If you run a small business, you’ll probably deal with a conflict of interest at work at some point - even if your team is great and everyone’s acting in good faith.
Conflicts of interest aren’t always “bad behaviour”. Often, it’s simply a situation where a worker’s personal interests (money, relationships, side gigs, family connections) could influence - or appear to influence - decisions they make at work.
The tricky part is this: if you don’t spot and manage conflicts early, they can quickly turn into bigger problems like misuse of confidential information, poor procurement choices, staff tension, reputational harm, or even personal grievance risk.
Below, we’ll break down what a conflict of interest at work looks like in practice, the legal implications for NZ employers, and practical steps you can take to manage it properly (without overreacting or damaging trust). This article is general information only and isn’t legal advice.
What Is A Conflict Of Interest At Work (And Why It Matters For Employers)?
A conflict of interest at work happens when an employee’s (or contractor’s) personal interests could compete with their duties to your business.
It doesn’t require dishonest intent. A conflict can exist even if:
- the person believes they can stay “objective”
- nothing has gone wrong yet
- the conflict is only perceived by others (for example, customers or other staff)
From an employer’s perspective, conflicts of interest matter because they can affect:
- Business decisions (who you hire, what you buy, which suppliers win work)
- Confidentiality and protection of trade secrets
- Team culture (resentment, allegations of favouritism, distrust)
- Customer trust and brand reputation
- Legal risk if the situation is mishandled or you take disciplinary action without a fair process
The good news is that conflicts are manageable - and in many workplaces, they’re expected. What matters is having a clear process for disclosure, assessment, and control.
Common Conflict Of Interest At Work Examples In Small Businesses
Conflicts of interest often show up differently in small businesses compared to big corporates, because your team is smaller, roles overlap, and people may have multiple income streams.
Here are some common conflict of interest at work examples we see for NZ employers.
1. Side Hustles And Secondary Employment
Your staff member may run a side business after hours, do freelance work, or pick up shifts elsewhere. This can become a conflict if it:
- competes with your business
- uses your business’s resources, supplier relationships, or client list
- impacts performance, availability, or fatigue
- creates a temptation to “steer” customers away
This is where a well-drafted Employment Contract and clear expectations about outside work can make a big difference (especially if your industry is competitive).
2. Hiring Or Managing Family And Friends
In small businesses, it’s common to hire family members or friends - and it often works well. But it can also create conflicts, for example when:
- a manager supervises their partner, flatmate, sibling, or close friend
- disciplinary issues arise and objectivity is questioned
- other employees perceive favouritism in rosters, promotions, or pay
Even if decisions are fair, the appearance of unfairness can damage trust quickly.
3. Supplier Or Procurement Conflicts
This is a big one for employers who purchase stock, award jobs, or engage service providers.
A conflict may arise where an employee:
- recommends or selects a supplier they own (directly or indirectly)
- selects a supplier owned by a relative or close friend
- accepts gifts, commissions, or kickbacks from suppliers
- has an undisclosed financial interest in a contractor you hire
Even small gifts can cause issues if they influence (or seem to influence) decisions.
Not all conflicts are about direct competition. Sometimes the risk is that a worker’s personal relationship could affect how they use confidential business information.
For example:
- an employee shares pricing or customer details with a friend in the industry
- a staff member’s spouse works for a competitor and sensitive information “leaks” at home
- an employee uses internal know-how to help someone else bid against you
This is why it’s important to clearly define confidentiality expectations in writing - many businesses include this in the employment contract and reinforce it through policies. It’s also worth understanding what a confidentiality clause actually covers (and what it doesn’t).
5. Employees Working For Competitors Or Starting A Competing Business
Sometimes conflicts become more serious when a worker:
- works for a competitor at the same time
- starts setting up a competing business while still employed
- approaches your clients for their future venture
Depending on the facts, this can raise issues about good faith, misuse of confidential information, and breach of contractual obligations. In some cases, a properly drafted Non-compete agreement (or other restraints) may be relevant - but these clauses need to be reasonable and tailored, otherwise they may be difficult to enforce. This is general information only, and whether a restraint is enforceable will depend on the circumstances.
