What is Moonlighting?
Moonlighting has all of sudden become a popular term. The term “moonlight,” according to the Online Etymology Dictionary, means to “keep a second employment, especially at night,” hence the name. Moonlighting is the practice of working a second job, typically covertly, according to the Cambridge Dictionary.
Why it’s in the news?
Although the expression is not new, it has recently gained popularity after several Indian IT companies called out the practice of moonlighting unethical and cheating. During the pandemic, even full-time employees took up second jobs — for reasons like earning extra money, and sufficient spare time, which they usually spent commuting, without telling their primary employers and without realising that their employment contracts would have forbidden them. These employees might not have even considered that their company will fire them for using their leisure time to work for someone else.
Wipro, an Indian IT conglomerate, terminated 300 employees who were moonlighting with one of its competitors at the same time. Infosys, another IT giant, has reportedly warned employees that moonlighting could lead to termination of services. The fact as to whether an employee can work for another company in his spare time or not has sparked intense debate in the employment market.
Justification for opposing or supporting moonlighting
For an employee with a justification for a side job, such as enough free time after working hours, an insufficient salary, an entrepreneurial aspiration, etc., the act of moonlighting may appear innocent. However, it could not be appropriate for the employer who pays with the understanding that the workers would treat their work at the company as their primary job and won’t permit the performance of their primary job to be hampered by other employment.
One of the biggest worries for IT companies is the risk of confidential information being compromised and the threat of it being shared with competitors, which has compelled them to take the alleged threat of moonlighting seriously.
Moonlighting clause in an employment agreement
Businesses therefore insist on a moonlighting clause in the employment contract to protect their interests.
Typically, a moonlighting clause will state that the employee shall not, directly, or indirectly, engage in any business or serve in any capacity in any manner whatsoever, whether full-time or part-time, other than that of the company and shall devote his entire time and energy exclusively to the business of the company.
Any company that includes a moonlighting clause in an employment contract does so to prevent conflicts of interest, the misuse of resources, and a detrimental impact on employee performance. The chief reason for this way of thinking is that since the position is full-time, it is not possible for an employee to work part-time for another employer.
Whereas an employee may contend that a covenant restraining from exercising a profession, must be reasonable in time and space and essential to preserve the employer’s property rights to be legitimate and enforceable. And that a moonlighting clause is not necessary to defend the employer’s interest and, consequently, a constraint on trade because an employer shouldn’t be concerned about how an employee spends his free time beyond the company’s working hours.
Additionally, he might have a point in that the company cannot enforce a clause restricting him from working outside the hours outlined in the employment contract if moonlighting hasn’t adversely affected his performance or caused the company any harm or conflicts of interest.
Legality of moonlighting in India
Although an employee or an employer may have arguments in favor of or against moonlighting, Indian courts will evaluate the legality or otherwise of such a clause on the touchstone of Section 27 of the Contract Act.
Section 27 of the Indian Contract Act provides that every agreement by which anyone is restrained from exercising a lawful profession, trade, or business of any kind, is to that extent void.
Any arrangement that inhibits commerce or business is forbidden according to Section 27. But the law of restraint of commerce is not applicable while the employment contract is in effect; however, if it extends over the contract’s duration, it is void and unenforceable.
The Supreme Court had established the law on moonlighting a long time ago, in the year 1966 itself, in the case of Niranjan Shankar Golikari vs. The Century Spinning and Mfg. Co. Ltd., where the court examined a Moonlighting clause and held that it was unlawful for an employee to moonlight while still employed by the company.
Again in 1979, the Indian Supreme Court in Superintendence Company of India (P) Ltd. vs. Krishan Murgai held that service contracts containing a negative covenant forbidding the employee from working elsewhere during the term covered by the agreement are not void under Section 27 of the Contract Act.
Supreme Court’s rationale for enforcing the moonlighting clause
The Supreme Court emphasized that the rationale for the legality of such a contract is evident because the theory of restraint of commerce never applies while an employment contract is in effect; it only does so after the contract is terminated. The courts may issue an injunction to prevent a breach of such a covenant while the employee is employed if doing so would advance commerce rather than impede it. Therefore, a restraint by which a person binds himself during the term of his agreement directly or indirectly not to take service with any other employer or be engaged by a third party has been held not to be void and not against Section 27 of the Contract Act.
The justification given by the Indian Courts for enforcing such a contract is that the restraint is necessary for its fulfilment and for the proper protection of the employer’s interests during the term of the agreement. Any limitations on the competition at that time are typically valid and might even be mandated by the law due to the servant’s fiduciary duty.
Another reason why such limitations are acceptable is that they both safeguard the employer’s interests and do not place an unreasonable burden on the employee, who is paid for the relevant period.
Reasonableness of the restriction on moonlighting outside the purview of S.27
While in England, restrictions on trade, whether general or partial, may be acceptable provided they are reasonable or necessary for the preservation of the employers’ interests or for matters of public policy.
Partner, JSA Advocates & Solicitors
However, once the Indian Contract Act was passed by the Indian Parliament and the principles were codified, the law prevailing in England could no longer be applied in India. Instead, the language of the statute must be examined to determine its true intent and application. The Supreme Court has ruled that the issue of whether a restriction is fair falls outside the purview of Section 27.
Conclusion
The courts in India have consistently held that the restraint is necessary for the proper protection of the employer’s interests during the agreement’s duration. While an employee is free to develop his own business or look for employment with someone else, especially after his relationship with his employer ends, the employee might be forced to forego taking on any additional jobs while they are still in effect. As Section 27 of the Indian Contract Act is not applicable in this circumstance, a restraining order may be issued against an employee.
Given the precise legal position of the Moonlighting provision’s enforceability in India, an employee must exercise caution before taking a second job; otherwise, the employer would have a sufficient legal basis to terminate the employment relationship for violating the Moonlighting agreement.
