[The Viewpoint] Out of the Darkness? Moonlighting and Employment Relationships

The recent article about Wipro having fired 300 staff members found to have been moonlighting looks to be the starting volley in a to and fro between employers and employees. From the sidelines of the 49^th All India Management Association convention on 22^nd September, Rishad Premji, the executive chairman of Wipro is reported to have said that individuals and organisations can have very candid conversations about whether they want to play a band at night, or work on a project over the weekend. The reality, however, is that employees working for Wipro were also working directly for the competitors of the company, and that was a “complete violation of integrity in its deepest form”.

Rajya Sabha MP and Minister of State for Electronics and IT, Rajeev Chandrashekhar said that companies trying to prevent employees from working on their own startups or consulting for other firms “is a doomed-to-fail exercise”. The fact that such a statement has been made by a Minister of the Government of India is significant.

So, who is right, and what is the fuss all about?

The Cambridge Dictionary defines moonlighting as an act of working at an extra job, especially without telling the main employer. The object of moonlighting is earning additional income without the knowledge of the primary employer. While this is a common practice in the US and several European countries, the pandemic was a catalyst for the emergence and subsequent surge in moonlighting in India, especially in the IT/ITES sector. WFH during the pandemic made it easier for an employee to take a second job without the knowledge of the primary employer. In addition to that, the acute shortage of skilled workers, new skill development and extra income are some of the major factors for the surge in moonlighting across the country.

According to a study by ResumeBuilder.com, in the USA 69% of remote workers are working in a second job, 37% have a second full-time job and 32% have a side hustle. The same is the case in India, with many employees in the IT sector working more than one job. One of the first cases of moonlighting in India of a person working seven jobs came to light when the HR department of one of those companies tracked multiple active provident fund accounts of his. This trend is clearly increasing, and organizations and governments will need to think about how best to manage moonlighting and maybe in certain cases, leverage moonlighting. 

Organizations are typically wary of moonlighting because of the impact it can have on the business, their clients, their business partners and other stakeholders. Some of the key concerns are:

• Efficiency & Productivity loss

• Threat/high risk of data leakage (client data, organizational data, PII data, intellectual property (that of the organization, client, business partners, etc.)

• Burnout of employees

• Possibility of moonlighting shifting to daylighting

• Multiple organizational commitments leading to breaches of loyalty and trust of the employer, among others

• De-prioritization of tasks and deliverables

All these could lead to potential litigation, financial loss, bad press, loss of reputation, negative impact on employee morale and much more. Contractual obligations, particularly those involving intellectual property transfer and protection and security of critical client data, require the parties to those contracts to maintain a certain level of information security, and breach of those obligations by a moonlighting employee using confidential information unauthorisedly can have severe consequences for the concerned parties.

Moonlighting as a concept is not alien to India. In fact, dual employment and moonlighting have been quite rampant in the unskilled sector, especially in Industrial towns where ample opportunity exists.

It is with this background that legislations like the Factories Act, 1948, the Bombay Shops Act, 1946 and the Delhi Shops Act, 1954 prohibit dual employment.

The fundamental legal tenet that allows the prohibition of moonlighting is the implied exclusivity associated with employment. While in the employ of a company, the company has exclusive rights to the skill of the employee and the working time of the employee.

With the Labour Codes on the Anvil of being notified soon, it is noteworthy that the Occupational Safety, Health and Working Conditions Code, 2020 imposes a restriction on double employment in a factory and mine.

Additionally, the draft Model Standing Orders for the Services Sector, 2020, which will be applicable to the IT and ITES sector, has provisions in relation to “exclusive service” while allowing employees to take on additional job/assignment with their employer’s prior permission.

The law however, allows employers to prevent employees from working for another employer during the period of their employment by making this a part of their employment contract. It is a standard practice for employment contracts, employee handbooks or service conditions imposed through standing orders to incorporate language prohibiting employees from working for another employer during the period of employment.  The question is, if such a clause can be legally enforced or would it be hit by Section 27 of the Indian Contract Act, which was the source of the controversy that arose in April this year regarding post-employment non-compete clauses in employment contracts. It is clear however that Section 27 (contact in restraint of trade, business or profession) would not apply to any such restrictions imposed during the course of employment.

Employers may take either the high or the low ground when it comes to moonlighting. The high ground is to permit their employees to work for other employers as long as the interests of the first employer, and the requirements of law as to working hours, etc. are satisfied. The low ground is perhaps best described as the traditional view of requiring employees to work only for the one employer with its attendant restrictions, done especially to protect intellectual property and sensitive data. This depends entirely on the contract between the parties which reflects the requirements and priorities of the employer.

Following are some means by which the employers may deal with moonlighting:

1. Contractual Protection: The first line of defence is to incorporate suitable contractual provisions in the terms of employment, whether in the appointment letter or in policies or other documents that form a part of the terms of employment.

2. Vigilance: Employers need to be vigilant regarding protection of their rights by tracking their employees’ performance levels, investing in better cyber security protection and creating better awareness among their employees. Such an option might be suitable for companies dealing with sensitive or critical data. In fact, clients of such companies might deem it imperative to disallow other work or moonlighting by the employees.

3. Employing Freelancers and “Pay as you go” Formula: As a policy, the company may engage gig / platform workers or freelancers depending on the project and skill set required for the business. It has the benefit of knowledge-sharing as well as a reduced financial burden on organizations. While this might suit smaller companies or startups and has its advantages in terms of flexibility, it might not suit organizations beyond a certain size.

4. Joint Employment: This is a term used to describe an arrangement where an employee is allowed to work for more than one employer. Under the US Fair Labor Standards Act (FLSA), an employee can work for more than one employer, with certain categories of employees who are exempted from the scope of FLSA.  This Doctrine of Joint Employment is seen as a solution for employees to work with dual employers as well as employers with regard to social security coverage for such employees. However, different states may have their own restrictions in relation to dual employment.

Employers view moonlighting in a negative light due to legitimate concerns and fears of breach of sensitive data to competitors, breach of trust and loss of productivity among several things. However, when acknowledged and implemented well, moonlighting is not necessarily a bad thing, and may bring benefits to the employers in the form of cross-pollination of ideas and also gain advantage from newly acquired skills. At the same time, it must be recognized that organizations have valuable intellectual property that need protection as well as the safeguard of contractual obligations – to several key stakeholders including customers, suppliers and business partners – that need to be complied with. If prevention of moonlighting is a doomed to fail exercise, then so, ultimately, is the sanctity of contracts itself.

A contract is not a one-sided document. Both employers as well as employees have obligations under the contract of employment. It is not fair to the employers to expect them to pay salaries and in all other ways comply with their obligations under the employment contract, while at the same time the employees are not required to comply with their obligations to the employer.

With all this, it is necessary that employers take moonlighting, as well as their own requirements, into account when designing and implementing their HR policies and practices, using the existing law of contract and intellectual property to protect their interests.

At the end of the day, then, (or should we say in the moonlight hours) a question we must ask is whether this is an area in which the law really needs to interfere further.

Deepak Daglur is the Managing Partner, Arvind Moorchung is an Advocate & Associate Partner and Keerthanaa B is an Advocate & Associate at BCP Associates LLP.