Disclaimer: Please note that this article contains general legal information and doesn’t contain legal or tax advice, and isn’t intended to constitute legal or tax advice.
Generally, yes – you can do freelance work while employed, but there are some potential legal risks to consider.
Provided that your freelance activity doesn’t constitute a breach of any agreements concluded with your employer, and your freelance business doesn’t affect your performance in your current employment – you should be good to go. However, there are some specific things you need to look out for.
In this article, you’ll find out when and how you can start freelancing on the side even while being employed.
Freelance While Working Full Time
Prior to starting your freelance business, you should read over and review:
- All of the agreements you’ve entered into with current and prior employers (or businesses) regarding your employment,
- Focus on provisions concerning your additional professional or business activity that these agreements may include.
- Any other documents related to your employment that you signed or received, such as internal company regulations, workplace policies, or employee handbooks.
Read every single document that relates to your employment before you start working freelance. In case you don’t have all of the documents, you can request a copy from whoever’s responsible for HR at your company, or directly from your employer.
Below you’ll find:
- Specific types of agreements you may have signed;
- The provisions they may contain, and the potential obligations to the employer these provisions might be imposing on you;
- And how to minimize the risks of violating these obligations.
Documents You Should Read Over
Employment Contract
Any of the clauses mentioned in this article may be included in your employment contract instead of in separate agreements.
| Clauses that you should specifically pay attention to | Practices to minimize the risk of breaching obligations |
|---|---|
| Interference with current employment and duty of loyalty. During employment, the employee agrees to devote their full time and attention to the business and affairs of the employer and to use their best efforts to perform their responsibilities faithfully and efficiently. | Your freelance business can’t substantially interfere, affect, or compete with the duties of your current employment. You shouldn’t show up for work tired, late, or unprepared. The duty of loyalty requires you to not do anything that would harm your employer. |
| Use of company resources. The employee is obliged to use company time, equipment, customers, vendors, leads, or assets only for work-related activities. | You shouldn’t use your employer’s resources to perform your freelance activities, i.e. you can’t do your freelance work during your work time or while using the equipment you’ve been provided with by your employer (company computer, phone, car, or other company property). |
| Requiring written consent before getting involved in additional professional or business activity. During employment, the employee agrees not to engage in any other employment, occupation, or consulting activity without the prior written approval of the employer. | You have to get prior written approval from your employer for any outside professional or business activity. |
Internal Company Regulations (Workplace Policies and Procedures, Employee Handbooks)
Any of the clauses mentioned in this article may be included and detailed in your company’s internal regulations instead of in separate agreements.
Non-disclosure Agreement (NDA) (Confidentiality Agreement)
| Clauses that you should specifically pay attention to | Practices to minimize the risk of breaching obligations |
|---|---|
| Confidential information. The employee is obliged not to share or use company confidential information. Confidential information includes, in particular, proprietary information, trade secrets, customer lists, strategic plans, business plans, pricing, projections, or any other information that is not publicly available. | You have to protect your employer’s confidential information and you can’t use it for any outside purposes, including any freelance business activity. |
Non-compete Agreement
| Clauses that you should specifically pay attention to | Practices to minimize the risk of breaching obligations |
|---|---|
| Conflict of interest. The employee agrees not to enter into or begin a professional or business activity directly competing with the employer. The non-compete clause should be reasonable in scope, geography, and time and its aim should be to protect the legitimate business interest of the employer. | You can’t do freelance work for your employer’s competitors or start a freelance business that competes with your employer (in the scope specified in the agreement). |
Non-solicitation Agreement
| Clauses that you should specifically pay attention to | Practices to minimize the risk of breaching obligations |
|---|---|
| No-hire and non-solicitation. The employee is prohibited from hiring, soliciting, and diverting any of the company employees, contractors, customers, clients, vendors, suppliers from the employer etc. | You can’t attempt to solicit, hire, or divert your employer’s employees, clients, and other parties. |
Intellectual Property Agreement
| Clauses that you should specifically pay attention to | Practices to minimize the risk of breaching obligations |
|---|---|
| Innovation and Intellectual Property (IP). The employee assigns the employer rights to all intellectual property that is created and/or discovered during the term of the employment. IP includes, but is not limited to, patents, patent rights, copyrights, trademarks, trade names, trade secrets, trade practices, service marks, service mark registrations, service names, inventions, licenses, approvals, governmental authorizations, algorithms, codes, inventions, processes, software, formulas, ideas, concepts and developments, all aimed to protect the originality of company ideas. | You should avoid working on your freelance projects on your employer’s time or using the employer’s resources. You shouldn’t use your company laptop, email, or manuals and documents that belong to your employer for any purpose other than work-related activities. It’s crucial to create a separation between your employment and freelance work so the IP that you develop doesn’t constitute property that arose from or is related to your employment or your employer’s business. You might also consider getting a written release and waiver from your employer for an explicit acknowledgment that the employer can’t claim the IP you develop within your freelance work. It can be especially crucial in jurisdictions in which the employer may have a claim to any IP developed during the term of the employment that might have arisen or be related to their business. |
Make sure you fully understand your obligations to your employer and your employer’s rights. Doing freelance work while employed – in a way that violates the terms of your employment – can, in particular, lead to:
- Disciplinary or contractual penalty.
- Termination of your employment contract without notice by your employer.
- The violation of your freelance business client agreements – As a freelancer, you might be obliged to declare to your potential clients that you aren’t under a non-compete agreement with your current and prior employers.
If you need to determine if any of these agreed-upon obligations are enforceable, or want to further analyze the scope of your obligations as an employee, I strongly recommend seeking out the consultation of a lawyer, legal, or tax adviser in your jurisdiction.
Once you’ve started freelancing, it’s worth keeping in mind the concept of when a freelancer becomes an employee when working with a particular client. In some jurisdictions, tax authorities can see what you believe to be freelancing as full employment if you meet specific criteria – although this is quite easily avoided if you know what to look out for!
If you’re generally still wondering whether going freelance is worth the struggle, check out our article on the advantages and disadvantages of freelancing. You can also take a look at some of the top books for freelancers to see some of what it takes to get started with advice from top freelance and business experts.
How to Start Freelance Work? (Keep This in Mind)
When starting as a freelancer, you should set up the proper legal structure for your freelance business. For most freelancers there are in practice 2 main options:
- Operate as a sole proprietor, or
- Form a limited liability company (LLC in the U.S., or its closest equivalent in the UK: a private limited company).
The choice of the best suitable business structure is crucial as it will affect your accounting, level of personal liability, tax, and business responsibilities and arrangements, as well as regulations you must follow.
