Article: Moonlighting: What does it mean for your business

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Moonlighting: What does it mean for your business

Indian judiciary does not have a straitjacket formula in matters related to dual employment, and the decisions of courts depend upon the facts and circumstances of each case.
Moonlighting: What does it mean for your business

Moonlighting is the practice of having additional employment usually without the consent of the principal employer and outside the business hours of one’s primary employment. Industry discussions around the practice of moonlighting have intensified in India after the release of several news reports on such incidents in the IT sector. Largely, companies have taken a tough approach towards moonlighting and gone to the extent of terming such acts as incidents of ‘cheating’. However, some companies, having considered moonlighting to be a part of the changing employment landscape, are in the process of devising ways to deal with the same. 

Keeping in mind the changing landscape with respect to the practice of moonlighting, the approach of organisations to deal with the same should be in consonance with Indian laws. 

The legal status of moonlighting 

Indian laws, at present, do not prohibit the practice of moonlighting or dual employment. 

The Indian Contract Act, 1872 (the ‘Contract Act’) deals with dual employment. Section 27 of the Contract Act prohibits agreements in restraint of trade. Moonlighting is an arrangement wherein the employees provide services to a second employer. Such services are not provided during the course of an employee’s primary employment. Indian courts, in a plethora of judgements, have held that restrictions which operate on an employee during the course of employment and are reasonable are valid. A reasonable restriction during the course of employment typically falls outside the purview of Section 27, unless the contract is unconscionable. 

The Factories Act, 1948 places a restriction on the dual employment of workers. The Industrial Employment (Standing Orders) Act, 1946, and the rules made thereunder provide that workers should not take up any employment in addition to their job in the present establishment which can adversely affect the interest of their present employer. 

In one of its landmark judgements, the Supreme Court of India has observed that the general rule governing the relationship of a master and servant is that a subsisting contract of service with one master acts as a bar to service with the other master unless the contract otherwise provides or the master consents. However, the Punjab and Haryana High Court upheld the dismissal of an employee on the grounds of dual employment. Similarly, a district court of Delhi upheld the dismissal of an employee for having dual employment. 

Hence, the Indian judiciary does not have a straitjacket formula in matters related to dual employment, and the decisions of courts depend upon the facts and circumstances of each case. 

Risks associated with moonlighting

Risks associated with moonlighting include the loss of confidential and proprietary information of the primary employer, conflict of interest, violation of non-compete clause, etc. 

Additionally, the practice of moonlighting may lead to several practical complications and compliance issues for organisations. 

How to deal with moonlighting?

Preventive approach

Employers looking to prevent moonlighting should expressly incorporate a clause in employment contracts prohibiting moonlighting. Employment contracts should explicitly mention that a breach of the clause prohibiting moonlighting would amount to misconduct on the part of the employee and the employer would have a right to take appropriate remedial action, including termination, on the grounds of misconduct. Organisations may also add liquidated damages for the breach of this clause in employment contracts. This would act as a deterrent for employees looking to engage in dual employment. 

The manner of drafting the moonlighting clause plays a vital role. It should be drafted in such a manner that it prohibits employees from entering into dual employment not only during their working hours but also during non-working hours (including holidays and weekends). 

Accommodative Approach 

Employers looking to adapt to moonlighting need to frame a comprehensive moonlighting policy. Such a policy may cover, inter alia, the following aspects.

Listing of competitors: The employer should provide a list of its competitors, in which it would strictly prohibit its employees from working. 

Regulating the hours of work: Subject to an employee’s working arrangement with their other employer, the primary employer should specify the maximum number of hours for which an employee would be allowed to work in their secondary employment. 

Specifying the sectors: In order to prevent any future disputes, the employer can specify the sectors in which an employee can work freely. 

Prior approval: Companies should make it mandatory for employees to take prior approval from the employer before taking up any other employment. 

Indian laws do not fully prohibit moonlighting. Considering the changing employment landscape, practically, it becomes difficult for companies to curb incidents of moonlighting. Thus, even if companies want to impose a blanket ban on moonlighting by incorporating exclusivity clauses in employment contracts, enforcing such clauses may not always be practically feasible.

Further, companies that intend to take a slightly flexible approach to moonlighting may permit some employees to take up secondary employment on a case-to-case basis. However, they should specify the sectors and roles in which their employees may work in addition to their primary employment. Such sectors and roles must be decided to keep in mind the business interest of the primary employers and the threats and risks, as highlighted above. 

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