Employment Law

Everett F. Meiners, partner, Parker, Milliken, Clark, O’Hara & Samuelian, Los Angeles. Contributing author to Advising California Employers, published by CEB.

California law continues to expand the restrictions on an employer’s right to control the activity of employees after work. In the past, it has not been uncommon for employers to prohibit full time employees from working at another job. One of the reasons behind this rule was to be sure that the employee was rested and ready to work a full-schedule for employers, and to be sure that the employee did not work for a competing company or an objectionable business. The right of employers to prevent moonlighting has been substantially restricted by California Labor Code §98.6.

Labor Code Section 96(k) and Section 98.6
Section 96 (k) of the California Labor Code provides that the Labor Commissioner has the right to accept claims from employees who were demoted, suspended or discharged for "lawful conduct occurring during non-working hours away from the employer’s premises." However, that section has no provision for any specific remedy. Commencing this year, §98.6 was amended to provide that an employee is entitled to "reinstatement and reimbursement for lost wages and work benefits" caused by an employer’s conduct in breach of §96 (k). In addition, §98.6 also provides that its remedies apply to applicants for employment.

Lawful Moonlighting Activities
"Lawful conduct" occurring during non-working hours not only includes part-time work but also full-time work for any lawful business, even a direct competitor. Because the legislature recognized the potential legal and business issues caused by an employee who worked for a competitor, it provided an exception. However, the exception is set forth in convoluted language that appears to require the employer to obtain a written agreement from each employee before the employer is entitled to use this exception.

Direct Conflict with Essential Operations
Section 98.6 states that the protection provided by §§96 (k) and 98.6 shall not be deemed to "invalidate" any employment contract which provides that an employee shall not engage in activities which i) are actually in "direct conflict with the essential enterprise-related interests of the employer" and ii) which would result in a "material and substantial disruption of the employer’s operation." One interpretation of this language is that an employer must have a separate written agreement with each employee to prohibit such conduct and that the moonlighting restriction is valid only if the prohibited conduct is in direct conflict with an essential company related interest. In addition, the employee’s breach of that prohibition must result in a material and substantial disruption of the employer’s operation. Without such an agreement, the statute appears to prohibit any employer from enforcing a rule prohibiting moonlighting, even if the work is for a direct competitor. There are obviously several undefined provisions in this statute including: "essential company related interest" and "material and substantial disruption of the employers operation."

These restrictions are not applicable to state or local law enforcement agencies, religious associations or non-profit corporations. Lab C §98.6(d).

Legitimate Reasons for Moonlighting Prohibitions
Employers often have a legitimate interest in restricting employee’s activities outside employment. Such an interest is apparent, for example, when a salesperson for a modem manufacturer acts as a sales representative for another modem manufacturer that is in direct competition with the first employer. However, even in this situation it appears that the employer cannot enforce a non-moonlighting rule unless there is a signed agreement to that effect. Section 98.6 (c) (2) requires that there be a written employment contract specifying that an employee will not work at an activity in direct conflict with the essential operations of the employer, and that such activity would result in a material and substantial disruption of the employer’s operation. The following is a sample of language that may be used in an employment agreement to control moonlighting in light of §98.6.

Sample Language for Outside Employment Agreement
The nature of the Company’s business requires the complete commitment of full-time employees. Employees need rest and recuperative time in order to return to work and to safely and competently perform their job. Accordingly, outside jobs are discouraged. Any employee who desires to work at an off duty job must first discuss the appropriateness of that job with his/her supervisor.

The employee agrees to advise the Company in writing, prior to commencing any outside job, of the name of the proposed employer, the title of the proposed outside job, a description of the work to be performed, and the hours of the proposed work. The employee agrees not to work in any outside job without first providing the above information.

The employee agrees that he will not engage in any outside job that has the effect of interfering with his ability to safely and competently perform his job duties for the Company. In addition, the employee agrees that he or she will not engage in any outside job that is in direct conflict with the essential business of the Company, and that would result in the material and substantial disruption of the Company’s business.

Until there are regulations or cases which interpret the language of Lab C § 98.6 it will be the responsibility of employment counsel to assist their employer-clients in applying this language in a good faith and reasonable manner.

FEATURED BOOK

Advising California Employers
2d edition,
1556 pages,
2 looseleaf volumes,
updated 12/01,
BU-32030, $239
Forms Disk
BU-22034, $49.95