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The Rising Tides of Moonlighting Employees

By- Ramesh Vaidyanathan (Managing Partner) & Suyash Sarvankar (Associate)

NOTHING stresses me out. NOTHING gets to me. And if it ever did really start to get to me on any kind of meaningful level, I can literally quit same-day with no regrets whatsoever and with plenty of backup income. This is the absolute MAGIC of OE (overemployment) and it’s why I am SO GRATEFUL for it. I will never take it for granted, either.” reads a top post on r/overemployed, a sub-Reddit dedicated to discussions on working at more than one venture. The community has experienced unprecedented growth due to a marked phenomenon in recent times: overemployment, also known as ‘moonlighting’ with disdain. It is especially enabled by enormous demand for digital skills, shortage of skilled workers willing to work for plummeting real wages in inflationary economies, and remote jobs enabling engagements severed from place of residence and work visas.

Moonlighting is purportedly responsible for high attrition in India’s vital IT industry. Take any recent quarterly earnings release of IT companies and it will suggest how record high attrition rates are creating pressures on margins. Hence, IT companies are battling record high attrition levels as they find it hard to attract and retain talent, and the smallest difference of a perk can make an employee stay or leave. It is therefore unsurprising that select industry leaders have condemned moonlighting and hinted that it be cracked down upon. Other corporate leaders seem to find nothing wrong with the practice, but suggest that employees should disclose other undertakings with the employer.

A crackdown on moonlighting should involve defining it first. Use of the term ‘moonlighting’ conveys secrecy, deception and possible illegality. However, all employees are likely to engage in some undertakings apart from respective full-time employment. A CEO might be on the Board of a sister concern, or be receiving speaking fees for panel discussions and industry events. A manager might cook and sell sweets during festivities or design NFTs in free time. Someone might volunteer at a local animal shelter or resident welfare association. Someone might photograph weddings or organize treks on the weekend. If an employee chooses to sew, write or paint, no prudent employer would berate him as a cheater, even if the pursuits generate a supplementary income. Hence it becomes evident that no prudent employer can, or should, prohibit all side ventures.

At this point a clever HR manager might draw a distinction. First, these tolerable side pursuits are in spare time, thus the employee remains available for work during work hours. Second, the tolerable side pursuits do not conflict with the company’s business and client relationships. Third, employee does not use company resources, know-how or equipment for these ventures. But it is not hard to imagine pursuits where these three conditions are easily met. A software developer could lend her expertise to a free and open-source project in spare time without violating any of the three conditions.

Nothing in statutes applicable to an average IT employer prohibits its employees from moonlighting, especially not when the three conditions are met. Without statutes, legal action cannot involve government machinery and specialized labour courts and commissioners. Therefore, an employer must incorporate sufficient protections in the employment agreement or company policy and create private employer-employee obligations.

The employer must be careful. In employer-employee contracts or policies, the norm is that the employer has an advantage over the employee. Employees have to sign standard form contracts and accept company policies or not be employed at all. Recognizing this disparity in bargaining power, the trend is for the courts to protect the rights of the employees and adopt an interpretation favourable to them.

An agreement by which anyone is restrained from exercising a lawful profession, or trade or business of any kind is to that extent void, unless it falls within the narrow exception carved out by the statute. The underlying principle behind this provision is that an individual is entitled to pursue lawful trade or calling as and when she wills it, and that the law guards against interference with trade, even if it means interfering with the freedom of contract.

Accordingly, Indian courts have consistently taken the view that during term of employment: [A.] negative covenants are enforceable to the limited extent that they are reasonable; and [B.] the purpose of the covenant is to protect the legitimate business interests. The restraint cannot be greater than necessary to protect the interest concerned. A contractual obligation that the employee would not engage himself in a conflicting business, or would not be employed by any other master for whom he would perform similar or substantially similar duties is generally enforceable unless the contract is excessively harsh or one sided. Thus, restrictions should be fashioned as a tool for securing fulfilment of the employment contract and discharge of key responsibilities. A blanket prohibition on moonlighting will not work.

Assuming there is a legally binding and enforceable agreement, enforcement remains a challenge. Even the most airtight contracts require a court order to be meaningful. Depending on the evidence and quality of counsel engaged, it could several years for final determination of the dispute including appeals. The probability of an adverse order for many years down the line creates very little pressure for an employee to cease moonlighting. This assumes the employer is able to discover moonlighting, determine it conflicts with employment agreement or company policy, and is intent on litigation. In most such cases, the cost and effort involved in legal action would be disproportionate to the potential benefit.

Given the status quo, IT employers would benefit from smelling the coffee. Employers should incorporate sufficient and tailored protections in the employment agreements requiring employees be available during work hours, use corporate resources for corporate purpose, and prompt disclosure of side ventures to determine any conflicts of interest. A policy of trust, conversations and transparency could boost employee satisfaction and tackle attrition rates.

A version of this article was first published in The Economic Times on September 10, 2022; available at http://www.ecoti.in/uoRHla56

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