The Legality of Moonlighting

Recently, ‘moonlighting’ became a focal point of discussion amongst IT companies and emerging start-ups. Last month, Wipro, a leading tech giant, terminated 300 (three hundred) employees found ‘moonlighting’ by terming it as ‘an act of integrity violation’. Seeing Wipro’s stance, other IT companies such as IBM and Infosys have also issued strict warnings to all employees to refrain from indulging in this practice.

On the contrary, a few start-ups such as Swiggy saw ‘moonlighting’ with a positive outlook, calling it as a tool of talent retention. The food delivery aggregator became the first one to roll out a specific policy on ‘moonlighting’ to allow its employees to take up parallel gigs and other assignments outside of work hours subject to certain conditions and prior approval of the management. 

Moonlighting: Causes and Concerns 

To put simply, ‘moonlighting’ is the practice of an employee working secretly on a second job, typically after regular working hours. The practice gained popularity due to the COVID-19 pandemic which forced employers to switch to the ‘Work from Home’ (“WFH”) model. The restrictions on office commute along with the flexibility provided by WFH created room for employees to take up extra projects and freelance assignments outside of work. The WFH model made it difficult for managers to exercise absolute control over the working of the employees during working hours and thereafter. 

Even though the COVID-19 situation has gradually slowed down, till date many IT companies offer options to employees to continue WFH on a permanent basis or work in a hybrid mode. However, employers are concerned with the trend of employees secretly working for rival companies post working hours.  

Employers have shown disapproval towards the practice of ‘moonlighting’ by stating it to be an act of ethical concern and have termed it as cheating. Moreover, confidentiality concerns, possible leak of trade secrets, conflict of interest, and productivity issues have also been cited as major reasons by employers opposing the practice of ‘moonlighting’. 

Company’s favouring moonlighting have observed a shift in attitude towards work, especially amongst young people. Whilst implementing a ‘moonlighting’ policy, these companies have stressed that the intention is to enable employees to follow their passion in other fields while simultaneously developing skills and creativity without affecting work productivity. In fact, ‘moonlighting’ can be considered as one of the reasons why a lot of employees are hesitant to resume working physically from the office. As a result, retaining talent has become even more challenging for employers.  

What Does the Law Say? 

The law in India does not specifically define the term 'moonlighting’ however, the practice falls under the garb of double employment. A few statutes contain provisions restricting the practice of double employment. Moreover, courts in India have recognized the imposition of restrictive and negative covenants built-in by employers in the employment agreements to safeguard their business interests and protect themselves from the possible breach which can be committed by the employees. 

Position Under the Labour Law Statutes

In relation to the restrictions on the practice of ‘moonlighting’, a few labour law statutes contain specific provisions imposing a bar on double employment as laid down below:  

1. Factories Act, 1948 (“FC Act”)

Section 60 of the FC Act, states that an adult worker shall not be required or permitted to work in any factory on any day on which he has already been working in any other factory.

2. Delhi Shops and Establishments Act, 1954 (“Delhi S&E Act”)

Section 9 of the Delhi S&E Act states that no person shall work about the business of an establishment or 2 (two) or more establishments or an establishment and a factory in excess of the period during which he may be lawfully employed under the provisions of the Delhi S&E Act.

3. Industrial Employment (Standing Orders) Central Rules, 1946 (“Central Rules”) under Industrial Employment (Standing Orders) Act, 1946 (“Standing Orders Act”)

Clause 8 of Schedule I-B of the Central Rules provides a provision related to ‘exclusive service’ stating that a workman shall not at any time work against the interest of the industrial establishment in which he is employed and shall not take any employment in addition to his job in the establishment, which may adversely affect the interest of his employer. 

4. Industrial Relations Code, 2020 (yet to be enforced)

To give effect to the Industrial Relations Code, 2020 whenever notified, the Ministry of Labour and Employment had published a draft of Model Standing Orders for Service Sector, 2020 (“Draft Rules”) containing a provision related to ‘exclusive service’, prohibiting workers from taking up any additional employment which may adversely affect the interests of the employer. However, the said provisions offer a carve-out that a worker can obtain prior permission from the employer to take up additional employment. 

