Side hustles in the digital age: legal implications for employers

Samuel Ellemor SHARROCK PITMAN LEGAL

Cash is tight and the side hustles are in fashion. With rising interest rates, record-high house prices and growing cost of living pressures, employees are looking to make extra money beyond their day job’s pay and are turning to the online gig economy to find it. Whether it be freelancing on Fivver, running an e-commerce website from their bedroom or making salacious videos for OnlyFans, entrepreneurial employees are finding creative ways to boost their household incomes.

The popularity of the online gig economy raises a number of issues for employers. For example, employers may be surprised to discover that they have:

• employees running competing businesses online, in addition to working their primary job. Particularly in service industries, it can be quite attractive for an employee to sell their services directly to clients through popular freelancing platforms or on their own website
• employees using work time to carry out their side hustle. This is particularly easy in a post-Covid-19 world, in which many employees work from home
• employees using their work connections, relationships and resources to build their start-up business, often with a view to leaving the employer’s employment once their start-up generates sufficient revenue
• employees engaging in online activities that could bring reputational harm to their employer

It is critical that employers recognise the reality of the online gig economy and are proactive in identifying both the opportunities and the risks that it brings. This includes having the right contractual terms in employment agreements, workplace policies that are clear, effective and understood and appropriate processes to facilitate and manage remote work.

This article comes from the experts behind the Internet Law Bulletin. This bulletin was created to address the range of legal issues posed by the internet and online services: issues as diverse as copyright, defamation, online dispute resolution, privacy, trade practices and criminal law.

Subscribers to the Internet Law Bulletin can read the full article HERE.

Duties an employee owes to their employer

Many of the questions raised by the gig economy are old questions in a new context and, in grappling with the challenges of the gig economy, employers should start by applying the orthodox principles of employment law.

An employment relationship, by its very nature, establishes a number of duties between employer and employee. A key duty is the duty of fidelity.

Employees are expected to serve their employers faithfully during the course of their employment. The duty of fidelity encompasses a number of obligations:

• an employee must not use confidential information that they obtain in the course of their employment for their own personal benefit, or the benefit of a third party, without their employer’s consent
• an employee must not earn secret commissions in the course of carrying out work for their employer
• an employee must diligently carry out their work during their work hours
• an employee must not engage in a business in competition with their employer to their employer’s detriment

Applying these obligations to the online gig economy would be a clear breach of an employee’s duty of fidelity if they are working on their own e-commerce business during their ordinary hours of work, soliciting clients of their employer to service them as a freelancer, or secretly running a competing online business to that of their employer.

Nonetheless, there are many areas that are less clear. Questions that commonly arise include:

• Can an employer prevent an employee from running any business, not just a competing business?
• To what extent can an employee take preparatory steps to start their own business whilst still employed?
• To what extent can employers expect their employees to work overtime and conversely, can employees refuse to work overtime to keep time free to operate their own profit-making activities outside work?

The answers to these questions will depend on the circumstances.

Working another job

An employer can expect that their full-time employees direct their primary energies to their employment. This does not mean that a full-time employee could not use their leisure time to make money, but it does mean that any such money-making exercises must not detract from their fitness to carry out their employment.

The extent to which an employer can prevent a part-time or casual employee from accepting other work will depend on the circumstances. A term of an employment contract that sought to universally restrict a part-time or casual employee carrying out other work would likely fall foul of the restraint of trade doctrine (which we discuss below).

However, it will usually be reasonable to expect that a senior or professional employee does not work for a competitor, though the same may not apply to the same extent to a junior employee, such as a casual retail assistant.

Preparing to commence own business

Similarly, the extent to which an employee can take steps to prepare for their own competing business whilst employed is a matter of degree.

An employee could not solicit clients or employees of their employer whilst employed, with the view to enticing those clients or employees to move to the employee’s new business. Nor could they copy documents and client lists.

However, it is likely that an employee would be free to undertake preliminary product development during their free time, provided that the product development is outside the scope of the duties that they are expected to perform for their employer and that they are not using their employer’s resources or confidential information to do so. Similarly, they could likely engage a website developer to develop the back end for a future website.

Overtime

The Fair Work Act 2009 (Cth) provides that a full-time employee’s maximum weekly hours are 38 hours per week. Employers may request or require employees to work additional hours, but the request or requirement must be reasonable.

Employers may find that employees who are running a side business may be reluctant to work overtime, and disputes can arise where an employer considers that an employee is underperforming because they are unable to work to the employer’s expectations without working overtime.

There is limited guidance from the courts about the meaning of what constitutes reasonable overtime. In a context where the employee does not wish to work overtime because they are engaged in other commercial activities, the seniority and remuneration of the employee are likely to be key considerations.

Restraints of trade

One problem for employers is that the duty of fidelity generally only applies during employment, the obvious exception being the duty of confidence, which may continue indefinitely.

This means that generally speaking, an employee is free to run a competing business and even solicit clients once the employment relationship ends.

To address this, employers will commonly include post-employment restraints of trade in employment agreements.

The starting point with restraints of trade is that they are unenforceable. However, this presumption may be rebutted if the employer can demonstrate that a restraint of trade is reasonably necessary to protect the employer’s legitimate business interests, having regard to such matters as the scope and length of the restraint, the role and seniority of the employee and the risks to the employer that the employee will take advantage of confidential information and trade secrets that they obtained in the course of their employment.