Employers sometimes investigate conflicts of interest by checking emails, monitoring device usage, or reviewing CCTV footage.
This is an area where it’s easy to accidentally create new legal risk. Workplace monitoring and investigations need to be handled carefully and consistently with privacy expectations (and ideally backed by written policies). If you use cameras, you’ll want to be clear on what’s acceptable - are cameras legal in the workplace is a question that comes up a lot, and the answer depends on how and why you’re using them. This article is general information only, and you should consider getting advice before taking steps that involve employee monitoring or collecting personal information.
Legal Implications For NZ Employers: What Laws And Duties Come Into Play?
When you’re dealing with a conflict of interest at work, several legal principles and NZ laws can be relevant. The exact mix will depend on the role, what happened, and what you do next as an employer.
Good Faith Obligations (Employment Relations Act 2000)
In NZ, employment relationships are underpinned by good faith. In practice, this means you and your employee must be open and honest, and not mislead or deceive each other.
Conflicts of interest often intersect with good faith because, depending on the circumstances, an employee may be expected to raise or disclose a conflict - particularly where this is required by their employment agreement or workplace policies, or where their role involves trust, seniority, or decision-making.
This can be especially relevant if:
- their role involves decision-making (like supplier selection)
- they have access to sensitive information
- they’re in a position of trust (manager, finance, sales, operations)
From your side, good faith also affects how you manage the issue. If you rush to conclusions or discipline someone without giving them a fair chance to respond, you can create personal grievance risk even if the underlying conflict is real.
Health And Safety Duties (Health And Safety At Work Act 2015)
Conflicts of interest aren’t just an “HR” issue - they can be a safety issue too.
For example, if a manager awards work to an unsafe contractor because of a personal connection, or overlooks safety breaches to protect a friend, you could be exposing your business to harm and legal liability.
More broadly, employers have a duty to provide a safe work environment, including managing psychosocial risks like bullying and workplace stress. Conflict situations can escalate into serious interpersonal issues if they’re not handled promptly and fairly. (This overlaps with your general duty of care obligations as an employer.)
If you investigate a conflict (for example, checking logs, looking at CCTV, interviewing staff), you may be collecting and using personal information.
While this can be legitimate, you should think about:
- what information you’re collecting and why
- how you’re storing it
- who will have access to it
- whether the employee should be notified (and when)
Many employers manage this risk with clear privacy and monitoring policies - an Employee Privacy Handbook can help set expectations early so you’re not trying to introduce rules mid-investigation.
Directors’ Duties And Company Risks (If The Conflict Involves Senior Staff Or Owners)
If the conflict involves a director, shareholder-employee, or someone in a senior leadership role, the implications can extend beyond employment law. Directors have duties under the Companies Act 1993, and conflicts can affect governance, financial reporting, and decision-making integrity.
Even if you’re running a small company, a conflict in leadership can have outsized consequences - including disputes between founders or shareholders.
How To Manage Conflicts Of Interest Without Creating Personal Grievance Risk
When you discover (or suspect) a conflict of interest at work, it’s tempting to jump straight to discipline - especially if you feel betrayed.
But in NZ, process matters. Even where misconduct is clear, you still need to act fairly and reasonably.
Here’s a practical approach that suits most small businesses.
Step 1: Pause And Clarify What The Issue Actually Is
Start with the basics:
- What is the conflict alleged to be?
- Is it an actual conflict, a perceived conflict, or a potential conflict?
- What policy or contract terms apply?
- What harm (if any) has occurred?
Sometimes what looks like a conflict is actually a performance issue, a misunderstanding, or a policy gap.
Step 2: Check Your Documents (Before You Have The Conversation)
Before you meet with the employee, look at:
- their employment agreement terms (outside work, confidentiality, conflicts)
- your policies (conflict disclosure, gifts, procurement rules, privacy/monitoring)
- any relevant role description or delegated authority limits
If you don’t have a clear policy in place, it can be harder to justify why the situation is unacceptable - which is one reason many businesses implement a Conflict of Interest Policy early rather than waiting until something goes wrong.
