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HR Magazine - October 2000: Do You Need a Moonlighting Policy?

HR Magazine, October 2000

Vol. 45, No. 10

Do employees step out of your workplace into second jobs? If so, you may need to protect your interests with rules about outside work.

Chances are, most human resource managers don’t know or care whether employees work elsewhere during off-duty hours. For legal reasons, HR is generally loath to delve into any off-duty activities, including second jobs. It’s not HR’s business.

Or is it?

With the demand for workers high, the opportunities for employees to moonlight also appear to be growing. A moonlighting policy—to communicate performance expectations, prevent conflicts of interest and protect proprietary information—may make sense for some employers.

A substantial number of employees work for more than one employer.

In 1998, 7.9 million—6 percent of the U.S. labor force—held more than one job, according to the latest figures from the U.S. Bureau of Labor Statistics. More than half of these "multiple jobholders" worked full time at a primary job and part time at a second job.

Take Ron Geirlack, who writes software programs, networks computers and performs related work for professors at Carnegie Mellon University in Pittsburgh. He moonlights on some evenings and weekends. For one recent moonlighting assignment, he designed a web site for a commission of the U.S. Treasury.

Geirlack says he finds part-time work easily because he knows 15 computer programming languages and has broad-based computer skills. Some leads come through friends, others through the Internet. "It’s nice to have that extra income," some of which will come in handy for his wedding and honeymoon next year, he says.

Geirlack says he hasn’t told the university about his outside jobs, but he adds that he’s only prohibited from working for direct competitors or on university-owned computers in professors’ homes.

What if Ron Geirlack worked for you and you didn’t know about his outside jobs? Would you want to know? Would you need a policy to cover how moonlighters disclose those outside jobs to you, or one that limits their ability to work while on leave from your company?

Is a Policy Right for You?

Employment lawyers, consultants and HR managers disagree on whether employers need policies to specifically address moonlighting. Some believe that policies on job performance and conflicts of interest cover all the bases. Others say a distinct moonlighting policy clarifies employer expectations regarding outside work to employees.

Moonlighting can become a concern for employers if they believe outside jobs could interfere with employee loyalty to their primary jobs or leave employees too tired to be productive. Worse, workers could start showing up late, leaving early or calling in sick because they need to get to, or are coming from, other jobs.

"It’s hard to serve two masters. It becomes a question of commitment and [having] enough energy to do the job," says Fred Manning, an employment attorney at law firm Ellzey & Brooks LLC in Columbia, S.C.

But other experts believe moonlighting policies can do more harm than good by undermining trust between employers and employees.

"I think it’s very dangerous" to set a policy, says HR consultant Julia Lodmell McKnight of Lake Wales, Fla. She recently advised against a nonprofit client adopting a policy requiring employees to register off-hours jobs, in part to avoid identification as "Big Brother." In McKnight’s view, ethics policies commonly found in employee handbooks should cover most problems that arise from moonlighting. Performance issues, such as tardiness, can be addressed during talks with supervisors and regular reviews.

"I think we need to assume that employees who take advantage of moonlighting for whatever reason … will be responsible on the job," McKnight adds.

Deciding for or against a moonlighting policy depends on an employer’s circumstances. Companies burned in the past by a moonlighter are likely to have policies. Ditto for those companies where HR has found that many employees have outside jobs.

Employer Experiences

One employer with a high proportion of moonlighting employees is the City of Lake Wales, Fla. Half of Lake Wales’ 185-member workforce holds second jobs, says Sandra Lawson, the city’s HR director. Many police officers and firefighters work 24 hours a day, three or four days a week, which leaves more full days to pursue other jobs and even their own businesses.

The city adopted a policy on outside employment in 1994 after a water department supervisor who ran an irrigation business on the side hired a few of his subordinates, some of whom performed their private-sector jobs on city time, Lawson says. The supervisor was terminated.

