In this video, you’ll get answers to these questions:

  • What is an example of a conflict of interest for business owners? (setting your spouse’s salary)
  • Does a conflict of interest include family members?
  • Does a conflict of interest include business partners?
  • Does a conflict of interest include an employee?
  • Does a conflict of interest include an employer?
  • Does a conflict of interest include another member in a nonprofit?
  • Does a conflict of interest include someone at your church?
  • Does a conflict of interest include a friend?
  • Does a conflict of interest include a neighbor?
  • Does a conflict of interest include a contractor?

Video Transcript

What is a conflict of interest? You’ll get the answer to that question today, as well as the answer to some other questions like, what is an example of a conflict of interest? Does a conflict of interest include family members? Does a conflict of interest include a business partner? Does a conflict of interest include an employee or an employer, another member of a nonprofit, a member of your church, a friend, a neighbor, a contractor? I’m Aaron Hall, an attorney representing business owners and entrepreneurial companies. If you’re a business owner, I’m providing this educational content for you to help you identify issues to discuss with your attorney, to help you avoid legal problems and to help you grow a great company.

Did you get my free cheat sheet yet? It’s Seven Common Legal Mistakes Made by New Business Owners. You can get that at aaronhall.com/free. It’s a free resource for business owners to help you avoid some of the common legal problems that are expensive and distracting and can really cause trouble in your business.

What is a conflict of interest? It’s when two parties have aims, goals, or concerns that are incompatible with each other. What is an example of a conflict of interest? Well, say you work for a company and you are able to set the price for wages or salary of new employees that are hired by the company. And if you hire your spouse and set that spouse’s wage, you have a conflict of interest because on one hand, you have an interest in getting the most money to your spouse possible because it comes into your home. On the other hand, you have an interest in serving your employer and being frugal with your employer’s resources. Thus, you have a conflict of interest.

Does a conflict of interest include a family member? Yes, generally, if there is an interest for your children, spouse or parents that is in conflict with somebody else you are serving or working for, then you have a conflict of interest. It’s just as though your child, for example, was you. You can’t set your own salary, for example, thus, you can’t set a salary for a child, a spouse, or a parent. Sometimes other family members might also be implicated by conflict of interest rules, but as a default, children, spouses and parents, and siblings are considered in conflict, or you would have a conflict of interest.

Does a conflict of interest include business partners? Yes. If you have a contract with a business partner, or you have an investment with them or an arrangement with them, and then you also have a duty of loyalty to another company or another individual, you’d have a conflict of interest there.

Does a conflict of interest include an employee? Yes. What about an employer? Yes. And I’ll explain whether the employee of yours is happy, or whether an employer of yours is happy, creates an interest of you to keep that party happy. And so, if your employee or an employer has an interest that is different from someone else you are serving, then you have a conflict of interest.

Does a conflict of interest include another member of a nonprofit? So, let’s say you are part of an association of some type, and one of those people has an interest in conflict or incompatible with somebody else you are working for. Is that a conflict of interest? Usually, no. I’ll give you an example. Let’s say, you work for a company and it is trying to decide which vendors it should use for a particular project, and you get to make the final decision. If you choose a vendor who is a member of an association that you are a part of, is that a conflict of interest? The general rule is no. Just because you may have some sort of social or association or nonprofit ties with a person, usually does not create enough of an interest for you to have a conflict of interest.

Does a conflict of interest include someone at your church? Just like any other nonprofit, the answer is generally no. Just because you happen to be in some sort of community with somebody, doesn’t mean you have an interest or a fiduciary duty to them. So, you could select them, or decline them for an opportunity even though you have a fiduciary duty to your company or someone else, and it doesn’t matter. That member of your church or member of your community, is really an irrelevant factor under most conflict of interest laws.

Does a conflict of interest include a friend, perhaps a best friend? The general rule is no. In other words, if you have a duty to one party like your employer or your company, does it matter if you are setting the price for a deal the company is doing with a friend of yours? The general rule is no. Now that might be looked at with some skepticism. If a court were reviewing it, the court might look at how close of a friendship do you have, but the general rule is, mere friendship does not create a conflict of interest under typical conflict of interest rules.

Does a conflict of interest include a neighbor? Generally. No. In other words, just because you have an interest in serving your employer, and that employer might be doing a deal with your neighbor, that doesn’t create a conflict of interest for you. Why? Because merely having a neighbor isn’t a strong enough interest usually, for there to actually be a conflict with your interest in serving your employer.

Does a conflict of interest include a contractor? Generally, yes. If you have a contract with somebody, you have an interest in serving them, you have obligations to them under the contract. And so, you can’t have a conflicting interest to another company or another individual.

What’s an example of another type of conflict of interest? Well, let’s say, you are a salesperson for a company, and you are trying to sell widgets for that company. And you go to a prospective customer and the customer says to you, “Hey, if you give me an extra good deal and you knock $5,000 off the price I will give you $500 in gift certificates at your favorite restaurant.” You scratch my back, I’ll scratch yours. In other words, the customer is saving $5,000 and the customer is then, giving up $500 in a gift certificate to you. Do you have a conflict of interest? Yes, you do. You cannot accept that. It’s an illegal kickback in most legal circumstances. Why? Because you have a duty to your employer in getting the most money for each transaction and then, you are putting your own self-interest at play by accepting a $500 gift certificate in exchange for reducing your employer’s money by $5,000, so you would have a conflict of interest there. That’s why kickbacks are usually illegal.

All right. Here’s some great resources for you. First, if you haven’t yet received the Seven Common Legal Mistakes Made by New Business Owners, it’s a free cheat sheet I have available to help you save money and avoid legal problems. There’s no obligation to use me or to pay anything further. In fact, I’ll continue to send you from time to time emails, with additional exclusive videos and valuable content to help you avoid legal problems in your company. Now, if you like educational content like this, and you’d like to get more, feel free to subscribe to this channel. Thanks for joining me today. I’m Aaron Hall, an attorney in Minnesota.