Related article: “Must have” employment contracts during hiring process
Once an employee leaves, he or she also takes with him or her, the knowledge, information and skills he or she has acquired throughout his or her employment. Because of this, our laws allow management prerogatives on post-employment bans which would prevent disclosure of company secrets and bar employees from accepting employment in competition with his or her previous employer. These management prerogatives are written on the contracts and/or agreements signed by the employees and are often called “Confidentiality and Non-Compete Clause.”
Confidentiality Clause: Non-Disclosure of Company Information
Included on the “Non-disclosure of Company Information and/or Documents” is a mandatory obligation that all the records and documents and all information pertaining to employer’s business or affairs or any of its affiliated companies are confidential and no unauthorized disclosure or reproduction shall be made by an employee any time during or after employment. To enforce such confidentiality clause and in order to ensure strict compliance of the confidentiality clause, the employer may insert a provision allowing the latter to enforce liability for damages and forfeiture of forms of compensation including commissions and incentives, against the erring employee in the event of breach.
Reasonable Restraint of Trade
Another allowable post-employment ban is a “non-compete clause”. A non-compete clause provides that an employee shall not work or engage in work for whatsoever capacity, either as an employee, agent or consultant with any person whose business is in direct competition with the company for a reasonable period from date of resignation or termination. Most of the employment contracts or agreements, has non-compete clause mandatory to resigned or terminated employees for a period of one (1) to two (2) years from separation. Such clause may also come with it a penalty for its strict enforcement which involves acknowledgement of the erring employee that he or she will be liable for damages, and in case damages may not be an adequate remedy, in addition to any other remedies available to the employer at law or in equity, the employer may file a legal suit to enforce its rights by way of injunction, restraining order or other relief to enjoin any breach or default of the contract.
Restraint of trade mandating a restrictive ban on the employee from accepting a competitive employment after he resigns or retires from his employment is a common practice. However, an issue arises when an employee assails the validity of the covenant on grounds of public policy (Marquez, Jefferson, Competitive employment ban: Void for restraint of trade?, August 15, 2006, Last Accessed: June 03, 2019).
In the case of Rivera vs. Solidbank Corporation, G.R. No. 163269, April 19, 2006, the Supreme Court ruled that an employer is burdened to establish that a restrictive covenant barring an employee from accepting a competitive employment after retirement or resignation is not an unreasonable or oppressive, or in undue or unreasonable restraint of trade, thus, unenforceable for being repugnant to public policy. As the Supreme Court stated in Ferrazzini v. Gsell (G.R. No. L-10712), cases involving contracts in restraint of trade are to be judged according to their circumstances or two principal grounds: one is, the injury to the public by being deprived of the restricted party’s industry. And the other is, the injury to the party himself by being precluded from pursuing his occupation, and thus being prevented from supporting himself and his family.
In Rivera vs. Solidbank Corporation, the Supreme Court elucidated that, the determination of reasonableness of restraint of trade is made on the particular facts and circumstances of each case. This could be done through thorough consideration of surrounding circumstances, including the subject matter of the contract, the purpose to be served, the determination of the parties, the extent of the restraint and the specialization of the business of the employer. The court also has to consider whether its enforcement will be injurious to the public or cause undue hardships to the employee, and whether the restraint imposed is greater than necessary to protect the employer. Thus, the court must have before it, evidence relating to the legitimate interests of the employer which might be protected in terms of time, space and the types of activity proscribed. Consideration must also be given to the employee’s right to earn a living and to his ability to determine with certainty the area within which his employment ban is restituted. In view of this, a provision on territorial limitation is necessary to guide an employee of what constitutes as violation of a restrictive covenant and whether the geographic scope is co-extensive with that in which the employer is doing business. Further, in considering a territorial restriction, the facts and circumstances surrounding the case must be considered.
Thus, in summary, in determining whether the contract is reasonable or not, the trial court should consider the following factors: (a) whether the covenant protects a legitimate business interest of the employer; (b) whether the covenant creates an undue burden on the employee; (c) whether the covenant is injurious to the public welfare; (d) whether the time and territorial limitations contained in the covenant are reasonable; and (e) whether the restraint is reasonable from the standpoint of public policy.
Right to Protect Own Interest
In view of the above, employers have the right to protects its own interest and in doing so, the restrictions must not be unduly harsh or oppressive and must be reasonable in light of sound public policy. After all, what one creates by his own labor is his own property. Public policy does not intend that another person shall reap the fruits of one’s labor, rather, it gives to him the right to protect the fruits of his labor and secure the enjoyment of them to himself.Freedom to contract must not be unreasonably abridged. Neither must the right to protect by reasonable restrictions that which a man by industry, skill and good judgment has built up, be denied (Rivera vs. Solidbank Corporation).
OTHER SOURCES:
Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/0917-5772207.
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nice post. very well written. impressive