The city still allows moonlighting, but only under certain conditions. Its policy requires moonlighters to notify their bosses in writing of second jobs, prohibits the use of city property for outside employment and allows department heads to withdraw permission to moonlight if the second job’s responsibilities are "inconsistent" with those of the city job. If performance problems persist, the city can force employees to choose between the two jobs.

SwitchCore Corp., a 12-employee developer of switched devices for Internet and data communications in San Jose, Calif., also has a moonlighting policy. The company’s primary concern about moonlighting is the protection of trade secrets, says HR manager Lori Ganzer.

"I prefer to address things proactively. This way, it’s all spelled out for employees," says Ganzer, who moonlighted as a bartender while in a former HR job.

SwitchCore requires all employees to sign a confidentiality agreement separate from the moonlighting policy. Because the confidentiality agreement doesn’t explicitly state that outside jobs could pose a potential conflict of interest, Ganzer says, she made sure the moonlighting policy does address conflicts of interest. Ganzer says she developed the policy by reading sample employee handbooks and consulting legal sources.

SwitchCore’s policy "strongly discourages" outside employment and requires those who take second jobs to obtain the approval of their managers and the company president and to "uphold [their] responsibilities to SwitchCore," according to the policy’s language.

Not all companies see the need for moonlighting policies. Human Genome Sciences Inc., a biopharmaceutical company in Rockville, Md., requires all new hires to sign a confidentiality and noncompete agreement that bans them from working for competitors during their tenure with Human Genome Sciences and for a period of time after they leave the firm.

"We’ve actively discouraged working for another biopharmaceutical [company]. There are too many trade secrets involved," says Susan Bateson McKay, vice president of HR. In practice, moonlighting hasn’t been much of an issue at the firm because people simply don’t have time for it, she adds.

Pan It, Don’t Ban It

If you do want a policy on outside employment, it’s best not to ban other jobs outright, HR experts say. A better approach is to state that you discourage outside employment. As a matter of law, a ban might be unenforceable, and as a matter of policy, a ban is poor employee relations.

"People need to have the freedom to make choices about how to get to a desired income level, particularly if you’re a single parent," says McKay.

A ban also could cause recruitment problems. "If you [impose] restraints … people will say, ‘I can go somewhere else.’ You would dry up your talent pool," says Brian Zevnik, editor-in-chief of Alexander Hamilton Institute Inc., a business publisher in Ramsey, N.J.

Even if you still want a ban, you may not have the legal ability to prohibit outside work.

The legal status of moonlighting is unclear and varies from state to state. Many state laws protect employees from job actions related to their off-duty conduct—although most of those laws pertain to employee use of tobacco products and alcohol and do not mention outside employment.

Often, these state laws include exceptions for situations that create a conflict of interest for employers. New York’s statute protects a variety of activities, including union membership, but does not protect off-duty conduct that creates a "material conflict of interest" related to employers’ trade secrets and proprietary information. According to Ken Margolis, a partner at New York law firm Kauff, McClain & McGuire LLP, employers in New York probably could legally ban moonlighting, although such a ban hasn’t been tested in court.

In contrast, California law appears to prohibit an employer ban on moonlighting. On Jan. 1, the state code was amended to prevent employers from taking adverse personnel actions based on lawful off-duty conduct. "The amendment raises questions concerning the continuing legality of employer policies against moonlighting…and even [policies against] conflicts of interest," according to an article on Kauff, McClain’s web site. Like the New York law, the California law hasn’t been tested in court.

In general, employers have the right to impose "reasonable restrictions" on employees, such as those contained in conflict of interest policies, Manning says. The trick is to draw the line between protecting the company and protecting employee privacy.

Using Noncompete Agreements

Employers pondering whether to adopt a moonlighting policy have a few options. The simplest is to have no policy at all and to rely on existing agreements or policies on nondisclosure, noncompete, ethics and performance.

