What should employers do when their employees have a side-hustle? 4 ways to defend your business.

What should employers do when their employees have a side-hustle? 4 ways to defend your business.

In this new future of how we do business, many employees are negotiating flexible or hybird working arrangement or working from home, ultimately spending more time away from the office.

The increase in secondary employment and multiple/diversified income streams has also been given a boost with the onset of COVID-19.

As a result, many employees are venturing into a “side-hustle” as a secondary source of employment, projects or income… so what can you as their employer do to protect your business?

Some employers have dismissed employees because of the secondary employment or side hustle because the employee concerned:

  • Did not ask and/or 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 – e.g. contacting clients, copying testimonials and passing them off as their own and/or setting up websites with vast similarities (or at least enough to create confusion) with their employer.

So what can you do with side-hustle employees and, importantly how can you protect your business?

Here are 4 ways to defend your business:

1. Consent Must Be Given

There seems to be a misconception that employers can 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 – e.g. duty of care. workplace health and safety and/or fatigue management.

The unfair dismissal case of Margherita Donelan V Commissioner of the Australian Federal Police, on behalf of the Commonwealth of Australia 2020 FWC6719 (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 etc.

In any event, the Commissioner held and supported the view that the prescriptive policy around secondary employment was reasonable 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, there is no 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 – i.e. to be honest in its dealings, to show good faith and display loyalty. It is especially important in industries such as:

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

For other industries, it is still pertinent.

A policy 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 to be aware of any changes; training may be required.

The policy should set out the following:

  • A requirement for an employee to 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 – e.g. Callum Weatherall v Elevate Education Pty Ltd t/a Elevate Education [2020] FWC 6143 (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 will solidify 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.  Employment agreements – warranties, restraints, confidentiality and intellectual property

Employment agreements 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 was not in competition with their employer, 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 agreement; namely clauses relating to non-compete, confidentiality and intellectual property.

An employment agreement should always be reviewed to ensure 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 and restraints of trade clauses.
  • Confidential information –should have clauses around keeping information confidential and not being able to disclose this information to a third party.
  • Intellectual Property – integral to the employment agreement, especially if employees have high technical expertise preparing documents, software and/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 employment agreement should be in place and are highly recommended. Akyra can assist with a review of your employment agreements in this regard.

4.  A commercial confidentiality and intellectual property agreement

As an added defence, a separate commercial confidentiality and intellectual property agreement 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.

(Source: NB Lawyers, www.lawyersforemployers.com.au)

Akyra strongly recommends that, where you have employees creating products, software, code, documents or inventions integral to your business, you should also consider introducing a commercial confidentiality and intellectual property agreement. 

It can be a daunting prospect for businesses and managers to not only know where to start, but how to manage the ‘side-hustle’ of employees process entirely, not to mention the implications if you get it incorrect.

Every industry and business will have unique requirements and for further guidance or advice on human resource management. Contact us now to book a time to discuss your areas of potential HR concern, thereafter we will provide a way forward where it might be needed.

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