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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.
AT A GLANCE:
“A restriction in the contract which does not preclude the employee from engaging in competitive activity, but simply provides for the loss of rights or privileges if he does so is not in restraint of trade.” (Rolando Rivera v. Solidbank Corporation, G.R. 163269, April 19, 2006)
Post-employment ban or restrictions refer to those limitations imposed by an employer on former employees after termination of their employment in relation to their work or business moving forward, and the limitations on divulging sensitive or confidential information regarding the employer to any third party.
The purpose of post-employment restrictions is four-fold:
- To protect trade secrets;
- To protect confidential and sensitive information;
- To prevent former employees from using what they learned to directly compete with the previous employer;
- To prevent former employees from disparaging the previous employer and its employees.
Validity of Post-Employment Restrictions
The Supreme Court has ruled that the validity of restraints upon trade or employment is to be determined by the intrinsic reasonableness of the restriction in each case rather than by any fixed rule, and that such restrictions may be upheld when not contrary to the public welfare, and not greater than is necessary to afford a fair and reasonable protection to the party in whose favor it is imposed.
For a non-compete clause to be valid, the same must be limited to time, place and trade. It must be noted that in the determination of reasonableness of the restraint, there is no specific length of time or fixed period for the restraint as such is made to depend on the particular facts and circumstances.
In determining whether a prohibition of an employee from accepting post-termination competitive employment is reasonable, the court must consider the following:
- Whether or not the restriction protects the employer’s legitimate business interest;
- Whether or not such restriction creates an undue burden on the employee;
- Whether or not such restriction is injurious to the public welfare;
- Whether or not the time and territorial limitations contained therein are reasonable; and
- Whether or not the restraint is reasonable based on public policy.
This is the pronouncement the case of Rolando Rivera v. Solidbank Corporation (G.R. No. 163269, April 19, 2006), where it was ruled that:
“Thus, 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.”
In the same case, 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.
Further, a restriction in the contract which does not preclude the employee from engaging in competitive activity, but simply provides for the loss of rights or privileges if he does so is not in restraint of trade. (Rolando Rivera v. Solidbank Corporation)
As ruled in the case of Anselmo Ferrazzini v. Carlos Gsell (G.R. No. L-10712, August 10, 1916):
“Cases [involving contracts in restraint of trade] must be judged according to their circumstances, and can only be rightly judged when the reason and grounds of the rule [are] carefully considered.
There are two principal grounds on which the doctrine is founded that a contract in restraint of trade is void and against public policy. 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.”
Read also: Post-Employment Prohibitions
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