I can see a couple of angles on this.
You're in a small community, one or five local competitors, doing the kind of work where you could set up shop with below $10k of kit.
You've got a facility like Victor's, or you pull permits, get drawings, have bucket trucks; the sort of thing that has you in over $100k for start up, and requires considerable knowledge.
In the first instance, you're taking on hired help for whom the cost of entry to be a competitor is relatively low, and a bright person could possibly replicate/replace you in a relatively short time. Many of your previous competitors may have come in, low balled, then folded, which implies that you have something in your hand, other than being cheap. This also happens when you're based in a small or large city - there will always be a new comer snipping for your customers. If you're good, then word of mouth, and repeat custom are in your favour, and many busy people would rather order from someone they know will deliver the product they want.
Those who only want the cheapest are the customers you least want.
In the second instance, the barrier to entry is much higher, both financially, and in terms of knowledge - technical, social, practical, and perhaps most importantly business. You're B2B, or streamlined, optimised B2C, who has the logistics in place to ensure the job gets done. You've developed the skills, bought the equipment, done you're time and porbably have a wardrobe full of The T-shirt. You're who the customer goes to to either know the job'll get done properly, and pay a premium, or who presents in such a way that can offer a cost effective solution that will get delivered (nod to Victor's model)
1st angle, you've got someone bright who can see where they could fill a gap in the market - approaching your customers, being cheaper than you from their garage, offering things that you don't do. If they are decent, they'll ask/talk with you. Or your customers may talk with you. This is the tricky place. If they're decent and open, then set ground rules - no approaching your clients, no taking "stuff" from the work place. If they're not, then the boot.
Angle 2, (though not Victor), assuming you're not paying them top dollar, help them develope. Treat them like an apprentice, or an assistant, help them develope. They can not make the leap to be you and your outfit. Let them know that while they're with you, and you're paying their salary, that you own their 40 hours, and that "stuff" is your property and needs to be asked for. As they develope, they may want to go part time. Assuming they're decent, then it's on your schedule, and if you're supportive, they're more likely to not chuck a sickie and leave you in the lurch. They continue to be a good employee. If you see that they're obviously allowing their new activities to impact your 40 hours of their time, then you as the elder business person needs to initiate the conversation.
When an ex-assistant/apprentice leaves you on good terms, they are unlikely to immediately have a fully booked calendar, so now you have a sub you have trained, and know can step in for you, or you can call in for a few days. You have someone to feed the overflow jobs, or the ones that your overhead can't sustain.
This can lead to a win-win, and as they grow, as long as both parties behave decently, no-one loses, unless you weren't as good as you thought you were. In which case, they might give you a job (given that you have the skills, knowledge, etc), or chuck you the customers that they don't want.
A side hustle can show many things.
One may be that their employer isn't paying enough for them to survive. That's on you. If you are paying them enough to survive, then have a conversation as to how the side hustle can be run without impacting your business.
It may show ambition to be their own boss. If that is the case, then how you act is dependent on how precarious your own circumstances are.
In the 80's, 90's, early 2000's, commercial photogaphers would pay their assitants enough to live reasonably. They'd lend them kit and use of the studio out of hours, pay their (assistant discounted) lab bills, and help them grow. The understanding was there from the get go, that they (the assistant) would always be at work when they were expected to be, that they would be reliable, hard working decent and honest. In return, they got to learn their trade.
(my background is photographic, these days, I'm a printer mostly working with photography).
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