The legal issues surrounding moonlighting: Black, white or blue?

A discussion on the legal issues posed by moonlighting and suggestions to find a median path which could be adopted in the future.
Samheeta Rao, GameChanger Law
Samheeta Rao, GameChanger Law

“Moonlighting” is a term used to refer to the practice of taking up another job, while working full-time for a different organisation, typically to supplement the salary received from the full-time employment.

It has become a much talked about term in the Indian context in recent times, following several technology companies, big and small, taking contrasting approaches to dealing with employees who were found to have been moonlighting. While some companies have taken an accommodative approach by permitting moonlighting under specific circumstances, some others have clamped down on employees found moonlighting by terminating their employment altogether.

Instances of moonlighting seem to have increased following the COVID-19 pandemic for two reasons: firstly, several employees in the organized workforce faced salary cuts, minimal or no bonuses, reduced work hours/days and loss of other incentives, following various cost-cutting initiatives implemented by organizations in the wake of the pandemic, which may have contributed to employees looking to supplement their salary. Secondly, the work-from-home model facilitated employees to take up another job, without having to significantly impact their full-time job/role.

The practice of moonlighting raises ethical, compliance and legal issues, both for employers and employees. At first blush, it appears to pitch opposing principles against each other – the freedom of profession of the employees against the expectation of the employer to the unhindered and complete time, attention and skill of the employee, in consideration for the remuneration being paid to them. As explained in greater detail below, it also poses compliance concerns for employers.

In this article, I touch upon key legal issues posed by moonlighting and suggest a way forward to find a median path which could be adopted in the future.

But I pay you enough- The Employer perspective

Wipro's Chairman Rishad Premji minced no words when he said that “Wipro employees working for competitors is a complete violation of integrity in its deepest form." This sentence found wide mention in the news while reporting the firing of Wipro employees who had engaged in moonlighting. While the above statement gave rise to a variety of reactions, from complete agreement to complete opposition, it is important to examine his words in light of the employment contract and policies that apply to affected employees. 

Typically, employment terms include the following clauses: 

Exclusivity - where the employees agree to devote their full time and attention to the employer;

Explicit prohibition on taking up employment or any other form of remunerative enterprise while working for the employer;

Not to engage in any activity or act in a manner that could give rise to a conflict of interest or divert corporate opportunities away from the employer; and

Non-compete restrictions (which may extend post-employment), which prohibit the employee from taking up any position or interest (directly or indirectly) with a competitor, or a client.

In light of the above, moonlighting raises the following concerns, from an employer’s point of view:

Taking up a second engagement (whether as a part time employee or a consultant or a contractor) with a competitor would be considered to be a clear breach of the agreed employment terms, which the employee had willingly consented to.

The prohibition on engaging with competitors is borne out of the apprehension of sharing/misuse of confidential information of the first employer with the competitor, disclosing trade secrets, proposals, business plans, strategies and other sensitive information. Additionally, engaging with a competitor through moonlighting, is likely to pose a conflict of interest.

Employers may also be concerned that by engaging in another job after completing a full day (or night’s work) may impact productivity, as the employee may not be fully engaged in their role, after having spent their “rest” time working elsewhere. Having and working on two jobs at a time can be extremely tiring and may likely reduce the efficiency of the employees. It could also have a major impact on the employee’s mental and physical health, and may lead to increased absenteeism, late coming/late logging in, reduced engagement in the role, etc.

Another concern that is raised is the misuse/exploitation of company provided resources such as laptop, internet connection, etc. While reasonable personal usage may be permitted by the employer’s policies, it is generally not intended to be used by the employee to engage in another remunerative enterprise.

But I don’t get paid enough – The Employee perspective

As mentioned above, the practice of moonlighting is typically linked to the employee’s desire/need to supplement their income from full-time employment. In such cases, the employee likely believes that they are not getting paid sufficiently, or fears reduction of staff, lay-offs, mass restructuring or other corporate events which may threaten their salary/bonus/incentives/benefits. Such motivations could lead the employee to seek a second source of income, to supplement their primary salary, or to build a “plan B” if they were to lose their primary job.

A different justification could also be offered by the employees who may believe that they have taken up roles that do not conflict with their primary job or responsibilities. For instance, a software developer at Infosys can argue that he/she should not be prohibited from being engaged by an edtech start up to help build their product/platform.

