Australia: Competing considerations: An employee and her hobby business

Last Updated: 16 November 2018
Article by Michael Byrnes

In the current age where any organisation, irrespective of size, can advertise to the world through the internet, the barriers to entry for ​"micro" or ​"hobby" businesses are lower than ever. Increasingly, employees are showing their ingenuity and entrepreneurship by setting up their own hobby businesses to the side of their main employment. Some of these businesses even leverage the skills and experience that the employee may gain during the course of their employment. (Of course, they should never use the confidential information of the employer – another topic for a different day.)

While many employers are happy to accommodate an employee's side business, provided it doesn't compete with their own operations, there can sometimes be a conflict between the two.

A scent business causes a stink.

Such a conflict arose in the recent case of Abigail Jackman v Lek Supply Pty Ltd T/A Lek Supply [2018] FWC 6154, an unfair dismissal decision of the Fair Work Commission (FWC).The applicant, Ms Jackman, was employed in internal sales by Lek Supply Pty Ltd (Lek Supply). On 23 April 2018 Lek Supply terminated the employment of Ms Jackman on the basis of conflict of interest. This breach was said to arise by reason of conduct relating to Ms Jackman's side business.

This business, Royal Scent & Co., was started while Ms Jackman was on maternity leave and sold products such as candles, reed diffusers and bath and body products from her home. It derived revenue of less than $10,000 per year. Importantly for this case, Facebook and Instagram pages were established for the business (as is de rigueur for almost any business in this age).

Ms Jackman established the business in July 2017 and returned to work from maternity leave in January 2018. She signed a new employment contract for a revised role with Lek Supply in April 2018. That contract of employment relevantly included the following terms:

"You must at all times... devote your full working hours to the requirements of your role."

"Your hours of work are 8.00 am to 5.00 pm, Monday to Friday plus any reasonable additional hours as required from time to time."

"While employed by Lek Supply Ltd, you must not engage in private business or undertake other employment in direct or indirect competition with Lek Supply Pty Ltd using any knowledge or materials gained during the course of your employment under this agreement. Any such activity will be deemed to be a conflict of interest with Lek Supply Pty Ltd and may lead to the termination of your employment under the terms of this agreement."

"Use of Lek Supply Pty Ltd's internet facilities to access social media applications or services is prohibited during working hours unless specifically approved for your role. This includes accessing such sites during working time on your business or personal mobile. Making excessive personal calls and sending personal text or chat messages, is also prohibited."

The catalyst for the sequence of events in this case was a customer complaint about Ms Jackman in relation to placing a wrong customer order. In the course of internal enquiries about this matter various employees claimed to management that Ms Jackman was constantly on the phone for non-work purposes and she had her own business.

These observations from employees prompted the employer to look into Royal Scent & Co. The profile for the business on Facebook and Instagram showed Ms Jackman to be the sole ​"team member" of the business and it listed her mobile phone number. Further, the hours of operation were advertised as Monday to Friday 9.00 am to 5.00 pm. The Facebook site asserted that the business ​"typically replies within a few hours". There were also a series of Facebook posts that were made on work days during business hours.

For her part, in the hearing Ms Jackman denied being preoccupied on her phone at work and responded that a friend of hers was enlisted to undertake tasks for her business during work hours. Ms Jackman further submitted that any social media posts for her business were made during break times but conceded she responded to enquiries during business hours through personal messages. Ms Jackman submitted that she did not notice the conflict of interest clauses in the employment contract and did not think she had reason to tell Lek Supply about her side business.

Conduct of competing business was a breach of obligations.

Commissioner McKinnon held that:

"... Ms Jackman engaged in private business activities while at work and that she did so during working hours. I do not accept that these activities were always conducted during breaks. Ms Jackman conceded as much. Whether she did so verbally or in written form is beside the point. It was activity that detracted from her duty to Lek Supply."

Commissioner McKinnon continued:

"I do not accept that Ms Jackman was unaware of her obligations under her contract of employment. The handwritten notations make it more likely that the contract was read carefully before it was signed, with negotiations taking place to address any concerns. I also do not accept the submission of Ms Jackman that the contract only prevents private business that is in ​"direct or indirect competition" with Lek Supply. There is no reason to read the conflict of interest in such a limited way. On a fair reading, it prevents employees from engaging in private business during their employment as well as other employment in competition with Lek Supply. It requires employees to devote ​"their full working hours" to the requirements of their role. It prohibits access to social media applications or services during working, unless specifically approved for the role, either on a business or personal mobile phone. It prohibits the sending of personal text or chat messages at work."

Commissioner McKinnon concluded that Ms Jackman's conduct of her private business during working hours on her mobile phone was in breach of the employment contract and was, therefore, a valid reason for dismissal.

The importance of procedural fairness is emphasised yet again.

Notwithstanding the valid reason for dismissal, the dismissal was found to be unfair on procedural grounds. The relevant manager, Ms Dao, held the view that Ms Jackman operating her business at work was serious misconduct and that nothing Ms Jackman could say would provide an adequate response. She then asked another officer of Lek Supplies, Mr Lek, to meet with Ms Jackman for the purpose of terminating her employment.

On 23 April 2008 Mr Lek did this. Ms Jackman was neither told the reason for the meeting prior to its commencement nor asked any questions about the allegations. She was simply handed a letter of dismissal. Upon asking why she was being dismissed, she was told that a home business was a conflict of interest.

Not surprisingly, Commissioner McKinnon found that there was no notice of the reason for dismissal until the time of dismissal and Ms Jackman was not given any opportunity to respond to the reasons for dismissal.

Having considered these and other factors, Commissioner McKinnon held that the dismissal was harsh finding:

"It was a disproportionate response to a valid concern, which had only recently become apparent. A warning would have been a more appropriate response."

Further, Commissioner McKinnon held (once again reinforcing the importance of procedural fairness):

"The view expressed by Ms Dao that nothing Ms Jackman would have said would have made any difference denied Ms Jackman the chance to acknowledge the inappropriateness of her conduct and to adjust her behaviour accordingly. In my view, her history as a valued employee of the business suggests she would have done just that."

On this basis an order was made for Ms Jackman to be reinstated to her former position.

Decision not a green light for employee businesses.

Lest it be considered that the FWC was condoning the operation of the side business during working hours, and consistent with findings on valid reason for dismissal, Commissioner McKinnon noted:

"Ms Jackman is on notice that it is not appropriate for her to conduct her personal business at work, whether by phone, text message, or otherwise. If her business is to continue to operate, Ms Jackman will need to make arrangements for it to occur outside of working hours."

Employers are entitled to expect employees devote their ​"full time and attention" during work hours to their duties. Generally speaking this will largely preclude an employee operating their own business during these hours in the absence of agreement with the employer to the contrary.

Employers might want to consider:

  1. Including contractual terms or adopting an enforceable policy addressing the issue of employee side or ​"hobby" businesses;
  2. Expressly prohibiting involvement in any other business that directly or indirectly competes with the business of the employer;
  3. Requiring employees involved in side businesses to disclose and seek consent for conducting such businesses (which cannot be unreasonably withheld – the limits of an employer's prerogative need to be observed); and
  4. Establishing sensible limits and protocols for use of technology and social media for an employee's side business during work hours and consistently enforcing them.

For further information please contact:

Michael Byrnes, Partner
Phone: + 61 2 9233 5544

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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