When employees witness or learn about wrongdoing committed by a fellow employee at work, they tend to react with a strong moral intuition that the wrongdoing is wrong. However, reactions to wrongdoing are embedded within a relational context where reactors possess different types of relationships to the wrongdoer, which may complicate what we know about how people react to wrongdoing. In this dissertation I build a multi-stage theoretical model to demonstrate how people think and behave when someone to whom they are loyal engages in wrongdoing at work. Drawing on self-regulation theory, I argue that people experience a discrepancy between two moral values when loyal to a wrongdoer, creating a moral dilemma that they have to navigate. This discrepancy between moral values triggers regulatory processes aimed at making sense of the wrongdoing, which in turn reduces their moral clarity about the wrongdoing. This reduction in moral clarity is threatening to their moral self-concept, leading them to engage in moral rumination to compensate for the threat. As a result, people withdraw from their work to replenish the depleted resources, but simultaneously engage in helping behaviors to further compensate for the threat to their self-concept. I test and find support for this model in two experiments with full-time employees. This research contributes to work in behavioral ethics, moral psychology of loyalty, moral self-regulation theory, and moral rumination.