Using a Conflict of Interest Clause

Using a Conflict of Interest Clause

by Brette Sember, J.D., January 2019

A conflict of interest happens when a person has competing interests or loyalties in the workplace. For example, if Jenna is a manager at Great Bird Feeders but she is also freelancing on the side for their competitor Best Bird Feeders, she has a conflict of interest because she's splitting her loyalties between two competing companies.

Man holding papers reading documents

A conflict of interest can happen to anyone in an organization—from CEO or board member down to hourly employee—or to a freelancer or consultant. A conflict of interest clause is designed to prevent these kinds of problems from happening.

Types of Conflicts of Interest

A conflict of interest happens any time there is a clash of loyalties for anyone in an organization or for anyone who works for an organization. There could be a conflict of interest within the company if Garvey is promoted, so that now he is his wife's supervisor. He has loyalties both to the company and his wife, so he can't function in the role without conflict.

A financial conflict of interest also is common. If Annalise is a board member for a private high school—but she also owns a company that prints high school textbooks—she has a conflict of interest, because she would see financial gain if she influenced the school to buy her textbooks.

A conflict of interest can arise from a paid or unpaid situation and can also arise from a family member's position; for example, if your wife works for a competing company.

Conflict of Interest Clause

Because a conflict of interest can be so detrimental to the company, most employment, freelance, and consulting contracts include a conflict of interest clause. This clause states that:

  • If the employee or freelancer has a conflict of interest, it must be disclosed.
  • Should a conflict of interest develop over the course of the employment or project, it will be disclosed.
  • The employee or freelancer will avoid taking on any conflicts of interest while working for the company.
  • The employee or freelancer will be asked to resign, if an undisclosed conflict of interest is discovered during the employment or contract.

The clause may also include a requirement that, if the employee or freelancer receives an offer that poses a conflict of interest, then it must be disclosed to the company. Some conflict of interest statements make receiving a gift or favors from a competitor, supplier, or customer a conflict of interest as well.

Conflict of Interest Waiver

A conflict of interest does not always bring everything to a crashing halt. If a conflict of interest is disclosed up front, both parties might sign a conflict of interest waiver, which clearly explains the conflict and shows that the company is fully aware of it and is willing to work with the employee or freelancer despite it.

For example, if Lin does freelance design and works for Ted's Bicycle Shop designing decals that go on the bikes, and Mika's Bicycle Shop wants to hire him to create a new sign for their shop, a conflict of interest waiver would indicate that Mika knows Lin also works for Ted and that Mika is okay with it.

You can create a conflict of interest clause yourself to use in an employment or freelance contract. You also could work with an attorney or get help from an online service provider. A conflict of interest clause can protect your business and help ensure that those who work for you have your company's best interests at heart.