Published — October 27, 2017
The following post does not create a lawyer-client relationship between Alburo Alburo and Associates Law Offices (or any of its lawyers) and the reader. It is still best for you to engage the services of your own lawyer to address your legal concerns, if any.
Also, the matters contained in the following were written in accordance with the law, rules, and jurisprudence prevailing at the time of writing and posting, and do not include any future developments on the subject matter under discussion.
Related Topic: Key Benefits of Written Contracts in Business
Hiring new personnel, though necessary at some points in operating one’s business, carries certain risks especially if the one hired for the job is prone to engaging in activities that would conflict with his employer’s interests. As a way of protecting the enterprise, it would be wise for employers to require all incoming employees to execute the following agreements as part of the hiring process.
- Non-disclosure agreement
- Non-compete agreement
- Non-poaching agreement
- Non-solicitation agreement
As one may notice, all such agreements are couched in the negative (all of them starts with the prefix “non”), meaning they are intended to bind the incoming employee to refrain from doing certain acts during, and even after employment. And since they are all written contracts, such agreements are enforceable in court just in case legal action becomes necessary.
Non-disclosure agreement
The non-disclosure agreement is also referred to as the confidentiality agreement. It must be noted that during one’s employment in the company, certain employees may gain access to confidential information by reason of his official functions and duties, including proprietary information related to the company’s ongoing business activities. These confidential information may include, but not limited to sensitive matters like trade secrets, operating processes, tools and other equipment, production and sales records, customer profiles, and even financial matters such as income, profits, losses and expenses.
By executing a confidentiality agreement, the incoming employee is expressly binding himself not to disclose such classified information as he may acquire in the course of his employment under the pain of stipulated penalties and possible legal liabilities.
Non-disclosure agreements are usually intended to indefinitely outlive the employer-employee relationship between the company and the involved personnel. It is so because once top-secret information is leaked, there is absolutely nothing that can be done to get it back to the realm of the undisclosed. Therefore, having an express agreement to maintain confidentiality, especially when containing heavy pecuniary penalties, will serve as a deterrent for the concerned employee from divulging official secrets without the management’s consent.
Non-compete agreement
The non-compete agreement prevents the employee concerned from engaging in any activity that would directly or indirectly compete with the company he works for, especially after employment relationships had already been severed. The non-compete agreement is usually partnered with the non-disclosure agreement (see above), because it prevents an employee not only from competing against his employer, but also from using against his employer in a competing business whatever confidential information he may have officially acquired while he was still working for the latter.
Violation of the non-compete agreement is likewise punishable by heavy pecuniary penalties as may be stipulated by the parties. Thus, it also serves as a deterrent from doing the prohibited act. However, unlike the non-disclosure agreement which can last indefinitely after the employment relationships have been severed, non-compete agreements are only for a limited period of time (based on practice, the prohibition usually lasts only from 2 to 5 years from the time the employment is severed). Any prohibition for an indefinite period may be invalidated for being an unreasonable restraint of trade, and therefore contrary to public policy [See: G.R. No. 163512].
Non-poaching agreement
When the employee is separated, and went on to do business that is different from that of his former employer, it is still possible for him to steal his former colleagues from the company he worked for. It must not be forgotten that during his employment, the employee would have necessarily met many other employees from the company, and nothing can prevent him from scouting among the company’s workforce who might be the “right person” to work for him once he resigns and establishes his own business. Because he is a colleague, he would be in a unique position to build relationships with his co-employees, and use his influence in recruiting them.
To prevent such separated employees from stealing the company’s workers, it would be prudent for employers to require before hiring that a non-poaching agreement be executed. This would prevent the concerned employee from recruiting and hiring anyone from the company’s workforce, or inducing any of the company’s employees to terminate their employment in order to work for him. Violation of said prohibition is, again, punishable by stipulated penalties.
Non-solicitation agreement
Similar to the non-poaching agreement is the non-solicitation agreement, where, instead of preventing the separated employee from stealing employees from the company, the non-solicitation agreement is designed to prevent such separated employee from stealing the company’s customers/clients and suppliers. There is nothing worse than hiring an employee who would later on separate from your company to establish his own business, and takes with him your customers and suppliers in the process.
The non-solicitation agreement prevents this kind of situation from happening, where the employee binds himself to refrain from soliciting any business from the company’s customers/clients, suppliers, and other persons whom the company may have been dealing with. Like the other agreements discussed above, penalties are likewise stipulated for violation of the non-solicitation agreement.
Again, for emphasis, these written agreements are all enforceable in court. They also serve as evidence that the employer may use in proving his cause once legal action becomes a matter of necessity. With the protection that these contracts afford to the employer, execution of said contracts should be treated as a “must do” in every hiring process. Always keep in mind that the risks being averted by the said contracts, when done right, far outweigh the few pieces of paper and ink that are needed to produce them.
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.
All rights reserved.