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Shedding Light on Moonlighting Risks

Originally published: 10.01.08 by Mike Coyne

Permitting employees to "borrow" equipment is a bad idea.

Without even knowing it, some employers are providing their employees with a valuable fringe benefit that puts the employer at risk and could potentially harm the employer’s business. Are you one of these employers?

You may be if you have an implicit or explicit policy permitting employees to “borrow” tools and equipment from your business for personal projects and don’t take steps to limit the types of work that your employees can do after hours.

Employers who allow employees to use tools and equipment after hours are taking a number of risks. First, some courts have held that employees injured in the off hours while using company equipment are eligible for workers compensation benefits, if the employer consented (or did not object) to the employee’s use of those tools. Thus, an off-the-job injury could result in higher workers compensation insurance costs.

More importantly, depending upon the nature of the projects undertaken by the employee, it is possible that the employer is unknowingly giving away business or helping give birth to a future competitor. At one time, this was a significant problem for one of

our clients that is in the business of cable television installation. Two of its employees, who took equipment-laden trucks home every night, started doing additional work for customers after hours. When it was discovered that some of their moonlighting work involved providing customers with expanded (unpaid for) cable service, our client nearly lost its biggest customer.

We have heard of other cases where moonlighting employees have returned to customers’ homes in the evening to provide additional services at a discount, services that should have been provided by the employee through his employer during normal working hours at the employer’s customary fee schedule. For the employer, the immediate loss is revenue from the services that should have been provided through the employer. The longer-term risk is that the employee is cultivating a relationship with your customer for the benefit of the employee when he or she decides to start his own business.

It’s easy for an employer to protect itself. First, in most states it is perfectly permissible to contractually prohibit employees from engaging in moonlighting activities. Second, an employer can adopt a specific policy regarding the scope of permissible outside employment and specifically prohibit an employee from providing services to the company’s customers.

It is always a good idea to put limits on employee’s use of company tools and equipment for personal projects. The potential liability risk more than offsets the potential goodwill gained by making such accommodations to employees. If you do decide to let employees use tools and equipment, be explicit as to limitations or prohibitions on the uses of the tools and equipment.

About Mike Coyne

Mike Coyne

Michael P. Coyne is a founding partner of the law firm Waldheger Coyne, located in Cleveland, OH. For more information of the firm, visit: www.healthlaw.com or call 440.835.0600.

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