Step 3: Raise The Issue Fairly And Give Them A Chance To Respond
If you’re considering disciplinary action, you generally need to:
- tell the employee the concerns and what the potential consequences could be
- share relevant information you’re relying on (where appropriate)
- give them a reasonable opportunity to respond
- genuinely consider their explanation before you decide next steps
This doesn’t have to be overly formal for every situation, but it does need to be fair and well-documented.
Step 4: Decide On The Right Control (Not Every Conflict Requires Discipline)
Depending on the situation, your response might be to:
- require disclosure and record it in writing
- remove the employee from the decision (for example, procurement decisions involving a related supplier)
- set boundaries (no work on certain accounts, no access to certain data)
- update policies so the expectation is clear going forward
- issue a warning if there was misconduct (like hiding a conflict)
- terminate employment in serious cases - but only after a proper process and where it’s a justified outcome
In other words: the goal is to protect the business while staying proportionate.
Step 5: Keep Notes And Be Consistent Across The Team
In small teams, conflict issues can feel personal - but legally and practically, consistency is key.
If you allow one staff member to run a side business but discipline another for similar conduct, you’ll need a clear reason (and ideally evidence) for why the situations are materially different.
How To Prevent Conflicts Of Interest At Work (Policies, Contracts, And Culture)
Most conflict problems are easier (and cheaper) to prevent than to fix. Prevention doesn’t mean assuming your staff will do the wrong thing - it means giving them clarity from day one.
Put The Rules In Writing
At a minimum, you should consider having:
- an employment agreement that covers confidentiality, outside work, and expectations around loyalty and good faith
- a conflict of interest policy explaining what must be disclosed, when, and to whom
- rules around gifts, supplier relationships, and procurement decisions (if relevant)
Many small businesses roll these into a broader Staff Handbook so policies are consistent and easy to update as you grow.
Train Managers On What To Look For
Managers are often the first to spot red flags (like unusual supplier choices, odd roster patterns, or staff frequently “helping” a competitor).
Basic training should cover:
- what counts as a conflict (including perceived conflicts)
- how to respond without accusations
- when to escalate and document
- privacy and confidentiality expectations during inquiries
Normalise Disclosure (So You Hear About Conflicts Early)
The best conflict systems are the ones where staff feel safe disclosing issues early.
You can support this by:
- telling staff conflicts are common and manageable
- making disclosure a “neutral” step (not an admission of wrongdoing)
- responding proportionately when someone raises a conflict promptly
If people think disclosure will automatically lead to punishment, they’re less likely to tell you - and that’s when risk increases.
Use Tailored Restraints Carefully (Where They’re Truly Needed)
Some roles genuinely need extra protection - especially where the person has access to sensitive strategy, client pricing, product development, or supplier terms.
In those cases, you might consider restraint clauses (like non-compete or non-solicitation terms). But it’s important they’re tailored to your business and the employee’s role - overly broad restraints can be difficult to enforce and can create friction during hiring or exit negotiations. This article is general information only, and you should consider getting advice before relying on restraint clauses.
Key Takeaways
- A conflict of interest at work can exist even when no one intends to do the wrong thing - what matters is the risk that personal interests could affect workplace decisions.
- Common conflict of interest examples for NZ employers include side hustles, working for competitors, supplier relationships, hiring family/friends, and misuse of confidential information.
- NZ employers need to manage conflicts carefully because good faith obligations and fair process requirements can affect whether disciplinary action is legally defensible.
- Privacy issues can arise during investigations, especially if you collect or use personal information (like emails, CCTV, or device logs).
- The best prevention is clear documentation: a strong employment agreement, clear policies, and consistent management practices that encourage early disclosure.
- If you’re unsure whether a situation is a genuine conflict or how to respond, getting advice early can save you time, stress, and legal risk.
If you’d like help putting the right policies and employment documents in place (or managing a conflict situation fairly), you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.