Enforceability of Contractual Obligations Under Employment Contracts

Though aforementioned labour law statutes contain specific provisions restricting double employment, however, these legislations may not apply to a certain establishment or industry and in certain situations it could be a possibility that the employees employed by an establishment may not fall within the ambit of these legislations such as those working in managerial or supervisory capacity. Therefore, in many cases, the employees are primarily governed by the terms of the contract of employment executed with their employers. These terms play a very crucial role at the time of adjudication of a dispute between the employer and the employee. 

Additional Resource: Commercial Contracts in India and Their Legal Nuances

Judicial View on Double Employment And Negative Covenants

The Hon’ble Supreme Court of India and various High Courts have extensively dealt with the issues related to double employment and negative covenants engraved by the employers under the contract of employment of employees. A few of the notable rulings of the Supreme Court and High Court have been discussed below: 

The Supreme Court, in Niranjan Shanker Golikari vs. Century Spinning & Manufacturing Company Limited dealt with an issue regarding exclusive service provisions in employment agreements and held that “negative covenants operative during the period of the contract of employment when the employee is bound to serve his employer exclusively are generally not regarded as a restraint of trade and therefore do not fall under Section 27 of the Contract Act.” 

In V.D. Deshpande vs. Arvind Mills, the Bombay High Court held that "an agreement to serve exclusively for a week, a day, or even for an hour necessarily prevents the person so agreeing to serve, from working during that period for anyone other than the person with whom he has so agreed. It can hardly be contended that such an agreement is void.”

In the case of Gulbar vs. Presiding Officer, the Punjab and Haryana High Court upheld the termination of a driver who was engaged in double employment upon review of the pay slips furnished by the defendant company as evidence. 

The Delhi High Court in Wipro Limited vs. Beckman Coulter International S.A, held that “negative covenants tied up with positive covenants during the subsistence of a contract be it of employment, partnership, commerce, agency or the like, would not normally be regarded as being in restraint of trade, business of profession unless the same are unconscionable or wholly one-sided”

Analysis of Judicial Pronouncements

As recognised by the Indian courts, employers have the power to safeguard their business interests and impose negative covenants such as exclusive service, non-compete, and non-solicitation in the contract of employment which is applicable during the term of the employment. In respect of the obligations related to the maintenance of confidentiality and trade secrets, the employers can enforce such obligations on the employee during the term of the employment and thereafter. 

Further, as we see from the legal precedents, the courts have taken a balanced stance and have recognised the perspective of the employers imposing stringent restrictions and enforcing negative covenants built-in the employment contracts to exercise overall control and supervision over an employee during their employment. On assessing the practice of ‘moonlighting’ in lieu of the principles laid down by the Indian courts, it can be said that ‘moonlighting’ is a conflict-of-interest issue and a blatant breach of covenants related to exclusive service, non-compete, and non-solicitation restriction.  

What Can Employers do to Safeguard Themselves 

For many companies, ‘moonlighting’ may not be a major threat to their business however, it is essential for the employers to ensure that such practices do not violate the company policy, affects the productivity of employees, breaches confidentiality obligations, or create any conflict-of-interest issues.  

With the increase in popularity of ‘moonlighting’, employers may need to revisit the terms of their current employment agreement with the employees including revamping their company policies. The covenants related to exclusive service, non-compete, non-solicitation, and confidentiality obligations need to be re-examined and drafted with utmost diligence and care to restrict employees from engaging in such practices. 

The key issue with ‘moonlighting’ is that it is difficult for employers to ascertain any specific employee engaging themselves in this practice. Companies can consider building stringent cybersecurity policies and systems to keep track of the activities and detect any possible acts of ‘moonlighting’ by an employee. Any employee found in violation of the cybersecurity system can either be issued a warning or be terminated depending upon the degree of violation. Moreover, companies can also check the data of the provident fund account of the concerned employees to ascertain if they are getting provident fund contributions from any other employer. 

Lastly, employers willing to support the idea of ‘moonlighting’, can permit the same on an institutional level by imposing certain embargos on the employees to not engage with direct competitors, share confidential data with unauthorised persons or use company laptops or equipment while working on a second job. A policy can be instituted by the employers where, obtaining prior written approval from the management will be mandatory for an employee to work on any additional job, assignment, or project during the course of their employment.