SME businesses: How to manage employees with side hustles

A recent tribunal case found that Halifax Bank of Scotland had unfairly dismissed an employee for promoting her cake-making “side hustle” while on long term sickness leave, awarding her compensation of £22,000. This highlights the difficulties that employers can face when managing employees who seek to earn extra income alongside their primary job.

Whilst not a new concept, advances in technology and the growth of the gig economy have increased side hustle opportunities. For example, e-commerce sites such as Etsy, ebay or social media provide money-making opportunities. Moreover, Gen Z is reportedly more entrepreneurial than older generations, favouring multiple income streams to earn a living. This and the cost of living crisis, combined with the struggles SMEs face to pay their employees a competitive package (given the pressures on their bottom line/cash flow) means that side hustles are likely to be an increasing complication for many smaller businesses.

Some SMEs may decide to allow employees to pursue side hustles with their permission – for example where it improves their mental health or wellbeing – while others may take the view that side jobs will not be acceptable as a general rule. The approach taken by employers will vary depending on their sector and the seniority and type of worker but it is worth bearing in mind the following:-

Competition

All employees owe their employer a duty of good faith and fidelity, even if this is not set out in writing. This includes a duty not to compete whilst in work, and outside of working hours where their activity may cause serious harm to the employer. Any employee breaching this duty is likely to be guilty of serious misconduct, justifying dismissal. This implied duty arguably does not apply to some casual workers and definitely not to self-employed contractors, and so would need to be written into the contract.

Directors would additionally owe fiduciary duties to their company (i.e they are legally in a position of greater ‘trust’ towards the company) including the duty to act in the company’s best interests, to promote its success, and not to put themselves in a position where their own interests conflict with the company’s.

Most written contracts which restrict outside interests will preclude working for a competing business as a minimum. For example, a small property company may not wish to tolerate an employee hosting an AirBNB or managing a small portfolio of rental properties on behalf of a landlord or even becoming a real estate blogger.

Going further, to ban working in any capacity outside of work, is likely only to be appropriate for full time directors/employees rather than part-time or casual workers. Where this prohibition is used, it is sensible to have a caveat whereby if the employee seeks permission to undertake other work, consent will not be unreasonably withheld. When exercising this consent mechanism, the type of side hustle and the amount of time it takes up will be important considerations.

At director level, express terms can be helpful in shaping and limiting the scope of implied fiduciary duties, such as providing for board approval for some outside interests.

In all cases it is advisable to state clearly in the contract that a failure to disclose outside interests will be treated as misconduct/a breach of contract.

Working Time Regulations

Under the Working Time Regulations, the limit of 48 hours applies irrespective of the number of employers involved. It is sensible therefore for employers to ask staff to declare any second jobs in order to consider whether there is a need to reduce their hours to comply with the 48 hour limit. If an employee is exceeding this limit due to undisclosed work, their primary employer could still be held responsible. Unless an employee has ‘opted out’ of the 48 hour limit in writing, this could present problems for employers.

Reputational issues

Reputational issues can be a significant concern, particularly where an employee is in a prominent, professional or client facing position, and again can be grounds for reasonable refusal of consent for outside interests. A Scottish physics teacher was forced to resign after her pupils became aware of her OnlyFans side hustle, for example.

Worker productivity

A side hustle may also have a negative impact on an employee’s performance if they are working long hours or if they will be insufficiently rested by virtue of a second job. One study from Stanford University found that productivity per hour declined sharply when a person works more than 50 hours per week, and the Working Time Regulations prescribe the right of workers to have an 11 hour uninterrupted daily rest period, for wellbeing reasons.

In summary, SMEs should carefully consider these issues and include wording in employment contracts which makes the position on outside interests clear. Employers could also consider implementing (non-contractual) HR policies on side hustles which seek to protect their legitimate business interests, without unreasonably impacting on an employee’s private life, wellbeing or entrepreneurial flair.

For more information contact Louise Attrup at la@debenhamsottaway.co.uk or 01727 735663.

This article was written by Louise Attrup, a partner in the employment team and was first published in SME Today in September 2023.