The Ministry of Business, Employment and Innovation has been forced to backtrack on a policy which offered staff the opportunity to dob in colleagues to a tip-off line run by UK-based Crimestoppers.
The Public Service Association (PSA) received a "flurry" of emails from disgruntled staff members when the policy was introduced on March 27.
They were concerned that whistleblowers were contacting a company associated with the police.
Crimestoppers is a private company that works with New Zealand Police by passing on details of crimes that have been given to them by someone who wants to remain anonymous.
Workplace Integrity Line, run by Crimestoppers, is for employees to anonymously call to provide details of wrongdoing by fellow staff members.
PSA national secretary Brenda Pilott wrote to the ministry's chief executive David Smol and questioned what problem MBIE was seeking to solve by using the line.
"It is our experience that issues relating to serious wrongdoing, harassment, bullying or discriminatory behaviour are best dealt with internally using robust systems and processes," her letter said.
Ms Pilott asked for a copy of the agreement the ministry and Crimestoppers had signed.
The union had received a "very strong reaction from staff", including one email from an employee who wrote: "It sounds too dumb to be true," she said.
"We were just concerned that they were taking this rather odd step of outsourcing this to essentially a crime tip line rather than having in place their own procedures and we felt that they shouldn't have done that."
Since Ms Pilott had written to Mr Smol, the ministry had rescinded the policy while they get advice and speak with the union, she said.
She was not aware of other government departments using the line.
Other unions spoken to were also unaware of the line being used by industries in the private sector.
MBIE's deputy chief executive strategy and governance Catherine Williams said the ministry valued its 2494 staff and wanted to support them if they came across suspected wrongdoing. The tip line aimed "to give staff more options about how they choose to raise concerns".
Labour Party State Services spokeswoman Maryan Street said it was an "extraordinary" use of a hotline. "I would like to know what problem they thought they were solving, because it seems to me they are creating another one."