1. Business Ideas
  2. Business Plans
  3. Startup Basics
  4. Startup Funding
  5. Franchising
  6. Success Stories
  7. Entrepreneurs
We are here for your business - COVID-19 resources >
Product and service reviews are conducted independently by our editorial team, but we sometimes make money when you click on links. Learn more.
Start Your Business Entrepreneurs

Is It Ethical to Start a Business While on Company Time?

image for fizkes / Getty Images
fizkes / Getty Images
  • Starting a small business as a full-time employee is legal, unless your employment contract says otherwise.
  • Your employment contract contains extremely important information about what you can and cannot do.
  • Being open with your boss about your entrepreneurial ambitions can be a double-edged sword, so tread lightly when breaching this topic.
  • This story is for individuals who are currently employed and looking to start a small business of their own before leaving the safety net of a full-time position.

If you find yourself among the more than 24 million Americans itching to become their own boss, you may have wondered if you have the time, or if you are even allowed to start a business while you maintain your current full-time job. If you're not careful, you could end up in an ethical dilemma that endangers your professional reputation and incurs the wrath of your employer. If, however, you are conscious of the potential issues that can arise and keep the following four tips in mind, you can successfully make the move without breaching any ethical norms.

Think back to the moment you got your current job. You negotiated your pay rate, you discussed benefits, and after some personal reflection – or maybe zero consideration at all in your excitement for your new opportunity – you accepted the position. Part of the onboarding process in nearly every job is the signing of an employment contract that stipulates what you can and cannot do as an employee.

This may be the first time you're thinking about that legal document you signed, but it's imperative that you find your copy and read it over. While it's not illegal to start and operate a business on the side, your employer may have included a policy barring you from doing so.

In some instances, employers have clauses in the contract that allow them to claim ownership of any inventions or innovations you create during company time. Others may have a noncompete clause that not only covers the prospect of you leaving to join a competitor, but could also allow them to take action against any business you create that they perceive as a direct threat.

Along with your employment contract and any noncompete agreement you may have signed, there's a chance that you also put your John Hancock on a nondisclosure agreement, or NDA. These agreements are common, and are designed to keep you from discussing your company's methods and trade secrets. Creating a side business with your current company's methods in mind could be a breach of that agreement, leading to some potentially difficult situations.

"If there are any noncompete clauses, assignment of convenience clauses or nondisclosure agreements, then you should discuss your new business plans with a reputable attorney," Melissa Cadwallader of ZenBusiness said.

Key takeaway: Preexisting agreements with your employer could cause legal problems for your business. Carefully review your employment contract for intellectual property rights and noncompete clauses, and find out if you've signed an NDA.

If you've finished reading the various agreements you signed when you joined your current employer's team, there's a chance you found out that you are contractually obligated to let management know of any side business activity. In that case, you must tell them what you're doing. If you don't have to tell them anything, there's some back-and-forth between experts about what approach you should take in such an instance.

In one camp, you have people who say that you shouldn't tell anyone about your side business. Tom Scarda, CEO and founder of The Franchise Academy, is firmly in that camp, calling the move "inadvisable."

"The stress of running your own business would likely compromise the quality and production of your regular job," Scarda said. "If your employer perceives [your new business] as something that might compromise your productivity, they might consider looking for a replacement."

Other people suggest that you be forthcoming with the existence of your new business and intent to work on it outside of your regular business hours. Samantha Moss, an editor and content ambassador at Romantific says being open about your new venture can make your professional life easier in the long run.

"Telling [your boss or HR department] that you have a side business is a great way to create trust and transparency, and to let them be assured that it will not hinder your performance at work," she said. "Also, this will lessen the shock for them when you decide to focus on your own business once it grows and develops into a strong one."

Citing the fact that continued employment could be a "financial safety net" as a budding entrepreneur, Cadwallader said maintaining a professional relationship with your current employer is important regardless of whichever option you choose.

"There should be the opportunity to address any concerns in discussion with a HR representative and the business owner," she said. "Your openness may well be rewarded with a generous offer of support."

If you speak with someone at your day job and they give you the green light to move forward, Ian Wright, founder of Fleet Logging, said you should absolutely take that permission and run with it. Just make sure you have the paper trail to back up your actions.

"If you have to get permission to do anything on the side, then I would 100% get that in writing, as it could save you down the line," he said. "Just make sure you remain the best employee you can be, get your work done, and you should be fine."

Key takeaway: Your plans to start a new business while remaining employed at your current job could cause problems with your boss. Whether you tell them about your plans or not is ultimately up to you –  weigh the pros and cons before making this decision.

One of the biggest worries from business owners when it comes to employees starting their own ventures is the potential losses they could incur. It's a major reason why noncompete clauses exist in employment contracts in the first place.

If you're intent on starting a business while working a full-time job, do not use any of your employer's resources to do so. That means no office supplies, no online tools or software solutions provided by your employer, no internet or computer use to directly benefit your business while on the clock, or any other sort of discernable resource. Not only is that technically stealing from your employer, it's highly unethical.

To this end, Ryan Robinson, a former Forbes contributor, wrote that doing something as simple as using a company-provided computer for your side business could land you in hot water.

"If you have a work computer from your company, it's obviously their property. Therefore, you should not use it to work on your business, whether that's in the office or at home," he wrote. "Even if your employer is comfortable with you taking your work computer home, using it to read personal emails, and doing with it as you please on your own time, utilizing it for your personal business is both unethical and leaves you exposed to potential breach of your employment contract."

Robinson also advises against poaching co-workers or sniping clients out from under your employer's nose. In both instances, your business venture would be in direct conflict with your soon-to-be ex-employer.

One of the biggest things you shouldn't "steal" from your employer is their time. Time theft is a major issue for employers, so if you're planning on working on your side business when you're supposed to be on the clock, that's a major breach of trust and grounds for immediate termination at many jobs.

To avoid that problem altogether, Jennifer Sargeant, a digital marketing professional, said "boundaries are key."

"It's important to have a clear understanding when you are 'working' your full-time job and your side hustle. For example, I wake up between 5 a.m. and 6 a.m. every day to work on my side hustle ... before the clock begins with my full-time job at 8 a.m.," she said. "Then as soon as I am done with my full-time job, I begin to work my side hustle from 5 p.m. to 10 p.m. I use every waking moment on the weekends to work my side hustle and to make sure I am leveraging both."

Key takeaway: Misappropriating company assets – including your time on the clock – is always a bad idea. 

With the proliferation of employees working from home due to COVID-19, it's likely that the line between your work time and personal time has blurred. While many feel that's a major problem, others say it's an opportunity to start working on your side business.

Chane Steiner, CEO of Crediful said this new boom of remote work flips the ethical question of whether starting a business on company time on its head.

"Typically, if you were starting a business while working in an office during company time, I would say that it wouldn't be ethical. However, the beauty of working remotely is you usually get to choose when company time is for you," he said. "As long as you're putting the necessary time and effort into your full-time remote job, there is absolutely no reason why someone couldn't start a business outside of that time."

Key takeaway: Working from home means flexibility about choosing when you're on the clock, making it easier to allot time to starting a side business.

Starting a business is an exciting time, but failing to take the proper steps could spell disaster for the venture before it gets started. If you're currently employed, it's critical to make sure you're not violating your employment contract, or infringing on company time or resources, as doing so may not only cause some feelings to get hurt, but could also tarnish your reputation and place your new business's legal standing in jeopardy as well.