Can You Start A Company While Employed In New Zealand?

It’s common for talented team members to have a side project. Sometimes it’s a small ecommerce store. Other times, it’s the early stages of a consultancy, an app idea, or a business they plan to “go full-time” on later.

As a small business owner, this can feel tricky. You want to support your people - but you also need to protect your client relationships, confidential information, and your team’s focus during paid work hours.

In New Zealand, the short answer is: yes, someone can often start a company while employed - but it depends on their employment agreement, the type of business they’re starting, and whether it creates a conflict of interest issue in the employment context.

Below, we’ll break down what “conflict of interest” really means in an employment context, the red flags to watch for, and the practical steps you can take to stay protected from day one (without turning it into a battle).

Is It Legal For An Employee To Start A Company While Employed?

There isn’t a blanket rule in New Zealand that stops employees from registering a company or running a side business.

What matters is whether the employee’s outside business activities:

• breach their employment agreement (for example, a clause that requires consent for secondary employment, or a restraint clause),
• create a conflict of interest with your business,
• involve misuse of your time, resources, or confidential information, or
• damage the relationship of trust and confidence that underpins employment relationships.

For you as the employer, the key isn’t the company registration itself - it’s the impact on your business.

If you’ve got the right contractual and policy foundations in place, these situations are usually manageable. If you don’t, they can escalate quickly into disputes over clients, IP, and performance.

What Counts As A Conflict Of Interest In Employment (New Zealand)?

“Conflict of interest” isn’t just a buzzword - it’s a real risk area for employers. In practice, a conflict of interest in employment in New Zealand can arise when an employee’s personal interests (including a side business) could interfere with their ability to act in your business’s best interests while they’re employed.

A conflict can be:

• Actual (it’s happening now),
• Potential (it could happen), or
• Perceived (it could reasonably appear to be a conflict, even if it hasn’t materialised).

That “perceived conflict” point matters, but it’s not automatically “illegal” on its own. In practice, it can still create real business risk (for example, undermining trust or raising client concerns) and may become an employment issue if it leads to a breach of obligations or damages the relationship of trust and confidence.

Common Conflict Scenarios For Small Businesses

Here are examples where you should be paying attention:

• Direct competition: the employee starts a business offering the same (or very similar) goods/services to the same market.
• Client overlap: the employee approaches your customers, suppliers, or referral partners for their new business.
• Using inside information: pricing, margins, customer lists, proposals, templates, marketing strategy, or product roadmaps get used to benefit the new company.
• Reduced performance: the side business takes priority, leading to missed deadlines, low output, or disengagement during work hours.
• Conflicted decision-making: the employee can influence purchasing, hiring, or strategy decisions in your business in a way that benefits their own company.

Even if the side business is in a different industry, conflicts can still exist. For example, your employee might not be “competing”, but they may be targeting your suppliers, using your systems, or running their business during paid time.

Why This Matters Legally (Not Just Commercially)

In New Zealand, employment relationships are built on good faith. You’re generally expected to deal with each other honestly and openly, and not mislead or undermine each other. Conflicts of interest can become “legal” issues when they damage trust and confidence or breach contractual obligations.

This is why getting clear on expectations early - ideally in writing - is a big part of staying protected.

What Should You Check In The Employment Agreement First?

If you find out an employee has started (or is planning to start) a company, your first step should be to check what their agreement says - and whether you’ve set clear boundaries around outside work.

A well-drafted Employment Contract can be the difference between a calm conversation and a messy dispute.

Clauses That Commonly Apply

• Secondary employment / outside business clause: may require the employee to seek consent before doing other work (especially where it could affect performance or create conflicts).
• Conflict of interest clause: requires disclosure and sets expectations around avoidance and management.
• Confidentiality clause: protects your non-public business information and can apply during and after employment (but needs to be properly drafted).
• IP ownership clause: helps protect work created in the course of employment and clarify boundaries for side projects (noting that ownership can depend on the facts and the wording of the agreement).
• Restraint of trade / non-compete / non-solicitation clause: may limit competing activity, especially after employment ends (but these need to be reasonable to be enforceable).

If your current contracts are light on these points, it’s worth reviewing your templates before a conflict arises - because it’s much harder to “retrofit” boundaries once an issue is already underway.

Don’t Forget: Policies Matter Too

Even with a good employment agreement, you’ll usually want supporting workplace policies that deal with practical realities like business resources, data, and systems access.

For example, if your employee is collecting customer information, you’ll want strong internal expectations around privacy and handling of personal data (which should align with the Privacy Act 2020). Having a robust Privacy Policy externally is helpful, but you’ll also want internal policies and processes that set clear rules on access, use, and sharing of business information.

How Can You Manage A Potential Conflict Without Overreacting?

When you discover a side business, the goal isn’t to panic - it’s to assess risk and respond fairly.

As a small business owner, you’re balancing:

• your legal obligation to act in good faith, and
• your commercial need to protect your business.

Handled well, many situations can be resolved with disclosure and clear boundaries.

Step 1: Clarify The Facts (Before Making Assumptions)

You’ll usually want to understand:

• What is the employee’s company actually doing (products/services)?
• Who are their customers (and are they overlapping with yours)?
• When are they working on it (outside hours only, or during work)?
• Are they using your tools, equipment, templates, systems, or contacts?
• Do they have access to sensitive information that could benefit their company?

This isn’t about “catching them out” - it’s about figuring out whether there is a genuine conflict of interest issue that needs managing.

