Can My Side Business as a Sleeping Partner Lead to Legal Trouble with My Employer?

Hi, I am employed in a big organization and also have a partnership business. The business is registered with four partners, and I am one of the sleeping partners. I do not have any role or responsibility in the business. It's just a kind of investment I made for some extra earning.

Concerns About Dual Employment

Can my current employer consider this as dual employment and sue me for that? Is dual employment only valid if I am hired by two different employers, or can a business also be considered as dual employment? What are the consequences I may have to bear? Can my employer take any legal action against me?

Regards

It is entirely up to your employer how your engagement with another firm as a partner, even as a mere sleeping partner, is treated. There are certain clauses in most laws that direct towards the avoidance of dual employment.

Factories Act Section 60: Restriction on Dual Employment

Even for establishments not covered under the definition of the Factories Act, some provisions mentioned hereunder would help prevent double employment:

- The Bombay Shops & Establishments Act, 1961

Sec 65: Restriction of double employment on a holiday or during leave

No employee shall work in any establishment, nor shall any employer knowingly permit an employee to work in any establishment, on a day on which the employee is given a holiday or is on leave in accordance with the provisions of this Act. Similar provisions should exist in the respective states' shops and establishment acts.

- Industrial Employment (Standing Orders) Act, 1946

In terms of model standing orders number 8 under schedule IA of central rules: "A workman shall not at any time work against the interest of the industrial establishment in which he is employed and shall not take any employment in addition to his job in the establishment, which may adversely affect the interest of his employer."

Even if everything mentioned above is negated, every employer drafts the text of employment contracts and, if required, brings interpretations to suit them, to deter the employee from any gainful activity and activities that shall consume his/her time and attention. An employee not covered under the Shops & Establishment Act and the Industrial Dispute Act is governed by the Contract of Service, which, in most cases, is the Appointment Letter.

So, I would suggest not traversing that path. However, my learned friends may be able to correct me and shed more light on the matter discussed by you.

You have already received a clear view on how the legalities work. I echo Sajal's sentiments! Please understand your employer's definition of Dual Employment. Holding two positions for profit accounts for dual employment when you are utilizing the same skills and competencies.

Scenario Analysis

Let us consider a scenario where you are employed as a Software Engineer and also running tutorials for Indian Classical music or Dance. This may not constitute dual employment as the areas of work are essentially different, even if both are 'for profit'.

Reviewing Employment Terms

Have you received an appointment letter outlining the Terms and Conditions for 'Employment at will'? You need to review the Code of Conduct within your organization to clarify your boundaries.

Thank you.

According to me, there is no harm in investing in a business as a partner, especially as a "Sleeping Partner," where you are not involved in the day-to-day administration of the business. This arrangement would otherwise have affected your current employment, so relax. Of course, to be on the safer side, it's always best to disclose the same to your employer if there is a slight clash of business interests. Besides, it's always better to be more transparent with your company. The company cannot file a dual employment breach just because you are a partner in an "x" firm, provided they have enough evidence that "your business interests in other firms" are affecting their business, and you are a potential threat who could leak their business secrets.

Regards,
Ukmitra

I agree with Ukmitra. While you may only be an inactive partner or investor, and the firm may be doing business that is in no way related to your current job or the industry you are working in, you may want to disclose it to your employer to be on the safer side.

I know of an instance where a lady was working in a corporate environment and wanted to do modeling assignments. She had to disclose it to her employer and also sign a document stating that she would not model for a competitor or do anything that might tarnish the image of the company, since some modeling assignments can be looked down upon.

Dual Employment and Legal Implications

Dual employment is contrary to the law, your organization's Code of Conduct, and HR regulations.

A sleeping partner can be hired as an employee by an employer only at its discretion. An employee, if proceeding to become a sleeping partner, should obtain prior approval from the employer. Failure to do so is illegal, whether it involves an inherited business or a new one. Contrary to these conditions, it is considered an offense, and the company can sue you.

In addition to Sajal's complete and comprehensive legal position, please check your appointment letter. You are most likely to find an omnibus clause that reads something like this: "prohibited from taking any gainful activity while in our employment."

Whether you are or are not receiving any profit from the business in which you are a sleeping partner, it will be treated as "gainful activity" as there is always an expectation of profit from any business. I can think of two options. The first one is an honest course of action: Retain only one activity, either the job or business. The second option: A legal workaround is to transfer the business interest to a family member.

Cheers,

Ganesh

I appreciate the insightful comments, without casting any aspersions on the motives of a fellow HR. It is interesting to read these comments, especially:

"Whether you are or are not receiving any profit from the business in which you are a sleeping partner, it will be treated as 'Gainful activity' as there is always an expectation of profit from any business."

