Harmon and fellow loose forward Sean Withy have been dropped from the team to play the Waratahs in Sydney on Friday night for turning up late to a team meeting this week.
Other squad members are understood to have been involved but they have not been named.
The Highlanders have stressed the transgression is minor, does not involve alcohol, and will not lead to any further sanctions for the players.
"Part of our standards this year is that no matter who it is, it's unacceptable, and you lose your place in the team,'' Highlanders coach Clarke Dermody said today.
"Unfortunately, a couple of our leaders were late for a meeting.
"Standards in any team are about improving team culture and ultimately performance.
"The message is that there is one standard for everyone in our team."
There will be an unexpected Highlanders debut at No 6 for Otago and former Crusaders loosie Tom Sanders, while youngster Nikora Broughton gets a rare start on the openside flank.
Fabian Holland moves back into the second row, replacing the injured Pari Pari Parkinson.
The rest of the Highlanders' XV is unchanged from the 37-29 loss to the Blues in Melbourne last Friday.
James Arscott replaces fellow halfback Nathan Hastie in the only change to the back reserves.
Highlanders team to play the Waratahs
Jacob Ratumaitavuki-Kneepkens, Timoci Tavatavanawai, Tanielu Tele’a, Sam Gilbert, Jona Nareki, Rhys Patchell, Folau Fakatava, Hugh Renton, Nikora Broughton, Tom Sanders, Max Hicks, Fabian Holland, Jermaine Ainsley, Henry Bell, Ethan de Groot (captain). Reserves: Ricky Jackson, Daniel Lienert-Brown, Saula Ma’u, Sean Withy, Billy Harmon, James Arscott, Ajay Faleafaga, Jonah Lowe.
