Side Hustles Happen—Here’s What You Need to Know to Protect Your Business

August 2, 2022
Side Hustles Happen—Here’s What You Need to Know to Protect Your Business

The number of individuals in the workforce holding down multiple jobs has grown exponentially in recent years. This trend pre-dates the pandemic with the explosion of the gig economy but, like many aspects of business, it accelerated at lightning speed once COVID-19 hit. Whether individuals were picking up second or third jobs due to displacement during the pandemic, the skyrocketing cost of living in this new economy or simply because the pervasive shift to working from home has given rise to the opportunity to do so, small and medium-size businesses should be aware of what this could mean for their companies so they can put policies in place to protect themselves, their employees and their customers.

When is Moonlighting a Conflict of Interest?

Working a second job may be just fine, as long as the employee is still effective and efficient in performing the duties of their primary job. However, it could become a problem—or a conflict of interest—if the second job takes time and energy from an employee’s responsibilities at their main job or is otherwise inconsistent with their duty of loyalty to the primary employer.

Employers typically have a legitimate business interest in knowing when an employee’s outside activities involve a conflict or potential conflict with the employee’s duty of loyalty to the employer. When examining an employee’s outside activity, employers should evaluate whether the outside activity:

  • involves a competitor or an activity that is a conflict with the employer’s business;

  • interferes with an employee’s duty to the company and/or

  • interferes with the employee’s regularly scheduled or expected work hours.

For example, an employee offering personal training on the weekends from their home gym may not be an issue if they work as an auditor for your fintech firm during the week. But if you own a gym where you have hired them to run your fitness program, their side hustle could be in direct competition with your business.

Likewise, an engineer at your commercial architecture firm writing articles on backyard gardening for a local home & garden publication may not cause concern for your business. However, if they are writing about building publicly accessible greenhouses for a magazine not affiliated with your firm, you may want to dig deeper into these activities to decide if they present a conflict.  

Be Mindful of Laws Protecting Employees Who Engage in Outside Activities

It is important for companies to understand that there are a number of jurisdictions in the country that prohibit employers from taking adverse action against employees who have engaged in what would otherwise be lawful conduct outside of regular work hours or away from the employer’s premises. Basically, this means that if what employees are doing in the hours they aren’t working for you is not illegal or in direct conflict with their duties to your company, you could get into trouble, depending on where your business operates, for taking adverse action of any sort due to their outside activities.

Always take into account such laws and regulations affecting your company. Be sure to work with qualified legal and HR representation when creating or reviewing a policy regarding outside activities. Your policy should respect your employees’ needs and rights while providing reasonable protection to your business.

Items to Include in an “Outside Activities” Policy

Once you decide it’s time to set some parameters around what your company can tolerate in regard to outside employment or other activities, you’ll want to adopt an official policy to ensure everyone at your company has knowledge of what is expected.

Some examples of activities a company may deem unacceptable and include in their outside activities policy include:

  • Performing work for an outside company during work hours which, for exempt employees, may be greater in number and variability than for non-exempt employees.

  • Using equipment, including laptops, mobile devices, company vehicles, office supplies, workspaces or any property owned or leased by your business to benefit another employer. 

  • Using confidential and/or proprietary information, trademarks or copyrighted material to benefit an outside employer.

  • Soliciting or marketing to your company’s employees, customers, vendors or anyone known through your business to further the interests of the employee’s outside activity.

It is vital that your policy outlines, to the extent possible, what will constitute a violation of the policy, how a violation will be determined and what the consequences may be.

Enforcing an “Outside Activities” Policy

Making a decision on side hustles or other outside activities can get very complicated. You want to protect your business interests, but you also need happy employees who feel supported in growing and developing to their full potential. Employees don’t want to be treated like children or feel that they are being surveilled by their employer.  

So, just as it’s a good idea to have a comprehensive policy that states your guidelines for outside activities in writing, it is also important to have a system to evaluate each instance on an individual basis to assess whether it poses a concern.  A one-size-fits-all evaluation is generally not the right solution. Your decision on whether something is a violation should be based on the nature of the outside activity in question and the risk that it might pose to your business.

You might want to require every individual in the company to disclose any additional outside activities they take on. Then you can evaluate if each one is an actual or potential conflict of interest as part of a formal process based on a cadence set forth in your policy.  Alternatively, you can leave it to the individual to decide if it is something they should bring to your attention under a set of guidelines you provide. Whichever way you decide to proceed, here are some items to consider when evaluating if your employee’s outside activities warrant additional action or not:

  • Is it an actual or potential conflict of interest? If you’re not certain, then it is best to speak with your company’s legal counsel before making any decisions. This will help you stay in compliance with regulations in the jurisdiction(s) in which your company operates.

  • Is there a risk of other potential policy violations, such as theft of time or resources, if the employee were permitted to proceed forward with the outside employment?  If so, is there a way those risks can be successfully mitigated and/or monitored?

  • What is the individual’s role in the company? People with highly visible roles such as founders, executives, members of the board of directors and spokespeople will be more enmeshed in the brand and have less flexibility in their ability to distance themselves from the company after business hours. Therefore, standards for moonlighting activities for them may be more stringent than the standards for individual contributors.

  • What is it that you wish to accomplish with your policy? Are you coming from a place of fear and fixed boundaries or a place of support and genuine concern for your employees’ well-being on and off the job?  If you find a violation, do you intend to terminate or demand the employee cease the outside activity? What is the impact of either of those choices on your company culture and the work environment you wish to create?

Keep in mind that permitting outside employment doesn’t have to be an either/or thing. Sometimes adding some guidelines or conditions as part of your evaluation may be a good solution, rather than forbidding an employee to continue in an additional role with one or more other companies. Again, involving your company counsel and taking care to evaluate side jobs on an individual basis will go a long way toward ensuring a proper outcome for all involved.

Additional Protective Measures

With the move away from traditional office spaces, implementation of flexible hours, more focus on work/life balance and the uber-competitive hiring landscape, it is more difficult than ever for an employer to know with confidence if an employee is engaging in behaviors or activities that could be problematic or competitively harmful to their business.

As an employer, you may find it useful to look at additional means for protecting your business, such as leveraging technology infrastructure to monitor and protect company information and assets, time tracking and ensuring there is a process for employees to anonymously submit any concerns they have that could negatively impact the company. Keep in mind, however, that these practices likely will have to be disclosed to your employees and they could resent monitoring and actions they may perceive as being overly intrusive.

This communication is for informational purposes only; it is not legal, tax or accounting advice; and is not an offer to sell, buy or procure insurance.

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