It appears to be like the "long arms" of the Law; in this case, the company's influence represented by the HR. It does not matter that one needs to prove the indulgence in gainful activity in terms of time or effort, or whether there is any actual gain.

Writing books, which go on to become best-sellers, can also be termed a gainful activity. Yet it is astounding to find that many well-known authors are in employment and have written their books during their tenure with companies.

In any case, it seems that some companies are more bothered about any activity wherein the person can expect a gain, rather than focusing on activities that might be detrimental to the interest of the company or where there is a conflict of interest.

More power to such companies and their HRs! They have a whip to beat any employee with, and this gives them "power" or a feeling of power.

It is no mystery now why in some organizations, HR continues to be the least-liked department.

Warm regards.

I am not from HR, which you say is the "least liked" department in some companies. I am a retired general management and marketing person and presently a freelance consultant. I don't know how much these roles are "liked." Hope you will take this in a lighter vein.

Intent to Protect and Assist

My intention was a simple one: to protect killersaves (the member who asked the original query) from facing any difficulty from his/her employer and to help in both a legal and safe way to deal with the situation.

Debate on Dual Employment

Regarding dual employment per se, there can be lengthy debates that argue for both sides: the employers as well as the employees. Conflict of interest is subjective, depending on the merits of each case and raises many questions like teachers giving private tuition, the now legalized private practice by government doctors, employees running chits and loan business on the shop floor. How can a freelancer like me be effective while managing work for different principals? Are not employers themselves running many businesses? Is it safe to permit a night-shift driver to undertake some other daytime job? The questions are endless.

Dedication in Dual Employment

The fourth point is this: How many employees can manage dual employment with equal dedication? Maybe some of the authors who write books may have the maturity and dedication to do justice to both occupations.

Warm regards,

Ganesh

Some of these extracurricular activities are useful to the employee and society in general, apart from instilling an entrepreneurial or creative spirit. What is deplorable is the attitude of some HR and management to prosecute employees on flimsy grounds, as rightly pointed out by you in your previous response. I am aware of cases where this has happened when the employee had taken up a few training courses, participated in certain sports activities with prize money, designed or written content for websites, tried to set up some direct selling distribution of certain products from home along with his spouse, etc.

Although one cannot deny that having two regular jobs cannot be encouraged or allowed, moreover, the law rightly prohibits such employment for workmen in factories, mines, etc. The rigors of such jobs can be detrimental to an employee.

At the same time, one needs to relax such considerations for certain assignments which are of a purely casual nature or for creative and entrepreneurial pursuits, even if they involve little pecuniary benefits.

Warm regards.

Understanding Dual Employment

Dual employment means being employed by more than one employer. Under the Delhi Shops and Establishment Act, dual employment is prohibited concerning the working hours of an employee. In contrast, under the Bombay Shops and Establishment Act, even a member of the employer's family is not considered an employee under section 2(6) of the Act because they are not engaged as employees.

An employee enters into a contract of service with the employer and is then employed within the business or establishment. According to this Act, an employer is defined as the owner of the establishment but is not considered an employee. Therefore, an owner or partner of a business will not be employed within the establishment, making the concept of dual employment inapplicable in such cases. However, if the contract specifies that you cannot operate any other business concurrently, then that is a different matter.

Thanks,
Sushil

In continuation of the above, in Kemp and Co Ltd v Workmen, the Commissioner decided by the Madras High Court on 19.7.1955, it was held that for construing the term "person employed" under Section 2(12) of the State Shops and Establishment Act, the common law concept of master and servant, and employer and employee cannot be looked into. It is the statutory definition only that needs to be seen. Thus, for answering the query also, the State Shop and Establishment Act needs to be looked into while understanding the legal position.

Under the Delhi Shops and Establishment Act, the term misconduct is used under Section 30 for an employee but not for an employer. The list of misconducts under the rules relates to employees and not to employers or their shareholders. The term "employment" is similarly not to be understood in a loose sense but in accordance with statutory terminology. If that is so, then "dual employment" is to be understood as being dually employed as an employee.

If a very wide meaning is attributed, then employees of thousands of establishments who have their shares in corporates will be treated as running a business, though as sleeping shareholders, and thus would be treated as dually employed. Such a construction will be detrimental to the interest of society.

Thanks,

Sushil

I have joined Company A as a contractor, but meanwhile, I have secured a permanent position with Company B. Therefore, I have decided to resign from Company A. I worked for two weeks at Company A and informed them that I was unwell and had accepted a role at Company B.

Now, Company A has discovered that I have joined another company and is threatening to update my dual employment status, potentially blacklisting me from both organizations. Upon learning this, I promptly submitted my resignation, although the notice period extends beyond my start date at Company B.

Could you please advise me on what steps I should take next? Can Company A legally claim dual employment against me, and how can I protect my job at my current company, Company B?

I would appreciate any assistance on this matter.

Thanks in advance.