What should employers do with “side-hustle” employees? 4 ways to defend the business

The phenomenon of employees taking on “side hustle” projects or secondary projects is nothing necessarily new.  The increase in secondary employment and multiple/diversified income streams has also been given a boost with the onset of COVID-19.

A number of Employers have taken to terminating the employment of employees due to secondary employment or side hustle being undertaken because they either:

  • Did not ask (and were not given) consent to do so; or
  • Undertook work or set up a business which was in direct competition with the employer; or
  • Information they had obtained during their employment had been utilised to benefit the side hustle for example contacting clients, copying testimonials and passing it as their own and setting up websites with vast similarities (or at least enough to create confusion) with their employer

So what can an Employer do with side-hustle employees and importantly how can an Employer protect their business

1. Consent Must Be Given

There seems to be a misconception that Employers can only direct an employee around secondary employment only in circumstances where there is an issue of direct competition.  This is not necessarily the case.  It is perfectly reasonable for a company to require an employee to seek consent for undertaking secondary employment even if there is no obvious conflict of interest.

The unfair dismissal case of Margherita Donelan v Commissioner of the Australian Federal Police ... (Donelan Case) is a good demonstration of this concept.  The Donelan Case involved an AFP employee who became the director and shareholder of a Childcare centre. Although she claimed she only worked in mostly an administrative capacity her employer at the time noted the:

  • High number of hours she utilised devote to her secondary position
  • Her reduction in hours in her current role
  • A policy required annual approval for any secondary employment

Even though the employee had requested a renewal for approval for 8 years straight she did not do so in the last few years.  There is of course more to the unfair dismissal matter as there were issues around:

  • Bullying
  • Complaints
  • Workcover claims

In any event, the Commissioner held and supported the view that the prescriptive policy around secondary employment was reasonable.  There were directions made by her manager to fill in the appropriate form.  For very flimsy reasons the employee did not fill out the forms and as such the dismissal claim was dismissed.

To be clear, whether there is a conflict of interest or even a perceived conflict of interest is no the sole and only rationale behind consent.  In practical terms if an employee wants to undertake secondary employment (conflict or no conflict) it is completely reasonable for an Employer to require they seek consent first.  

2. A Policy Around Secondary Employment Should Be In Place

The duty of fidelity to employers is a fundamental concept in workplace and employment law, that is to be honest in its dealings, to show good faith and display loyalty.

For HR and Employers in industries such as:

  • Software development
  • Technology
  • Professional services
  • Creative industries
  • Sales
  • Education

The need for a policy to deal with secondary employment is paramount.  For other industries it is still pertinent.  A policy is an organic document that can be moulded and changed to dictate the standards required for an employee.  Depending on how they are drafted and save for any contractual obligations they can be utilised as a right by the employer but at the same time have the flexibility to change the policy as they require.  Of course the employee needs to know about the policy and is aware of any changes (training may be required as well).

The policy should set out the following:

  • A requirement that an employee request consent for any secondary employment including board appointments regardless of any conflict
  • A conflict of interest (even a perceived one) should be disclosed and the policy should set out a process for this
  • The secondary employment or side hustle cannot be undertaken without the consent of the employer
  • Secondary employment cannot be (and should not) utilise company property and undertaken in hours of work
  • The secondary employment should not have a commercial effect on the profitability and viability of the Employer

An argument by an employee that the employer is “restraining them” from earning money is a usual one but can be displaced by having a policy of this type in place. In any event, there is good case law such as Callum Weatherall v Elevate Education Pty Ltd t/a Elevate Education...  (Elevate Case) that supports the concept that setting up a company in direct competition with their employer will not be looked upon with any indulgence by the Fair Work Commission.

A policy though will solidify firstly the importance of requesting consent and disclosing an interest in secondary employment.

This is different to a situation where the employee has resigned and is unwilling to disclose their own confidential plans for future employment or business. Protection in these scenarios may lie elsewhere contractually.

3. Contracts – Warranties, Restraints, Confidentiality And Intellectual Property

Employment contracts are integral to dealing with issues around secondary employment. An employee’s side hustle cannot and should not encroach on the hours of normal work, and company property should not be utilised for this purpose either. 

Yet in the Elevate Case, the employee amongst other things opened up a competing business wherein he had a similarly written website and advertisements to his employer. Although the employee claimed the business were not competing it was obvious from the evidence before the Fair Work Commission that website content and advertisements were very similar.

In the Elevate Case, the employer relied strongly upon their employment contract namely clauses relating to non-compete, confidentiality and intellectual property.

An employment contract should always be reviewed to ensure that clauses around the following are in place:

  • Warranties – a warranty that the employee will use all of their time for the betterment of the employer and to be honest
  • Non compete – restraint of trade clauses during and post employment to restrain use of company property, poaching clients and/or employees this article Top 5 Tips On Restraint Of Trade For Employers might help
  • Confidential information – a contract should have clauses around keeping information confidential and not being able to disclose this information to a third party
  • Intellectual Property – IP clauses are integral especially if you have employees with high technical expertise preparing documents and software or inventions and creations which the company will rely upon. Moral Rights clauses will also fall into this category.

If they are not in place or the clauses are poorly drafted – variations to the contract should be in place and are highly recommended.

Importantly in the Elevate Case the Commissioner found that the employer had no case to answer and the application dismissed.  The Commissioner also found it did not matter that the employee had made little income from the competing business.

4. A Commercial Confidentiality And Intellectual Property Agreement

As an added defence, a separate commercial confidentiality and intellectual property contract can turn defence into an employer’s offence.  Instead of only relying upon an employment relationship, a separate commercial agreement gives further options for an employer to take action and seek injunctive relief.

It also demonstrates and supports an employer’s unequivocal view of secondary employment.

We strongly recommend clients who have employees creating products, software, code, documents or inventions that are integral to the company should also be subject to a commercial agreement. 

Create offence from your defence – enquire about our 6 Point Legal Protection Review – by reaching out via service@nb-lawyers.com.au or +61 (07) 3876 5111 to book an appointment with NB Lawyers – Lawyers for Employers 

If you got value out of this article email service@nb-lawyers.com.au or click on this link to subscribe to our value added newsletter. 

Written By 

Jonathan Mamaril 

Director

NB Lawyers – Lawyers for Employers 

jonathanm@nb-lawyers.com.au 

+61 (07) 3876 5111 

Jonathan Mamaril leads a team of handpicked experts in the areas of employment law and commercial law at NB Lawyers – Lawyers for Employers who focus on educating clients to avoid headaches, provide advice on issues before they fester and when action needs to be taken and there is a problem mitigate risk and liability. With a core value of helping first and providing practical advice, Jonathan is a sought after advisor to a number of Employers and as a speaker for forums and seminars where his expertise is invaluable as a leader in this area as a lawyer for employers. 

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