Well-drafted non-compete and non-solicitation clauses in employment agreements can provide significant protection to employers, who might otherwise have no recourse if an employee has carefully and lawfully prepared to commence a competing business whilst employed, without breaching their duties of fidelity and confidence.

It is worth noting that the reasonableness of a restraint of trade provision is assessed at the time of contract formation, not at the time that the employee leaves the business, and therefore it is important that employers procure new employment agreements from existing employers when undertaking promotions to maximise the likelihood of the restraints being enforceable.

Reputational harm

The other area where the online gig economy could cause issues for employers is where employees engage in online activities that the employer considers detrimental to their reputation.

Consider the example of the employee on OnlyFans, the online video platform that allows content creators to monetise their content by offering paid subscriptions to their followers. OnlyFans videos range from everything from cooking to music, but it gained popularity for its association with adult content, and some employers may be concerned to discover that they had an employee offering such content online. Or an employer may have concerns about an employee producing content to promote views that the employer finds distasteful, inappropriate or inconsistent with the employer’s values.

This raises the question of the extent to which an employer can regulate an employee’s out-of-work conduct.

Dismissal for out-of-work conduct

The question most frequently arises in unfair dismissal cases, and the cases show that circumstances where an employee can be dismissed for out-of-work conduct unrelated to their employment are limited. The Australian Industrial Relations Commission set out the test in the unfair dismissal case Rose v Telstra Corp Ltd. Basically, to warrant dismissal:

• the conduct must be likely to cause serious damage to the relationship between the employer and the employee
• the conduct must damage the employer’s interests and
• the conduct must be incompatible with the employee’s duty as an employee

A number of cases have dealt with dismissals arising in contexts where employees have expressed political opinions online or in the media in a manner that the employer found problematic. The courts have upheld a number of dismissals of public servants where the employee was criticising the government. Similarly, a law firm employer had a legitimate interest in preventing an employee from criticising their client, even though the client was a government department. Claims that the employer breached discrimination legislation protecting a person’s political opinions failed on the grounds that the employers affected the dismissals because of the manner in which the employees expressed their views, not because of the views themselves.

On the other hand, a dismissal of an employee for making a video parodying the employer in the context of enterprise agreement negotiations was held to be unfair. That said, the video, whilst publicly available online, was only shared with a select group of employees, and there have been cases where dismissals have been justified in circumstances where the employee criticised the employer online.

Employers are likely to be entitled to dismiss employees for promoting racist or sexist views online, particularly if the content is broadly available to the public or offensive to other employees. However, considerable care would need to be taken if an employee is producing political or religious content that the employer finds distasteful, as the employee may be protected by discrimination legislation.

As for the employee producing salacious content on OnlyFans, the question will probably come down to the extent to which the employer’s reputation could be damaged by the content produced by the employee. An employer may have a legitimate interest in preventing a senior or public-facing employee producing salacious content if it could affect their reputation, and a school is likely to have an interest in preventing its teachers from producing adult content if the content was accessible to children, but the same is unlikely to apply universally.

Employers in Victoria should also consider the inclusion of a person’s “profession, trade or occupation” as a protected attribute in the new se 6(la) of the Equal Opportunity Act 2010 (Vic). The new provision prevents an employer from discriminating against employees or prospective employees based on their profession, trade or occupation. Introduced as part of the Sex Work Decriminalisation Act 2022 (Vic), there is nothing in the language of the Equal Opportunity Act itself that limits its application to sex workers, and it remains to be seen how broadly the provision will be interpreted. Employers would do well to ensure that any action that could be seen to discriminate against a prospective or current employee based on that employee’s business activities relates to the genuine occupational requirements of that person’s role or prospective role with the employer.

Independent contractors

Individuals who wish for more flexibility than the employment relationship offers may instead prefer to work as independent contractors. The courts do not imply the same obligations into independent contracting arrangements as they do for contracts of employment. Whilst there are legitimate concerns about the over-use of independent contractors by businesses, it is also true that for many individuals who wish to work for two or more businesses, operating as an independent contractor provides a level of freedom that might not be available if they were engaged as an employee.

Tips for lawyers

The growth of the online gig economy is only set to continue, and employers can expect to find that they have both current and prospective employees seeking to conduct their own business activities in addition to working their primary job.

For lawyers advising employers, it is worth asking whether:

• employers have employment agreements that specifically address restraints of trade both during and after employment where these are appropriate
• employers have clear workplace policies governing work-from-home arrangements and the means of managing the performance of employees working remotely
• employers have social media policies in place
• employers are attentive to the risks of employees using confidential information for their own benefit and are alert to signs that employees may be soliciting clients for their own benefit
• employers require employees to sign a new employment agreement with each promotion and
• employers ask employees and prospective employees whether they have work activities outside of their employment and negotiate arrangements that accommodate those activities where appropriate

The reality is that employers looking to attract and retain talent will likely find that they need to have discussions about these matters with their employees and prospective employees. Where employers and employees are transparent about their expectations, the online gig economy offers opportunities for both. Issues will most likely arise where employees do not disclose their online business activities, in which case employers will need to consider whether the employee is acting in accordance with or in breach of their obligations as an employee before taking action.

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