Articles

My Star Employee Is Moonlighting For Someone Else, Is That Legal?

By Jane Johnson, Updated: 2023-12-07 (published on 2023-08-09)

Picture the scene: you are the business owner of a growing startup with ten employees. One employee, Jack, has been with you from day one, and whilst he isn’t an appointed director, you view him as your number two.

Jack has helped the business grow as a key player and has access to important confidential information, client lists and budgets.

Jack has been a committed employee since he first received the employment offer. He’s the highest performer at the company, but recently he’s had his eye off the ball, and his performance has dropped. 

He also seems particularly tired in the mornings. You ask him if everything’s okay, but he doesn’t give anything away.

After this goes on for a few weeks, you become suspicious and check his work emails. He has been working with his friend on a new venture in the evenings. At this point, you cannot tell if this venture competes with your business.

Is your employee moonlighting? What is moonlighting?

This kind of situation is commonly known as moonlighting.

Moonlighting refers to holding a secondary job or profession in addition to one’s primary employment. Typically, individuals moonlight to earn extra income, acquire new skills, or pursue a passion or hobby. The secondary job usually takes place outside of regular working hours, where the term moonlighting – working by the light of the moon – comes from.

Whether moonlighting is lawful depends on numerous factors, including:

  • What is written in the employment contract
  • How senior the salesperson is
  • What kind of work is the employee doing on the side

Is moonlighting illegal? 

Moonlighting is not universally illegal. However, employees may be surprised to discover they can be restricted from doing other work on their own time.

There are several reasons behind this, but common concerns are the knock-on effect on their performance at their primary employer, as well as the effect on health and safety regulations.

Like Jack, if your star employee is working in the evenings, they will likely be tired when they come to work, which may harm their performance, and before you know it, that star isn’t shining quite so brightly!

Not only does this cause losses to your business, but it’s demotivating for the employee too. If they aren’t doing as well at work, this may lead them to become more focused on their outside activities, which will negatively perpetuate the cycle.

Why might employers restrict moonlighting?

There are several reasons an employer might be against moonlighting:

  1. Conflict of Interest: An employer might be concerned that an employee’s second job could be with a competitor or in a field that creates a conflict with their primary job’s duties or responsibilities.
  2. Reduced Productivity and Performance: If an employee is working another job, especially if it involves long or irregular hours, they might come to their primary job fatigued, which could affect their productivity and performance.
  3. Overexertion and Health Concerns: Working multiple jobs can lead to overexertion and related health issues, potentially leading to more sick days and reduced overall productivity.
  4. Divided Loyalty: There could be concerns that the employee might prioritize their secondary employment over their primary job, leading to potential loyalty issues.
  5. Availability and Flexibility: Employees who moonlight might not be as available for overtime, unexpected shifts, or last-minute tasks that arise in their primary job.
  6. Intellectual Property Concerns: Employers might worry about potential overlap in the kinds of work being done in both jobs and the possible sharing or unintentional use of intellectual property.
  7. Confidentiality Issues: If an employee has access to sensitive information in their primary job, there’s a potential risk (even if it’s perceived and not real) that they might inadvertently share or misuse this information in their second job.
  8. Distraction: Moonlighting can lead to an employee being mentally preoccupied with their secondary job while at their primary job.
  9. Company Image and Reputation: If an employee’s second job is controversial or in an industry that could be perceived negatively by stakeholders, clients, or the general public, it might reflect poorly on the primary employer.
  10. Violation of Employment Contracts: Many employers include clauses in their employment contracts that restrict or prohibit secondary employment, mainly to address many of the concerns listed above.

Health and safety concerns with moonlighting

The working time regulations set specific rest breaks and maximum working hours (e.g., 48 hours per week in the UK).

If you have consented to your employee working elsewhere in the evenings, you must keep an eye on their rest breaks and working hours to ensure compliance with these regulations.

Health and safety issues will be far more relevant if your business uses drivers or manual workers.

An NDA can save a lot of headaches.

What is an employee moonlights for a competitor?

The biggest risk to your business is if your employee works for a competitor.

Your confidential information (if the employee has not signed an NDA), client list, know-how, and employees may all be compromised.

If the individual is cheeky, they may also be diverting your business to the evening employer/their own venture. The damage to your business could be enormous.

In the scenario above, it isn’t clear whether Jack is competing, but the employer needs to start investigations.

How can employers prevent and remedy moonlighting?

Well, first and foremost, start with the employment contract. A well-drafted contract will contain the following clauses:

  1. The employee must devote their whole time and attention to your business during working hours
  2. They must not work for anyone else whilst employed by you or your company without your consent 
  3. They cannot work for a competitor, cannot poach clients and/or employees and cannot take your confidential information

When crafting an employee onboarding presentation, consider incorporating a section on moonlighting that can be thoroughly discussed during the induction process

If you have all of these provisions in the contract, enforcing any disciplinary sanction or dismissal will be much easier if necessary.

You may also be able to seek damages for any loss of business and breach of contract. (NB, you also need a clause in the employment contract and handbook which gives you rights to monitor emails and communication as in Jack’s example above.)

We recommend a clause stating they cannot work for anyone else without your consent. It’s reasonable, more enforceable, and it should alleviate any dishonesty issues, meaning an employer can monitor the situation and obtain any information you require openly.

What if the employment contract doesn’t contain moonlighting clauses?

In this situation, you would need to rely on implied terms. Employees have a duty of good faith to their employer, which is implied in the employment contract.

The employee’s job description, duties, and seniority are relevant as to the level this can be relied upon.

Case law has developed this implied duty to encompass such responsibilities as not to disrupt the employer’s business; not to compete; not to poach customers; to name a few.

Jack has been at the business from the outset, is considered the “number 2”, and has access to important confidential information. It would be more justified to discipline Jack based on this implied term.

If your employee is a director, there are more significant obligations to the employer known as fiduciary duties.

Essentially, a director must not put their interests before the company’s. 

If the director has made a profit whilst moonlighting and in breach of their fiduciary duties, you may get a percentage of such profits as an extra remedy in the courts.

Can you dismiss a moonlighting employee?

If you decide to dismiss your employee for moonlighting, you must show you have a fair reason (usually misconduct in this case) and have followed a proper procedure.

If there is dishonesty on the part of the employee, then this would justify dismissal.

Remember, always seek legal advice!

Jane Johnson of JLJ Legal is an employment law solicitor with many years’ experience. She can advise you on all elements of employment law in relation to your business. Her website is www.jljlegal.co.uk and you can contact her on jane@jljlegal.co.uk

This article does not constitute legal advice.

The opinions expressed in the column above represent the author’s own.

Tags: gig economy | legal | SME | startups | UK | z-syndicate

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