Closing the curtains on moonlighting: It all comes down to effectively drafted contracts

Closing the curtains on moonlighting: It all comes down to effectively drafted contracts

Article Type: Employment Law Outlook From: Human Resource Management International Digest, Volume 23, Issue 2

With the cost of living rising in major cities, many employees are forced to take on more than one job either in the same industry or others. This may harm the original employer’s business and interests.

To protect their interests, it is not uncommon for employers to include provisions in employment contracts and/or implement policies to restrict employees from undertaking other employment. These policies often include procedures that need to be followed by employees undertaking other employment.

What can employers really control?

The answer to what employers really control can be found in two cases, deliberated by the Fair Work Commission in Australia, as to when their employees’ after-hours conduct can be considered serious misconduct, justifying their termination, and how to ensure that employment terms are drafted to best protect employers’ business interests.

The first case revolves around the use of social media at work. An employee’s misuse of LinkedIn is played out in Bradford Pedley v. IPMS Pty Ltd T/A peckvonhartel (2013) FWC 4282. Pedley was employed by an architecture and design firm (PVH) as a senior interior designer. Before his appointment, Pedley informed PVH that he intended to continue to carry out private design work in his own time through his own business; Reveal ID. PVH did not prevent him from this.

Two years later, on January 14, 2013, he sent a group an e-mail via LinkedIn to his connections, including people who were clients of the employer, indicating that he was looking to expand his own interior-design company into a full-time operation. The employer dismissed him for breach of employment contract.

The contract included a clause preventing Pedley from engaging with any business or activity that competes with the employer. Additionally, it was argued that Pedley had breached a clause of the contract that required him to act honestly at all times and in a manner consistent with his employment.

The commission found Pedley’s dismissal valid because his LinkedIn e-mail attempted to solicit his employer’s clients. This amounted to serious misconduct under the Fair Work Act 2009 in that it was inconsistent with the continuation of the contract of employment and caused serious and imminent risk to the reputation, viability or profitability of PVH’s business.

The commission, in its findings, highlighted the fact that Pedley was a relatively senior employee with a reasonable degree of autonomy, and that PVH had trusted him to deal directly with its clients. It also asserted that by granting Pedley a limited right to perform private work, PVH had not waived its right to object to Pedley soliciting transfer of its clientele’s business to Pedley’s business.

Conflict of interest

The commission’s decision in Pedley’s case contrast with its later decision in Adidem Pty Ltd T/A The Body Shop v. Suckling [2014] FWCFB 361. In this case, Suckling was employed by The Body Shop as a consultant support adviser for its online-sales division. The Body Shop operates through three main business divisions: retail, online and The Body Shop at Home (BSH). Suckling’s role required her to take and make telephone calls with independent contractors to record details of sales and other activities.

While still employed by The Body Shop, Suckling entered an independent consulting agreement with PartyLite, which sells candles to independent consultants such as Suckling, who then sell them to consumers at parties and other functions. The Body Shop also sells candles.

The Body Shop terminated Suckling’s employment when she refused to resign from PartyLite. Suckling’s employment contract contained a conflict-of-interest clause which prevented The Body Shop employees from simultaneously working for any other enterprise that is considered a marketplace competitor. To do so was considered misconduct that could lead to termination of employment.

The commission found that Suckling had been unfairly terminated from her employment at The Body Shop and ordered that The Body Shop pay her compensation representing five months’ pay.

The commission’s reasoning was based on the fact that Suckling was not actually working for PartyLite, she was working for herself, meaning her conduct was not in breach of the conflict-of-interest clause in her employment agreement with The Body Shop because she was not working for a competitor.

The implication was that the clause was referring to “employed” work. The agreement between Suckling and PartyLite expressly stated it was not a contract for the supply of services, nor for the performance of any work, and that she could resell PartyLite products at prices she set. An underlying factor was that this case dealt with a junior employee, whose candle-selling in her spare time was unlikely to significantly affect her employer or her ability to do her support-adviser role.

Lessons for employers

There are similarities between the facts in Pedley and Suckling. Both Pedley (as owner of a business) and Suckling (as an independent contractor) acted in an independent capacity and were involved in a competing business. As in Suckling, Pedley sought to promote a competing business during the term of his employment.

However, the critical difference lay in the drafting of Pedley’s restraint clause. Pedley’s employment agreement precluded him from being involved with any business that could result in the business competing with his employer. Pedley’s conduct provided a valid reason for termination, as it was in breach of the express terms of his employment agreement.

The lesson from Suckling’s case is that employers can prevent outside-of-work-hours competitive engagements by their employees, but they must take care in drafting the contractual restraint. The Body Shop’s contract was not effective in serving the intention of the employer.

Employers can manage employees from conflicting with the employer’s interests by relying upon effectively drafted contractual restraints. The wording of the conflict-of-interest clause should clarify what is meant by “working for a competitor” to ensure that all types of relationships are covered.

Both cases show the importance of employers:

• setting clear expectations, preferably in employment agreements, related to their employees’ out-of-hours employment or activities which could harm the business; and

• implementing general and social media policies that adequately explain the business’ approach to, and tolerance of, their employee’s online activities.

References

Adidem Pty Ltd T/A The Body Shop v. Suckling (2014) FWCFB 361.

Bradford Pedley v. IPMS Pty Ltd T/A peckvonhartel (2013) FWC 4282.

Note

Dr John Chelliah is a senior lecturer in management at the Business School, University of Technology, Sydney, Australia. Tel: +61 2 95143608. John Chelliah can be contacted at: john.chelliah@uts.edu.au