Moonlighting — Breach of Loyalty or a Restriction on Freedom?

Introduction

With work from home/hybrid working having picked up as a norm, employees have found themselves to be at ease to manage and undertake activities other than the assigned work responsibilities which are their primary source of income. The phenomenon of employees pursuing second or multiple jobs (as freelancers, consultants, gig workers, part-time employees or even full-time employees) is commonly referred to as “moonlighting”. Employees engage in moonlighting for various reasons to cope with job insecurity, to generate additional income or to pursue a passion/hobby.

While moonlighting is not a new concept, it has now become more common than ever on account of the flexibility offered by working from home and has become an imminent issue for employers, particularly in the IT/ITES sector. As per a recent survey conducted by Kotak Institutional Equities¹ amongst 400 people in the IT/ITES sector, it was noted that almost 65% of the respondents were aware of people who were pursuing opportunities other than their primary job.

Indian industry is divided on whether moonlighting is legal or ethical, and whether it should be regulated. While some regard moonlighting as unethical and believe that it should be dealt sternly, others believe that moonlighting does not pose an issue so long as the other secondary engagements are not with competitors, do not impact the employee’s productivity or involve unauthorised usage of proprietary information. While the debate continues, we set out below the extant legal position in India on “moonlighting”.

Extant legal position

While the European Union, Netherlands and United States have specific laws that permit dual employment, the extant Indian laws are largely silent on the aspect of moonlighting. Indian labour laws do not prescribe an explicit embargo against a person taking up more than one job at a time. However, to prevent the exploitation of employees, certain restrictions (and not a prohibition) on dual employment have been prescribed.

For instance, the Factories Act, 1948 (Factories Act) (which is only applicable to manufacturing establishments) provides that an adult worker cannot work in more than one factory on any given day, unless the total hours worked is within the prescribed daily working hour limit of 9 hours. Such restriction does not prohibit a worker from rendering services (beyond 9 hours) at any other establishment that is not a manufacturing establishment. However, the draft Model Standing Orders for manufacturing and service sector establishments prescribed under the Occupational Safety, Health and Working Conditions Code, 2020 (which would inter alia repeal and replace the Factories Act once brought into force), permits “ethical moonlighting” whereby employees may take up additional assignments which are not against the interests of the industrial establishment in which they are employed, subject to the employee obtaining prior permission from their primary employer.

Delhi Shops and Establishments Act, 1954 (S&E Act) (applicable to non-manufacturing establishments) provides that a person cannot work for more than one employer in excess of the permissible daily working hours. The S&E Acts of Andhra Pradesh, Telangana and Madhya Pradesh contain provisions prohibiting dual employment of employees during a holiday or on a day that the employee has availed leave.

Therefore, the restrictions under the extant labour laws are largely only on the number of hours that an employee can work in a day, and not on the number of entities that they are rendering services to. Further, the restrictions are only in respect of persons being “employed” with more than one entity — there is no prohibition against a person taking up secondary engagements in the capacity of a consultant, freelancer, gig worker or independent contractor.

Perhaps the only restriction that employers may contractually impose against employees is exclusivity of employment and non-compete restrictions (if provided in the employment agreement) during the employment tenure, whereby employees are prohibited from engaging with other entities (including with a competing entity) in any capacity, during their employment tenure with the primary employer. In certain instances, Indian courts have also upheld the termination of an employee’s services on grounds of dual employment, as it amounts to a breach of the employment contract and impacts the productivity and the efficiency of the employee at the primary workplace.

Industry perspective

India Inc. is divided on whether moonlighting should be permitted as an act. Certain leading IT organisations have equated moonlighting with “cheating” and are inclined to initiate strict action against employees who take up outside engagements. One IT major initiated strong action resulting dismissal of several personnel on account of moonlighting. In stark contrast, certain young organisations have embraced the concept of moonlighting and also adopted policies to prescribe guidelines for “ethical moonlighting”. One such policy states that “any project or activity that is taken up outside office hours or on the weekend, without affecting productivity, and does not have a conflict of interest”, can be picked up by the employees. The employee will have to declare a few details so that the competent designated authority can greenlight the proposed activity.

In a significant development indicative of the Government’s stance, the Union Minister of State for Electronics and IT and Skill Development has mentioned that as long as no contractual obligations are being violated, moonlighting may be allowed, especially in the IT sector.

Dealing with moonlighting and the way forward

Although the legality and morality of moonlighting is still in the grey, the fact is that moonlighting is here to stay. Millennials and Gen Z will continue to upskill themselves, develop their entrepreneurial ideas and diversify their knowledge pool. Accordingly, employers may need to find a middle ground, pre-emptively take measures to define the realms of “ethical moonlighting” and address issues of confidentiality of data, protection of intellectual property, conflict of interest and multiplicity of payroll (including obligations for payment of social security contributions and end of service benefits).

A few considerations for employers are set out below:

1. Formulating a moonlighting policy: Employers may formulate and adopt a robust policy on moonlighting which may prescribe a consent requirement for employees before taking up any secondary engagements in any capacity. The policy may also list out certain activities that would be prohibited — such as engagement with a competitor or engagement with any other entity or in any other activity which may potentially leverage the knowhow acquired by the employee as a consequence of the primary employment or adversely affect the personnel’s performance at the primary job. In case of any non-compliance with such policy, employers may take appropriate disciplinary action against the defaulting employees, including upto termination of employment, subject to due process.

2. Revisiting the employment contracts: Employers may consider revisiting the employment contracts to provide for robust conflict of interest, confidentiality and exclusivity of employment provisions.

3. Frequent checks on the moonlighting employees: Other than the normal review of the work undertaken by the employees, employers may specifically monitor the efficiency of the employees who have engaged in additional interests and keep track of any reduction in their efficiency or productivity. This way, the employers may be able to ensure that allowing moonlighting does not cost them their business and employees’ efficiency.

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