Picture the scene: you are the business-owner of a growing start-up with ten employees. One employee, Jack, has been with you from day one and, whilst he isn’t a director, you view him as your number two.
Jack has helped the business grow as a key player, and has also had access to important confidential information, client lists and budgets. Jack has always been committed and 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. You find that he has been working in the evenings with his friend on a new venture. You cannot tell yet whether that venture is in competition with your business.
This kind of situation is commonly known as “moonlighting”. Whether it is lawful depends on numerous factors including:
What is written in the employment contract
How senior the salesperson is
What kind of work the salesperson is doing in the evening
What are the issues arising out of moonlighting?
Employees may be surprised to discover that they can be restricted from doing other work in their own time.
There are several reasons behind this, but common concerns are the knock-on effect for their performance at their main employer, as well as the effect on health and safety regulations.
Like Jack, if your star employee is working in the evenings, the likelihood is they will be tired when they come to work. This may have a negative effect on 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 become more focused on their outside activities which will negatively perpetuate the cycle.
Health and Safety
The Working Time Regulations set specific rest breaks and maximum working hours (48 hours per week in the UK). If you have consented to your employee working elsewhere in the evenings, you will need to keep an eye on their rest breaks and working hours to ensure your compliance with these regulations. If your business uses drivers or manual workers, health and safety issues will be far more relevant.
Working for a Competitor
The biggest risk to your business is if your employee is working for a competitor. Your confidential information, client list, know-how, even employees may all be compromised. If the individual is really cheeky, they may also be diverting your business away 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 or not, but the employer needs to start investigations.
Prevention and Remedy
So, what can you do about it?
Well first and foremost start with the employment contract. A well-drafted contract will contain the following clauses:
a. The employee must devote their whole time and attention to your business during working hours
b. They must not work for anyone else whilst employed by you/they must not work for anyone else whilst employed by you without your consent
c. They cannot work for a competitor, cannot poach clients and/or employees and cannot take your confidential information
If you have all of these provisions in the contract, it will be much easier to enforce any disciplinary sanction or even dismissal 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/or handbook which gives you rights to monitor emails and communication as in Jack’s example above.)
I would advise having a clause which states that they cannot work for anyone else without your consent. It’s reasonable so more enforceable, it should allay any dishonesty issues, and it means you can monitor the situation and obtain openly any information you require.
But what if the contract doesn’t contain these 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 job description, duties and seniority of the employee is relevant as to the level this can be relied upon.
Case law has developed this implied duty to encompass such duties as: not to disrupt the employer’s business; not to compete; not to poach customers; to name a few.
We know that Jack has been at the business from the outset, is considered the “number 2” and has access to important confidential information. This means you would be more justified relying on this implied term to discipline Jack.
If your employee in question is a director, then there are greater obligations to the employer known as fiduciary duties. In essence, a director must not put their own interests before that of the company. If the director has made profit whilst moonlighting and in breach of their fiduciary duties, you may be able to get a percentage of such profits as an extra remedy in the courts.
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 fair procedure. If there is dishonesty on the part of the employee, then this would usually justify dismissal.
Remember, always seek legal advice!
This article does not constitute legal advice.
Originally published on Zegal.