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Research On Non-Competet Clause

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10 views1 page

Research On Non-Competet Clause

Uploaded by

Anonymous uMI5Bm
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© © All Rights Reserved
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Dear Atty.

Peter,

Please find my research on the limitations of the right of the employer to restrict an employee from
being employed by a competitor or the non-compete clause, as follows:

In the case of Rural Bank of Cantilan, Inc. v. Julve, the Court laid out the general jurisprudential
guidelines affecting the right of the employer to regulate employment, to wit:

“Under the doctrine of management prerogative, every employer has the inherent
right to regulate, according to his own discretion and judgment, all aspects of
employment, including hiring, work assignments, working methods, the time, place
and manner of work, work supervision, transfer of employees, lay-off of workers,
and discipline, dismissal, and recall of employees. The only limitations to the
exercise of this prerogative are those imposed by labor laws and the principles of
equity and substantial justice.” (Underscore and Emphasis supplied)

In the case of Daisy B. Tiu v. Platinum Plans Phil. Inc., a non-involvement clause is not necessarily void
for being in restraint of trade as long as there are reasonable limitations as to time, trade, and place.

Article 1306 of the New Civil Code provides that parties to a contract may establish such stipulations,
clauses, terms and conditions as they may deem convenient, provided they are not contrary to law,
morals, good customs, public order, or public policy. Furthermore, Article 1159 of the same Code
provides that obligations arising from contracts have the force of law between the contracting parties
and should be complied with in good faith.

The employer and the employee are free to stipulate in an employment contract prohibiting the
employee within a certain period from and after the termination of his employment, from:

1) Starting a similar business, profession or trade; or


2) Working in an entity that is engaged in a similar business that might compete with the employer

The non-compete clause is agreed upon to prevent the possibility that upon employee’s termination or
resignation, he might start a business or work for a competitor with the full competitive advantage of
knowing and exploiting confidential and sensitive information, trade secrets, marketing plans, customer/
client lists, business practices, upcoming products, etc., which he acquired and gained from his
employment with the former employer. Contracts which prohibit an employee from engaging in
business in competition with the employer are not necessarily void for being in restraint of trade.

Contracts involving restraint of trade are to be judged according to their circumstances or two principal
grounds, as follows:

1) Injury to the public by being deprived of restricted party’s industry; and


2) Injury to the party himself by being precluded from pursuing his occupation, and thus being
prevented from supporting himself and his family (Ferrazzini v. Gsell, G.R. No. L-10172, August
10, 1916).

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