'Moonlighting' and the Law

By Cliff Ennico

February 23, 2021 6 min read

"I am a full-time employee at a large tech company.

"My son, who lives in another state, wants to start a small consulting business. He will need my personal expertise in servicing his clients, because I have more knowledge of the technology than he has. He wants to set up a limited liability company for this business and give me a one-third ownership stake in exchange for my help.

"When I was first employed, I signed a whole bunch of agreements that, of course, I can't find right now. I'm afraid that if I ask my HR department for copies, it will put them on notice that I'm planning to do some stuff on the side.

"I really want to help my son succeed, and after I retire in a few years it will be nice to have something to do that will bring in revenue.

"But I can't afford to lose my job. Any advice for someone in my situation?"

It used to be that once you were employed by a big company, you could count on the job for life, with a gold watch waiting for you when you retired.

Not anymore.

There aren't any hard-and-fast numbers on this, but I would have to bet that in a typical large corporation, 10% to 20% of employees are either doing some moonlighting on the side or are looking to do so, as a hedge against getting laid off.

Your desire to help your son is admirable, but you will need to "protect your rear" and be very careful before you commit to doing so.

When you take on a consulting project with your son, the client will want you to sign an agreement saying your involvement will not breach or violate any other agreement you may have signed. Without even looking, I can tell you that when you were first employed, you probably signed one or more of the following agreements:

A Confidentiality/Nondisclosure Agreement. While seemingly harmless, these usually contain language prohibiting you from using any company-owned information for any purpose other than doing your job.

An Assignment of Inventions Agreement. Sometimes called a "work for hire" agreement, this document says that any idea, technique, design, product or other intellectual property you create or develop while an employee of the company belongs to the company, meaning you cannot exploit it for personal gain. If you signed this agreement, and you develop a new product or technology for one of your son's clients, there's a chance your employer will claim it as their own should they find out what you're doing.

In some states, such as California, the law says such an agreement cannot prohibit you from exploiting an idea or technology that you develop outside of working hours without using any of the company's resources. But even sending an email from a company-owned computer relating to an outside consulting project could be enough for your employer to get around that.

A Nonsolicitation or Noncompete Agreement. A noncompete agreement says you can't do anything for a competitor while you are employed by the company (and sometimes for one to two years after you leave). A nonsolicitation agreement says you can't solicit business from suppliers, customers and other companies with which your employer does business.

A Conflicts of Interest Policy. This might be buried in your employee handbook or in one of the other agreements you signed. The policy usually states, in very broad terms, that you will not engage in any activity that will "conflict" with your duties and obligations to your employer. Most large companies will expect you to work full-time for them, and any outside commitment that takes up so much time that it prevents you from doing so (e.g., taking time off to help with your son's project) is likely to be perceived as a conflict by the company.

Here's what I would suggest here: Have your son set up his LLC in his home state. Don't take an ownership stake up front, because that will appear on a public record somewhere. Instead, ask your son for an "option" to acquire a one-third interest in the business after you retire a few years from now. Your son can pay you as an independent contractor on a job-by-job basis.

Try to avoid having any direct contact with your son's clients. Do not work on your son's projects on company time, and use only your personal laptop and cellphone for all communications on outside projects.

Under no circumstances should you help your son with a consulting project involving (1) a competitor of your current employer, (2) any large company in the same industry as your employer (people there are sure to know people working for your employer, and word will get around) or (3) a customer or supplier of your current employer.

Not, at least, until your son is making so much money you can afford to quit your day job and join him full-time in the consulting business. By then, he will have enough money to pay for a really good lawyer.

Cliff Ennico ([email protected]) is a syndicated columnist, author and former host of the PBS television series "Money Hunt." This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state. To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our webpage at www.creators.com.

Photo credit: rkarkowski at Pixabay

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