Another option: If you have noncompete and nondisclosure agreements that apply to departing employees and cover their post-employment actions, you could have current employees sign similar agreements covering the period of their employment, Manning says.

There’s nothing wrong with implementing a separate moonlighting policy if it seems appropriate, experts say. One advantage of having a distinct policy on moonlighting—as opposed to relying on noncompete agreements—is that the moonlighting policy can cover an array of outside jobs, says attorney Laura Sack of Kauff, McClain. In contrast, noncompete agreements, which typically ban work for competitors for one or two years after employment ends, must be narrowly tailored to cover jobs similar to the one the employee left.

Cover Clients, Vendors, Leave

If you want to create a moonlighting policy, you may want to include your company’s positions on working for clients or vendors; moonlighting while on leave; and providing information about outside jobs.

While it’s common to prohibit working for direct competitors, policies on working for the employer’s clients or vendors vary. Some firms ban outside work for clients or vendors to avoid a conflict of interest or the appearance of one, as well as to protect against disclosure of proprietary information. Others allow moonlighting for clients because it can strengthen the employer’s relationship with key clients.

Deltek Systems Inc., a software company based in McLean, Va., once allowed a long-term employee to moonlight for an important client, says HR director Mary Burden. The client asked the employee, a software developer who had worked at the client’s site installing a Deltek system, to do unrelated technical work. Deltek, which has no formal moonlighting policy for its 700-plus workers, approved the request, in part to bolster its ties to the client, Burden says.

Another question is what to do if employees moonlight while on leave. Employers are within their legal rights if they ban employees from working outside jobs while on leave, Sack says.

However, do not assume that because an employee is on leave under the Family and Medical Leave Act of 1993 that the employee is prohibited from working. The law says nothing about what employees may or may not do while on FMLA leave. If you want to prevent employees from moonlighting while on FMLA leave, you will need a company policy prohibiting work while on leave.

To guard against discrimination claims, firms restricting work during leave should treat workers on FMLA leave the same way they treat those on other types of leave, Sack adds.

How Nosy Can You Get?

A policy might require employees to report their outside jobs to you. How much information can you gather about an employee’s off-duty job? Can you ask who employs him, when and where? HR experts’ advice is to find out just enough to determine if the outside job is a conflict of interest. Otherwise, butt out.

Many employers ask workers to inform them of outside employment and, in some cases, obtain permission for it. But there’s usually no need to know the identity of the outside employer, number of hours worked and other details. It’s best to put this policy in writing to avoid confusion about what information is and isn’t required, Zevnik says.

"We can ask them anything that pertains to our nondisclosure agreement," says Janine Mohl, staffing manager at Network Solutions Inc., a Herndon, Va.-based registrar of Internet domain names. If a second job interferes with performance on the primary job, that’s still not a reason to pry, she adds. "If their second job is causing them to not work productively, we don’t get into why. [We come] up with a plan going forward about how to improve their performance."

Unlike most employers, the City of Lake Wales asks its employees to fill out a form that asks for details such as the second employer’s name, owner, address and type of business, as well as whether it contracts with the city. Lake Wales employees are prohibited from working for city contractors. HR manager Lawson says that when anyone complains about the form, "We explain that we pay their salary, and we need the public’s trust."

Employers should also be wary of attempting to delineate what types of outside work are allowed. Although it’s natural for a company to want to safeguard the skills it’s nurtured, splitting hairs—saying, "You can do this but not that"—makes moonlighting policies unnecessarily complicated, Manning says.

"Unless it’s a conflict of interest where the two companies are competing, it’s not relevant what the person is doing," says Diane Pratt, vice president of electronic HR at KnowledgePoint, a Petaluma, Calif., firm that develops HR software. "Whether you’re going out at night flipping hamburgers or writing [computer] code, it’s the same."

Carolyn Hirschman is a business writer based in Rockville, Md. She has written for a variety of business publications and has covered workplace issues since 1991.


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