Should an Employer Allow an Employee to Work on a Side Business? A professor of business ethics advises on if and when to allow employees to moonlight on startups of their own.

Q: Should an employer allow an employee to work on a side business?

A: The question is fraught with ethical issues. The word thorny comes to mind, which is why we called on Gregory Fairchild. As an associate professor of business administration at the University of Virginia's Darden School of Business, Fairchild teaches strategy, entrepreneurship and ethics. He says the outside-work question can often be distilled to a fairly simple equation: "To what degree is there an implicit versus an explicit agreement about working on a side business?"

Yet Fairchild concedes that even explicit agreements can contain "a reasonable amount of gray," and thus be subject to all manner of lawyerly interpretation. On occasion, Fairchild says he's granted a Darden employee permission to pursue outside work, only to be overruled by the university's human resources or legal staff.

Of course, the issue of outside work becomes especially important when an entrepreneur seeks to protect intellectual property. And while certain industries come most readily to mind--defense, biotech, IT--Fairchild says outside-work policies can pose a dilemma in any company of any size.

The key to employer and employee seeing eye to eye lies in their mutual transparency. Entrepreneurs should first seek legal counsel before enacting an outside-work policy--laws on these matters differ from state to state--then clearly explain to employees what is (and is not) allowed. Employees are often surprised when employers not only grant an outside-work request, Fairchild says, but also ask to invest in the venture. Still, he notes, "There are some people who believe it's easier to ask for forgiveness than permission."

The ethical issues are more nuanced when a startup is involved. Because a startup is an inherently risky proposition, Fairchild says, employees might feel they have a right to hedge their career bets by pursuing outside work. Yet a violation of a startup's outside-work policy is often felt more acutely than, say, at a Fortune 500 firm.

"The startup firm's need in the bootstrapping stage is so critical," he says. "So to know that resources were porous, so to speak, leaves people feeling more violated than in more established organizations."

Fairchild suggests that entrepreneur and employee alike apply what he calls the mirror test. When you look at yourself in the mirror, he says, "Do you have even a flinch of a moment where you wonder if what you're doing is kosher?