Anti-Moonlighting provisions have long been popular among employers. The California Labor Code provides that “an employee who has any business to transact on his own account, similar to that entrusted to him by his employer, shall always give preference to the business of the employer.” Relying on this principle of loyalty, many employers adopt anti-moonlighting policies that prohibit or limit employees’ ability to work second jobs. Employers are concerned that employees with second jobs may be less productive, may cause scheduling hassles, and may be less willing to accept overtime. Some employers are concerned that moonlighting employees will use the employer’s confidential information while working for a direct competitor.
The difficulty is that California law limits an employer’s ability to restrict moonlighting. The Labor Code creates a claim, which the Labor Board can investigate, for an employee’s “loss of wages as the result of demotion, suspension, or discharge from employment for lawful conduct occurring during non-working hours away from the employer’s premises.” A discharged employee can seek reinstatement and reimbursement for lost wages and work benefits. However, the Labor Code does not invalidate a signed employment contract that protects an employer from conduct that “is actually in direct conflict with the essential enterprise-related interests of the employer” and where a breach of that contract would “actually constitute a material and substantial disruption of the employer’s operation.”
This provision creates a “safe harbor” for employers. An employer may require, as part of its employment contract, that the employee sign an agreement restricting the employee’s ability to engage in conduct (i.e. a second job) that directly conflicts with the employer’s business and will materially and substantially disrupt the employer’s business. The terms “direct conflict” and “material and substantial disruption” have yet to be interpreted by the courts. Nonetheless, an employer can use an appropriate written employment contract to restrict moonlighting that substantially and materially interferes with the employer’s legitimate business interests. It is advisable that employers evaluate each potential breach of such an agreement to determine whether an employee’s second job will actually create a direct conflict and cause disruption of the employers business. Legal counsel may assist employers in such evaluations and in drafting employment contracts that comply with the statute.