How Should HR Handle an Employee's Secret Side Business and Resignation?

I recently found out that an employee is running his own business, which conflicts with our company's operations. As HR, I had inquired about this during his hiring process, and he had verbally denied it. However, I now have evidence to the contrary, but he has cunningly submitted his resignation before we could take any action.

How to Hold an Employee Accountable for Conflicting Interests

How can I hold him accountable for his actions? As HR, I am also reluctant to settle his outstanding payments. Is there a way to address this situation?

Regards,
Kaye

Handling Employee Business Conflicts

If you had any idea about the candidate's profile of owning a business of his own, you should not have given him employment. If required, you should have included a clause in the appointment order stating that he should not engage in any profitable business while employed. Typically, an establishment with certified standing orders will have a provision for this. Now, since he has resigned, let him go. You cannot withhold his salary and other benefits unless there is a specific clause permitting you to do so as mentioned above. This is because the salary is remuneration due to him for the work he has done, and withholding it may lead to issues. Therefore, settle with him.

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Regards,
Madhu.T.K

Even though he has handed in his papers, you are still entitled to conduct an investigation. You will need to commence this as soon as possible, preferably today. It is actually important that employers do this because it helps prevent the employee from continuing this behavior with another employer. If your investigation finds he has contravened his employment contract/agreement with you, you may take action as if he is still employed. This may alter what you tell future employers if he wants a reference check, etc.

You could change your employment contract to include the condition that employees cannot run a business of their own while in your employ. Now, that could well be overly restrictive, as some people may run small part-time home-based businesses that do not conflict with their "day" job. This is something you need to think through very carefully.

All respected professionals, I think Mr. Kravi is right because running one's own business after duty time is not a crime. Employers pay employees only for 8 hours, not for 24 hours. So, in the remaining 16 hours, employees have the liberty to engage in any legal work for their benefit.

Dear Madhu T.K., you are wrong, I think. You need to suggest good thoughts to Mr. Kaye87, not Mr. Kravi.

Regards,
Pardeep Sharma

Conflict of Interest: Employee Running Own Business

Mr. Kaya clearly mentions that the employee is running their own business, which conflicts with the company's operations. This raises concerns about acceptability. For instance, if the employee works at Big Star Hotel and also owns a small restaurant, there could be a potential conflict leading to business losses for the company. Therefore, it is recommended to terminate the employee and settle their dues.

Best regards,
Starren

There is nothing wrong with an employee running their own business as long as they have declared it and received permission from the employer. It is also okay if the employee's business does not hamper their productivity at the employer's workplace. The employee's business must also not conflict with the employer's business.

Regards,
Precious

We can't stop a person from running their own firm while they are working, but we can restrict those individuals in a way that does not affect the business where they are employed. Here are my suggestions on the restrictions:

1. While giving the Appointment Letter, you can add a Non-Compete clause, which acts as a hurdle in engaging in this kind of business.
2. While creating the HR policy, you can add a policy that states employees should not use any resources without acknowledgment from the management.
3. If the management finds an employee guilty (provided they have valid proof), then he or she will be terminated immediately without inquiry or investigation.

These are my opinions. If I am mistaken anywhere, please educate me. Have a great day.

Regards,

I agree with Jenny. If the business conflicts with the interest of the company and there is a clause restraining employees, as well as a notice period required, you can definitely hold on to the resignation letter by citing the reasons to the employee. Concurrently, you can issue a show cause notice on the violation of rules followed by disciplinary proceedings. Such acts will serve as a warning to all employees.

While getting permanent employment, the terms and conditions of the employment (in normal cases) clearly state that the employee should not engage in any other employment either directly or indirectly. However, in Kaya's case, I am unsure if this is applicable. If the appointment letter signifies that the employee has agreed to all the conditions and signed (confirming that they will not engage in other employment, possibly their own), then they are liable for legal actions by the employer.

It all depends on the employment agreement between the employer and the employee.

Employment and Additional Business

Even though the company pays for the time (possibly 8 hours of work), this is not an excuse for the employee to engage in another business, which may sometimes conflict with their employment with the company. In some government hospitals, doctors have their clinics in addition to working in the government hospitals. However, this practice is not acceptable, as the motive for earning (fulfilling duties as a government doctor) can hinder their performance at the government hospitals. This topic is subject to debates, etc.

If you have proof of an employee engaging in work that conflicts with company business, issue a charge sheet and send a letter to address the allegations. Hold any due payments until clarification is provided by the employee, and consider adding a new clause in employment contracts regarding double employment and running individual businesses. Additionally, you may want to establish an ethical code applicable to all employees.

