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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.
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.
When Does A Conflict Of Interest Arise?
There are four main types of conflicts of interests you should be aware of when running your business:
1. Actual conflict
This occurs where there is a real clash between an employee’s personal interests and the best interests of your business.
Scenario A: One of your employees starts their own business which offers similar products as your company.
Scenario B: 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.
2. Potential conflict
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.
Scenario C: Your friend tells you that their marketing agency is considering applying for a contract to provide services to your business.
Scenario D: 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.
TIP: Where there is a potential conflict, it is important to take steps to mitigate the future risk.
3. Perceived conflict
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.
Scenario E: Your partner won an Instagram giveaway run by a business that has a contract to supply goods to your company.
Scenario F: 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.
4. 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.
Scenario G: 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.
Why Do I Need A Written Conflict Of Interest Policy?
Often, the best way to deal with issues arising within an employment relationship is to implement policies that aim to prevent them in the first place. 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 Should I 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.
Talk To A Lawyer
Your Conflict of Interest Policy should be written specifically with your business needs in mind. Not only should it set out your business’ expectations, but also clearly outline what types of activities and behaviours are not allowed.
Getting it right is important to protecting your business’ interests. If you would like to review your business’ current Conflict of Interest Policy or would like help drafting a new one, we have a team of friendly lawyers who are ready to help! For a free, no-obligationschat email us at team@sprintlaw.com.au or call 1800 730 617.
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