Avoiding the legal glare when moonlighting
It’s a perennial dilemma for the wannabe entrepreneur – do you ditch the safety of regularly-paid employment for the uncertainty and initial austerity of starting your own business?
Increasingly, however, this question doesn’t result in a binary answer. Changing working practices and the ease and falling cost of starting up means that many new businesses are born while the founder has another job.
It’s a strategy that makes sense – instead of sacrificing a steady income; entrepreneurs are using that money to fuel their ventures while having the safety net of employment if things go wrong.
But what can go wrong when would-be entrepreneurs use other companies’ time and resources to pursue their own business interests?
For US entrepreneur Eric Simons, using another company’s facilities proved to be his big break.
Earlier this month, it was revealed 20-year-old Simons spent two months “squatting” at the offices of AOL in California.
Simons was granted access to the AOL offices when, after graduating from high school, he was selected to participate in the augural class of Silicon Valley incubator Imagine K12.
Imagine K12 is hosted by AOL, so Simons received a security badge as part of his involvement in the four-month program.
Simons also received $20,000 to work on his start-up ClassConnect, which helps teachers build lesson plans and share them with their students and other teachers.
By the end of the four months, Simons had spent the entire $20,000. Unable to afford rent, he decided to start living at the AOL building.
Because AOL failed to deactivate Simons’ security badge, he was able to sleep on the company’s couches, eat the company’s food and shower at the company’s gym.
His guise as a hard-working AOL employee held up for two months.
“The security guys would walk by and just assume I was working late, which, technically, I was. They thought, he’s just working really hard,” Simons told MSNBC.
Simons was finally detected by security – stripped of his security badge and forced to move out – but he went on to score $50,000 in funding from Ulu Ventures and venture capitalist Paul Sherer.
According to Ulu Ventures’ Clint Korver, tenacity and commitment are key attributes of a great entrepreneur, and Simons “has these in spades”.
But Peter Strong, executive director of the Council of Small Business of Australia, believes Simons’ behaviour was completely unacceptable, saying he put himself in a dangerous position.
“We all admire what he did in some way, but we cannot condone what is basically theft,” Strong says.
“The main consequence would be the company suing for illegal use of premises and resources, and taking all the profits and IP.”
Rather than pursue their own interests on another company’s watch, Strong suggests budding entrepreneurs join a co-working space such as The Hub, based in Melbourne.
“The Hub… is a great start-up place for people like this fellow – lots of support and help,” he says.
New spaces such as The Hub and Fishburners, its Sydney counterpart, offer entrepreneurs a more flexible and sociable solution than trying to build a business on their employers’ time.
Indeed, some employers are happy for their staff to operate from co-working spaces and even work on their own projects, provided it doesn’t interfere with work tasks.
Australian businesses may not yet be aping Google’s famous 20% rule – where employees can spend 20% of their time on their own projects – but things are slowly changing.
However, legal issues continue to be a regular barrier to any fledgling business owner who thinks they can use company time to develop their venture.
Nichola Constant, director of People + Culture Strategies, which specialises in people management and workplace law, says Eric Simons’ story is the exception rather than the norm.
“Most cases involving moonlighting don’t have fairytale endings,” Constant says.
“An employee can risk losing their job or even paying damages if they fail to disclose business interests outside of their employment.”
“One difference between the AOL squatter case and the majority of moonlighting cases is that the squatter wasn’t an AOL employee, so there were lesser legal obligations on the squatter’s part.”
Constant points to the case of Ping Han, a former NSW RailCorp clerk, who was sacked for operating multiple companies on his employer’s watch.
Han used work hours to operate a myriad of small businesses including an insulation business, a travel agency, an interpreting service and a migration agency, in addition to overseeing several rental properties.
After working for RailCorp for 14 years, Han lost his job when his employer realised the extent of his moonlighting.
Han lost his appeal to the Transport Appeals Board for using his employer’s time and resources to run his stable of small businesses.
A RailCorp investigation found Han breached the company’s code of conduct by failing to declare secondary employment, and using his work email and other company resources to pursue his own interests.
When asked whether it’s illegal, Constant says it depends on the circumstances of the case and the particular terms of the employment contract.
“Some employers have policies or contracts that strictly prohibit employees from moonlighting,” she says.
“Generally, the more senior the employee, the higher the risk of actual conflicts of interest and legal consequences, such as termination of employment, and loss of intellectual property and profit.”
Australian entrepreneur Matthew Beeche is a former employee of Pitney Bowes, where he worked for five years.
“It was not until my fourth year there did I start to get the itch to leave and start my own business,” Beeche says.
“I started writing a small blog firstly, interviewing people from our own company about business.”
“I then dabbled in online stuff, and went and did courses to implement new online strategies within Pitney Bowes and my own business.”
Beech believes moonlighting – if done effectively – enables entrepreneurs to “fine-tune your time management skills to a tee”.
“I had a commitment to the business and my own team that I would not let my ‘other job’ affect my work negatively,” he says.
“When the business started to grow, I would use annual leave days once a month to do tasks related to B2B.”
Constant says before making the decision to “moonlight”, entrepreneurs must first consider whether it is likely to result in “role enrichment” or “role conflict”.
Role enrichment, according to Constant, is where you gain skills and knowledge that would complement your main job, whereas role conflict is where pursuing an outside interest results in stress or even outright competition.
“Many companies have a strict policy forbidding employees from moonlighting, although a growing number of employers are now willing to be more flexible,” she says.
“Employees should disclose their business interest to the employer and try to negotiate an acceptable number of hours, the type of work that can and cannot be done, and the employer’s expectations about disclosure, and ownership of work products such as IP.”
Beeche agrees employees need to be honest about their intentions, insisting “transparency is freedom”.
“If your boss does not go for it, then you have a decision to make – eventually you need to cut off the paycheck to grow the business,” he says.