Astute employees may also look to separate the resources that are used in each employment/engagement, by maintaining different hardware/IT infrastructure, mobiles, etc. They could also seek to impose time limits, dedicate distinct time for each engagement, to minimize conflicts of time and maximize their output to each employment/engagement.    

Legal considerations in India around dual employment

Protect Workers
Protect Workers

Indian laws do not expressly define the concept of dual employment, though there is limited reference to it in certain statutory provisions. For instance:

The Factories Act, 1948: As per Section 60 of the Factories Act, 1948, an adult worker is restricted from working in any factory on any day on which they have already been working in another factory.

The Delhi Shops and Establishments Act,1954: Section 9 of the Delhi Shops and Establishments Act, 1954, states that “No person shall work about the business of an establishment or two or more establishments or an establishment and a factory in excess of the period during which he may be lawfully employed under this Act.

The Bombay Shops and Establishments Act, 1948: Section 65 of the Bombay Shops and Establishment Act, 1948 states that neither the employee will work, nor any employer shall permit the employee to work in any establishment when the employee is on leave or given a holiday.

The Punjab Shops and Commercial Establishments Act, 1958: As per Section 7 of the Punjab Shops and Commercial Establishments Act, 1958, “No person shall work about the business of an establishment or two or more establishments or an establishment and a factory in excess of the period during which he may be lawfully employed under this Act.”

Additionally, dual employment/engagement does give rise to questions around compliance with statutory requirements relating to working hours/holidays/leave, etc., as well as social security contributions. For instance, if an employee takes up a second part-time engagement, there is no provision to monitor their overall working hours, and neither is there a provision in the current structure of the provident fund contributions system to permit splitting of the contributions across multiple employers. 

Interestingly, in 2016, in Gulbahar v. The Presiding Officer, the Punjab and Haryana High Court upheld the termination of a driver (who was employed on a salary by the respondent) as he had taken up employment with another company. The Court ruled that this constituted a violation of his employment terms, which required him to work exclusively with the respondent.

At the crossroads: To permit or prohibit?

As mentioned above, “moonlighting” only refers to the practice of taking up a second engagement, while continuing to be a full-time employee in one organization. As such, moonlighting covers a range of dual engagements, and the Wipro cases are only one such form of moonlighting. What the recent cases have brought to light is the need for organizations to frame and implement a clear policy on outside engagements.

In framing such a policy, a few considerations can be taken into account as mentioned below:

1. Define the range of activities that are prohibited:  For instance, engaging with a competitor, or with a client who the employee has recently worked for/supported. To the extent possible, it may be useful to list out examples of who is considered a competitor.

2. Consider the seniority/role of the employee: Determine if certain roles/senior managers should be prohibited from taking up any outside engagements which are remunerative. For instance, a senior executive/manager or a compliance officer, or people in the HR department who access sensitive business or personnel information, may not be permitted to engage in another engagement, as the scope for breach of confidential information is significant and poses great risk. Consequently, the organization may also need to ensure that people in such positions are adequately compensated, so as to minimize the risk of their seeking other employment/engagements.

3. Set out parameters to determine if the outside engagement would give rise to a conflict of interest. If not, employees may be permitted to engage in their second role, subject to obtaining the prior approval of the employers, and providing periodic disclosures/undertakings regarding the other engagement. For instance, if the other engagement is non-competitive, is unlikely to pose any conflict to the employer, and the employee believes it will require a defined amount of time (which is not significant) and is for a specified duration, then the employer may permit such employee to do so. 

4. Encourage transparency and disclosure by employees while they are considering outside engagements. Define a clear process, with details of who to approach, who makes the decisions and the time frame for communicating these decisions.

Employers need to recognize that the workplace of the 2020s is vastly different from the one that they were accustomed to in the first two decades of the 21st century. COVID-19, the advent of work-from-home, greater internet penetration and speeds, a much younger workforce, and challenging economic circumstances have all come together as a potent cocktail that fundamentally challenges previously sacred rules of employment. This cocktail has pushed organizations to think beyond black and white while framing workplace policies. In this case, moonlight is considered to have a bluish hue!

The author would like to thank Gauri Sainath, Associate at GameChanger Law Advisors for her research assistance and inputs.

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