee committing a conflict of interest
If you are an employee and you see another employee committing a conflict of interest, there are a few steps you can take.
First, try to talk to the employee about the conflict of interest and explain why it is a problem. It is important to be clear and concise in your explanation.
If the employee does not listen or refuses to correct the situation, then you can report the issue to your manager or HR department. They will investigate the situation and take appropriate disciplinary action, up to and including termination of employment. It is important to document everything throughout the process. This will help to protect you and your organisation if the situation escalates.
But gathering evidence to back up your suspicions can be a difficult process. Can you be sure that there is a conflict of interest at play? What do you need to support what you suspect? And, perhaps most importantly, how can you do this without alienating your employees?
Is a conflict of interest a legal issue?
Depending on the circumstance, a conflict of interest can turn into legal action. More times than not, a conflict of interest is not a legal issue, but is more of an ethical or moral dilemma. If the potential for a conflict of interest exists, it’s best to err on the side of caution and avoid the conflict altogether. However, if you are ever unsure whether a situation constitutes a conflict of interest, it is best to seek legal advice.
The role of the conflict of interest policy
We know employment relationships often rely on mutual trust and it is important to ensure your employee’s commitment to the business. The best way you can manage and get on top of any conflicts of interests is to have a written Conflict of Interest Policy that underpins how you handle and resolve these situations.
Such a policy can help set out what an employee can and can’t do, especially when it comes to working with another business in the same industry.
Having a written Conflict of Interest Policy means that you can outline your business’ expectations with regards to conflicts of interests, rather than waiting until a conflict arises and subsequently responding to it.
A good Conflict of Interest Policy should set out clear guidelines as to a worker’s obligations and responsibilities when it comes to having – and disclosing – any conflict of interests. It should also provide clarity around what it means to have a conflict of interest, communicate how employees can disclose conflicts, and the procedures for dealing with them.
From a management perspective, having a written Conflict of Interest Policy makes it easy and convenient to provide this information to those involved within your business, and helps you to avoid needing to deal with complex disputes relating to competing duties and interests.
What to include in a conflict of interest policy
As a starting point, we recommend thinking about your Conflict of Interest Policy as something that is tailored specifically to fit the needs of your business – unfortunately, there isn’t a one-size-fits-all template that you can insert seamlessly into your business operations. Below are some key sections you may want to include in your Conflict of Interest Policy.
Purpose
Your Conflict of Interest Policy should state its purpose. This may include:
- Obligations of workers (such as employees and contractors) to notify the company of any conflicts of interest
- Clarification around your company’s approach to dealing with and resolving any conflicts of interest
Definitions
One of the best ways to ensure that your workers engage with your Conflict of Interest Policy is to make it easy-to-understand. Therefore, you may include a list of key terms and definitions used in the Policy.
Your Conflict of Interest Policy should clearly set out what your business considers a conflict of interest. If it is unclear what the policy means for them, it’s less likely that they will be able to comply with and follow your company’s procedures properly.
Scope
You should also clarify the scope of who your Conflict of Interest Policy applies to. Does it cover former, current and prospective employees? What about independent contractors and agents acting on your company’s behalf? Some sections of your business’ Conflict of Interest Policy may not apply to every person working for you, so it is crucial that the Policy explains who it applies to and what it means for them.
TIP: It may be helpful to use specific examples and situations that are likely to arise so that your workers are able to visualise the types of conflicts that may be prohibited and apply them to their own personal circumstances.
Processes and Procedures
It’s important to inform your workers how your business manages and deals with conflicts of interests that have been disclosed. This includes details around how your business’ decision-making process, and the factors influencing these outcomes.
We recommend that you Conflict of Interest Policy covers the following topics:
- Procedures for declaring and disclosing a conflict of interest. This includes steps an individual should take if they believe a conflict exists, whether the conflict is their own or someone else’s. If your business is introducing a new Conflict of Interest Policy, you may also want to think about providing a way for current employees, contractors, and other relevant parties, to disclose any potential conflicts of interest they may have. Disclosures made during this time should generally not result in any disciplinary action – applying it retrospectively may damage your relationship with your workers, and lead to potential legal consequences against you.
- Investigation and review. This includes how conflicts are investigated and by whom. It can also address the methods in which certain conflicts of interest may be resolved.
- Disciplinary action. Under some circumstances, if a person has knowingly acted on a conflict of interest, it may be necessary for you to take disciplinary action. Your Conflict of Interest Policy should set out these circumstances and consequences so your workers are fully informed. This is particularly important as it could determine the severity of the disciplinary action applied. For example, suspension and termination in serious cases.
Need assistance?
DavidsonMorris’ team of employment law and HR specialists provide advice to employers on all aspects of workforce management. For expert guidance on dealing with, and helping to prevent, conflicts of interest, contact us.
Last updated: 13 November 2022
Author
Founder and Managing Director Anne Morris is a fully qualified solicitor and trusted adviser to large corporates through to SMEs, providing strategic immigration and global mobility advice to support employers with UK operations to meet their workforce needs through corporate immigration.
She is a recognised by Legal 500 and Chambers as a legal expert and delivers Board-level advice on business migration and compliance risk management as well as overseeing the firm’s development of new client propositions and delivery of cost and time efficient processing of applications.
Anne is an active public speaker, immigration commentator, and immigration policy contributor and regularly hosts training sessions for employers and HR professionals