With Regards,
Sachin Gupta

Conflict of Interest and Resignation

Generally, if there is a provision in the terms of employment that an employee shall not engage in any other avocation, management can take action. However, even if there is no such clause, and if an employee runs a business that competes with the employer, then the management has the right to terminate, citing a conflict of interest.

In this specific case, you mentioned that the employee has submitted his resignation. Therefore, there are no grounds for termination. This is not a case of misconduct where charges can be brought even after resignation, leading to dismissal if proven guilty, usually in cases of misappropriation. Please note that no misconduct was committed in this instance; it is a contravention of the contract. The employee chose to terminate the contract by resigning, and the matter concludes there.

If it can be proven that the employee diverted customers, orders, etc., then civil action can be initiated against him.

Thanks,

T. Sivasankaran

If you were aware that he was running his own business before employing him, you should have conducted a reference check to avoid such situations. It's better not to withhold his benefits and to release him.

Regards,
Veena Kangralkar

Steps to Address Employee's Conflict of Interest

1) Check if any clause is mentioned in the appointment letter about not engaging in any other work apart from your company's. Usually, it should be included. If such a clause exists, then you can terminate him for violating the rules, provided you have enough valid proof of him doing so. Even though he has resigned, check if the resignation has been accepted. If not, then prolong the acceptance process from your management's end, specifying the reasons you have discovered regarding his business activities and present the evidence. If he departs without completing his notice period, you can deduct his salary anyway.

2) Check what were the reasons for him to pursue a side business that impacts your company. Was any of your company's data disclosed?

3) Many would argue that if an employee has resigned, why terminate him? However, this scenario could repeat with another employee engaging in similar actions. This could lead to a perception that running a personal business alongside employment is acceptable. Your company may then be taken for granted.

4) You can certainly take action if your company has been affected because he operates a similar business. No specific clause or statement is necessary to address this.

Hello HR Professionals, I went through all comments. Let me present one fact to you and welcome suitable comments in the form of solutions.

Employee Business Conflicts in the Financial Services Industry

If you are aware of the financial services industry, it is strictly mentioned that an employee cannot engage in any other business that will impact the company they are employed with. However, of the 100% of employees in the financial services industry, around 90% have their own businesses in the same industry, which they operate during office hours as well. This is seriously wrong. Ultimately, employees in this industry focus more on customer service, leading them to sell products based on customer requirements. Consequently, they often end up setting up their own businesses, which undoubtedly affects the company they work for.

Generally, companies don't allow running businesses that conflict with the company's interests. It is important to take action at the appropriate time. If you already have doubts, why wait until he resigns? It's better to relieve such employees. You can take action, but I think it's too late.

Regards,
Vinod

You cannot hold the resigned employee's dues unless it is within the bounds of the law, company policy, or the appointment contract. Furthermore, if you had information that he was running a business, you should have taken preventive steps, such as issuing him a written warning.

Now that you have experienced this situation, the best course of action is to avoid such incidents in the future. Including a clause like the following in the appointment contract could be beneficial:

"You will not, while in the services of the Company, undertake or concern yourself directly or indirectly with any other duties or outside work or business, either part-time or full-time, without the express written permission of the management. If you are found doing so without written permission, your services will be liable to be terminated immediately without notice for breaching the above conditions."

Please consider incorporating such a clause to prevent similar issues from arising.

Warm regards

If he is able to complete his work in the organization and his performance has not declined, then you should not take immediate action. However, if the employee's performance consistently decreases due to his personal business, impacting the organization's work, then you should consider taking appropriate action.

I do not agree to allow a person to do his own business as he is paid for only eight hours by the present employer. Model Standing Orders provide a clause of misconduct if the employee is engaged in some other avocation or business. As a matter of fact, an employee is paid by the employer for the tenure he has been engaged by him. Overlooking or allowing an employee may appear to be a progressive outlook but is not in the interest of work, discipline, and dedication to the organization he is working for.

In the present case, you have little choice but to release the FF payment to be safe.

Regards,
S.K. Johri

If the employee's business interferes with his work at the office, then this is certainly a serious matter and has to be dealt with seriously. He cannot take a salary from the company and do some other personal work in the office.

But beyond office hours, it is a different matter. The action you would like to take depends on the terms of the employee's contract. If the terms prohibit doing business of a personal nature even after office hours, this has to be handled carefully after confirming the fact, collecting sufficient evidence, and giving an opportunity to mend his ways. Otherwise, one will be at the receiving end because the employee might do business, which is normally in the name of his wife or son/daughter. He will say that he is not doing business but for a day he is assisting his wife who is not well!

Regards,
M.J. Subramanyam, Bangalore

It is not a matter of right for an employee to conduct business in the name of either his wife or any other relative. According to the existing rules and practices, one must obtain prior permission from the management. Instances that go unnoticed are considered exceptions.

Regards,
S.K. Johri