“Is opening, but not really running, a competing firm a conflict of interest?”

Question: Hello. Is registering a partnership which offers related but not the same services to my employer, and advertising it, without any material income or clients yet, a conflict of interest?

My employer offers inpatient and outpatient physiotherapy without home visits or community services, while I’m planning to offer home visits and community services. 

Thank you. 

Adriana
Sawbridgeworth, Hertfordshire
United Kingdom

Answer: Dear Adriana: Your question gives me a good opportunity to draw and illustrate important points about conflicts of interest at work. In sum, though, based on the limited set of facts you have provided, and as explained below, I view your new company and your present employer to be in a conflict of interest. Here’s why: 

1. There is nothing wrong with a “conflict of interest,” in general. Though it sounds trite, a “conflict of interest” exists when “interests conflict with one another.” There is nothing wrong with interests that conflict – as the interests of one gas station conflict with the interests of a second gas station right across the street, as motorists who are in need of gasoline will probably purchase their fuel at one or the other, but not at both. Or the interests of one tree – in need of soil, air and water – conflict with the interests of another tree nearby, in need of the same three things to keep it alive. In fact, conflict and competition are more the rule in the world than they are the exception. 

2. There is, though, a problem with “conflicts of interest” in certain relations, according to our society and laws. The problematic part of a “conflict of interest” is when it arises in a relationship that our society has determined should have complete loyalty and alignment, not conflict, of interests. So, an employee must avoid conflicting interests with his or her employer for that relation to work well, according to our society and laws. Likewise, an attorney must avoid conflicting interests with his or her client for that relation to work well, according to our society and laws. That is, conflicting interests are fine, but not in certain relations that our society and laws have determined must require complete trust and loyalty. 

3. A conflict of interest at work exists when (a) what is good for your employer’s business, and (b) what is good for you, are not one and the same thing, but instead clash or compete with one another. The relation of employment is one in which conflicting interests are prohibited unless (i) disclosed, and (ii) waived. Conflicting interests at work are most commonly seen where: (1) an employee transacts business with a family member, (2) an employee owns an interest in a competing company, (3) an employee accepts favors from a competing company, and (4) an employee has agreed to accept a position of employment with a competitor, but does not tell his or her present employer. In each case, and others like them, the employee may feel an urge to favor the interests of another over the interests of his or her employer.    

4. It seems to me that some patients in need of physiotherapy may decide that they will (a) stop using your employer’s services, and instead of doing so, (b) they will use your new company’s services, as an alternative. From what you described, I see a conflict of interest in this situation, even though different services are offered by (a) on one hand, your employer, and (b) on the other hand, your new company. That is because I think that those two services compete for the same patient-customers, who may have to decide between using one company or the other, and the success of your firm would likely hurt the business of your employer, and vice versa. 

5. Setting up a competing business, by itself, does not create a conflict of interest, but I think your starting to advertise your new business does create a real conflict of interest. I don’t think anything is in conflict if you (a) register a partnership, (b) have stationery and business cards printed, (c) lease a new office, (d) purchase furniture and equipment, and even (e) hire staff. All of these pre-business activities may be in preparing to compete, but they are not competing, and since not yet in competition, not possibly conflicting, until you go into any kind of competition, with one exception: if you start to tell patients something like “Starting in December I will be in business across town.” That is the beginning of a conflict, as it seeks to interrupt the business and relations existing between your employer and its customers. Once you advertise your new company’s services, you are clearly in a conflict of interest, whether or not significant business or revenues have begun. Competing for customers is, by its essence, interests in conflict.    

6. The only two means of truly resolving the conflict of interest you are in are these: (a) ceasing the conflicting activity, or (b) disclosing it, and receiving permission to continue it from your employer. Adriana, you have come to a proverbial “fork in the road.” If you want to remove yourself from the conflict of interest you are in, you have no alternative to your either (a) ceasing your new and conflicting business activity, or if you don’t want to do that, (b) disclosing what you are doing, and requesting permission to keep on doing it. If you don’t do one or the other, you risk both (a) being fired, and (b) having you and your new company sued in court, and potentially being required to pay your employer for both (i) returning the compensation you received while a “competing employee” and (ii) paying over any profits of your new company for a period of time. Though not likely, that is surely what is possible. 

7. Though sometimes hard to spot, and thus properly address, conflicts of interest are a kind of gross misconduct. One of the things that people find perplexing about conflicts of interest is that they can be hard to identify and, yet, the consequences of being in a conflict of interest can be devastating. That’s because engaging in a conflict of interest is seen as disloyalty, and disloyalty is a kind of gross misconduct. Don’t forget that in military affairs, disloyalty is called “treason,” and frequently results in summary execution. I’m glad you had at least a hunch that you might be in such a situation, and you sought an outside perspective. 

Adriana, for your use as an example of how you might disclose your conflict of interest, and get it permitted, we offer a Model Letter entitled “Addressing a Conflict of Interest at Work by Disclosing It.” If you’re interested, just [click here.]   

Adriana, thanks for writing in from Hertfordshire, a rural county not too far north of London. If this has been helpful, I hope you will consider recommending our SkloverWorkingWisdom blogsite to your family, friends and colleagues who work, or who want to work. 

 Best,
Al Sklover

P.S. One of our most popular “Ultimate Packages” of forms, letters and checklists is entitled “Ultimate Resignation Package” consisting of two Model Resignation Letters, a Model Involuntary Resignation Letter, a Memo to HR Pre-Exit Interview, and our 100-Point Pre-Resignation Checklist. To obtain a complete set, just [click here.]

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