How does your firm deal with “moonlighting” employees?

If one of your employees is working on a project that you didn’t authorize or know about, can your firm be held liable? Possibly. The issue is whether the actions of the employee can be attributed to the firm. It’s therefore very important for professional service firms to have clear policies on the outside professional activities of its employees. A firm with no clear policy, and no clear prohibition against using company equipment or premises for outside employment, may find itself with imputed liability. There’s no right way or wrong way to handle “moonlighting.” Here are a few ways that different firms address the issue:

Absolute prohibition: These firms usually include a provision in the employee manual stating that any outside projects that interfere with the business of the employer will result in immediate dismissal and may result in legal action against the employee for indemnification of any costs incurred by the employer arising from the outside project.

Firms that condone moonlighting may require the employee to obtain prior approval from the firm as well as a signed statement from the outside client acknowledging that the services are being provided by the professional as an individual and not as an employee of the firm, and that no claims will be made against the firm. These firms may prohibit contact with the client during normal working hours or use of the employer’s offices or supplies.

Firms that encourage moonlighting as a source of professional or personal gain may still require the employee to advise the outside client that the services are individual services and the firm assumes no responsibility. Some firms provide peer review or mentoring, recognizing that they could be held legally liable for the negligence of the employee, but usually they find that risk tolerable.

Firms that encourage pro bono activities from a good will perspective, or to allow employees to gain more experience by providing services directly to a client, may develop special provisions for such authorized services. The firm’s professional liability insurance would provide coverage for claims, even if no fee is charged, if the services are provided by the firm’s employees with the recognition and permission of the firm.