When an employee has a side hustle: what’s fair at work?

Having a “side hustle” can be a dangerous choice for employees if they don’t have permission from their employer.

A recent unfair dismissal case has reinforced the rules around employees running side hustles while holding down a full-time job.

Thanks to the internet, and a plethora of ready-made e-commerce platforms operated by technology giants such as Amazon, eBay and Alibaba, setting up and running an online business has never been easier.

Data collection group Statista projects that online retail sales in Australia will exceed 7 per cent of all retail sales in 2019, with more and more consumers choosing to shop for goods and services over the internet. That correlates with Australian Bureau of Statistics’ data showing the number of internet subscribers across the nation is rising, and is close to topping 15 million.

They are tempting statistics, and many Australians have already established full-time online businesses in a bid to catch a ride on the rapidly growing online retail wave. Many others, who hold full-time jobs, have established online hobby businesses on the side to earn extra cash.

However, be careful. Having a “side hustle” can be a dangerous choice for employees if they don’t have permission from their employer, especially if their work contract expressly prohibits side activities.

More to the point, most employers will expect their employees to be fully dedicated to their roles, and will not tolerate any cross-over with outside income-earning activities.

Related: Side hustle: why there’s no better time to be a part-time entrepreneur

A case study in hobby businesses

In 2018 the Fair Work Commission presided over an unfair dismissal claim where an employee had been terminated by her employer for breaching her contract conditions in relation to undertaking outside work.

In the case of Abigail Jackman v Lek Supply Pty Ltd T/A Lek Supply, the commission heard that Lek Supply dismissed Jackman on the grounds of conflict of interest after it was found she was running an online business concurrently with her full-time sales position.

Utilising multiple social media platforms, the online business listed Jackman as the sole “team member” and advertised its operating hours as Monday to Friday, from 9.00 am to 5.00 pm.

She was dismissed after a customer complained about a wrong order. When management investigated, other employees claimed that Jackman was constantly on the phone for non-work purposes and she had her own business.

While finding that the grounds for Jackman’s dismissal were valid, Commissioner Sarah McKinnon ruled the dismissal unfair on procedural grounds because the employer had not given prior warnings or an opportunity for the employee to respond to the reasons for her dismissal.

Commissioner McKinnon ruled that Jackman be reinstated, but added: “Ms Jackman is on notice that it is not appropriate for her to conduct her personal business at work, whether by phone, text message or otherwise.”

Focus on work

Michael Byrnes, partner at Swaab Attorneys, who followed the case closely, says employers are entitled to expect that their employees devote their attention full time to their duties during work hours.

Byrnes says the wording in a contract should be very specific in relation to employees conducting outside work, and this will largely preclude an employee operating their own business during work hours in the absence of an agreement with their employer to the contrary.

“Outside of work hours, external activities will generally be covered under clauses relating to conflicts of interest and that prohibit any undertakings in direct competition.

“The key thing is not using the intellectual property, resources or confidential information and that the activity does not have a conflict of interest with the employer. There can’t be a direct conflict.”

Related: Accountants and the gig economy

Competing income streams in the gig economy

Employees conducting a side business during their work hours is typically prohibited in employment contracts, says Rob Phipps, non-executive director of the Australian Human Resources Institute and the former chief people officer at KFC.

Phipps says companies should protect themselves properly through legal employment contracts, which generally do ban competing activities and conflicts of interest.

“Clearly doing work on the outside that is in conflict with the work you’re doing in your normal job is very difficult, and probably not sustainable,” Phipps says.

“So the traditional approach, which has been analysed through the case, seems quite right.”

He adds, however, that the trend for employees to start side business activities is likely to accelerate, especially as more people are forced to take on multiple part-time and casual roles in place of full-time jobs. Ultimately, that may require a rethink of traditional workplace contracts.

“I guess my point of view on it is, how do employers work out a way to protect themselves, but also give employees some ability to do the things that they want to do, as long as they’re not in conflict?” Phipps says.

“Some of the future of work studies are saying that more and more of the gig economy is going to be full of people that are essentially in a series of contracts, rather than employed by organisations.”

Phipps says the legal aspect of the situation is reasonably simple, “but how are we setting up our organisations for the future, because this type of thing is just getting started? I think it’s going to happen more and more.”

Read next: Side hustle: why there’s no better time to be a part-time entrepreneur

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October 2021
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