Step 2: Ask For Disclosure And Put A Management Plan In Place

If there’s a potential conflict (even if not an actual conflict yet), you can often manage it by documenting boundaries, such as:

• the employee must not approach your clients or suppliers,
• the employee must not work on their business during work time,
• the employee must not use any of your confidential information, documents or templates, and
• where necessary, changing duties or limiting access to sensitive projects.

In many workplaces, this is formalised through written acknowledgement (and sometimes an addendum to the employment agreement, depending on what needs to change).

Step 3: Address Performance Issues Separately

It’s worth separating “conflict” from “performance”. An employee can have a side business and still meet expectations. But if performance drops, you should deal with that through a fair performance process - not just by focusing on the existence of the side business.

That said, if the performance drop is linked to side work during paid hours, it becomes relevant to the conflict assessment too.

What Are The Biggest Legal Risks For Employers When Staff Start A Side Business?

Some risks are obvious (like competition). Others are quieter - but can be more damaging if they go unnoticed.

1) Misuse Of Confidential Information

Your confidential information is one of your business’s most valuable assets. In small businesses, “confidential information” can include:

• customer lists and purchase history,
• pricing strategies and margins,
• quotes and proposals,
• marketing plans and sales scripts,
• supplier terms, and
• internal processes and templates.

This is where clear contractual confidentiality obligations make a real difference - especially if you ever need to enforce them.

2) IP Ownership Confusion

If your staff member builds something while employed (a tool, process, design, code, marketing asset, etc.), ownership can get murky if boundaries aren’t clear.

This is particularly important for businesses in tech, creative services, product development, or consulting.

If you’re scaling your business, it’s often worth reviewing how you document ownership and governance more broadly as well - for example, having a proper Company Constitution in place if you’re a company, and ensuring decision-making rules are clear.

3) Soliciting Clients Or Staff

Even where an employee doesn’t “compete” directly, problems often start when they:

• poach a client relationship they built while representing your business, or
• encourage another team member to join their new company.

Non-solicitation restraints can be relevant here, but they need to be carefully drafted to suit your business and the role. Overly broad restraints can be difficult to enforce, so tailored drafting matters.

4) Use Of Business Resources

Sometimes the conflict isn’t about clients - it’s about time and resources. Examples include:

• working on the side business during paid hours,
• using work equipment (laptops, phones, software subscriptions),
• using your workshop or premises after hours without approval, or
• using your branding, supplier accounts, or internal templates.

This is where clear policies (and consistent enforcement) help. If you’ve never set expectations, it’s harder to treat it as misconduct later.

How Can You Protect Your Business From Day One?

If you want to reduce conflict risk long-term, the best time to act is before it becomes personal.

Here are practical steps you can implement as your business grows.

Use Strong Employment Documentation

Start with properly drafted agreements and keep them updated as roles change. For many small businesses, it’s worth standardising:

• employment agreements for employees, and
• contractor agreements for independent contractors (especially where contractors may also service other clients).

If you engage contractors rather than employees, using a clear Contractor Agreement can help reduce confusion about confidentiality, IP, and conflicts.

Have A Clear Conflict Of Interest Process

A conflict of interest process doesn’t need to be complicated. At minimum, make sure you have:

• a requirement to disclose conflicts (including side businesses),
• a way to assess and document whether the conflict is manageable, and
• consequences for non-disclosure or dishonest behaviour.

This helps you act consistently, which is important if you ever need to justify a decision later.

Document Confidentiality And Information Handling Expectations

Confidentiality should be covered in your contracts, but it’s also worth reinforcing in day-to-day operations (especially if your team handles customer data, pricing, or proprietary processes).

If you run a business where sensitive information is shared routinely, it may also be appropriate to use a standalone Non-Disclosure Agreement in particular situations (for example, during high-stakes projects or when someone is leaving and you’re negotiating an exit arrangement).

Be Careful When Changing Terms Or Exiting An Employee

If a side business conflict escalates and you need to manage an exit, you should tread carefully. In NZ, employers must follow a fair process and act in good faith.

Also, if you’re negotiating an agreed exit, the documentation matters. A properly drafted Deed of Settlement can help resolve disputes cleanly and reduce the risk of ongoing claims (but it should be tailored to the situation).

It can feel tempting to move quickly when trust is shaken - but taking the time to get process and documentation right usually saves you far more time (and cost) later.

Key Takeaways

• In New Zealand, an employee can often start a company while employed, but it becomes a problem when it creates a conflict of interest in employment in New Zealand or breaches their contractual obligations.
• A conflict of interest can be actual, potential, or perceived - and perceived conflicts can still create practical risk and, depending on the circumstances, may affect trust and confidence.
• As an employer, your first step should be checking the employment agreement for clauses about secondary employment, conflicts, confidentiality, IP ownership, and restraints.
• Many side-business situations can be managed with disclosure and clear boundaries, but you should address performance issues through a fair process (not assumptions).
• Your biggest risk areas are usually misuse of confidential information, IP ownership confusion, soliciting clients/staff, and using business time or resources.
• Getting strong legal foundations in place early - including up-to-date contracts, practical policies, and tailored advice - is the best way to protect your business from day one.

Note: This article is general information only and isn’t legal advice. Because employment issues are highly fact-specific, it’s best to get advice on your situation before taking action.

If you’d like help reviewing your employment agreements or setting up a clear conflict of interest approach that actually works in practice, reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.