A business entity is only as good as its human resources. This is the reason why companies invest in trainings and seminars for their employees. This is also one of the reasons why employers provide for non-competition clause to prevent their employees from working with a competitor or engaging in a similar business within a certain period.

 

This non-competition clause is also referred to as the non-involvment clause. 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. In contracts, the parties 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. The obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith.

 

In certain instances, the non-involvement clause is considered as invalid for being an unreasonable restraint of trade and, therefore, against public policy. For instance, prohibiting an employee from engaging in any business or occupation within 5 years from termination of employment is invalid because it's not limited as to trade. In another instance, an employer who has multiple business activities can't prohibit an employee, who is working in only one of those business activities, to engage in the other businesses.

However, the court recently affirmed the prohibition against an officer of a pre-need company, who executed a 5-year contract, from working for a competing company. The contract provides:

8.   NON INVOLVEMENT PROVISION – The EMPLOYEE further undertakes that during his/her engagement with EMPLOYER and in case of separation from the Company, whether voluntary or for cause, he/she shall not, for the next TWO (2) years thereafter, engage in or be involved with any corporation, association or entity, whether directly or indirectly, engaged in the same business or belonging to the same pre-need industry as the EMPLOYER.  Any breach of the foregoing provision shall render the EMPLOYEE liable to the EMPLOYER in the amount of One Hundred Thousand Pesos (P100,000.00) for and as liquidated damages.

When the officer worked with a competitioner within the covered period, the former employer filed a case seeking damages. In defense, the officer claimed that the non-involvement clause is invalid, but this argument was not upheld. The non-involvement clause in this particular instance has a time limit: two years from the time employment ends.  It is limited as to trade, since it only prohibits the employee from engaging in any pre-need business akin to that of the company. Also, the officer was the Senior Assistant Vice-President and Territorial Operations Head in charge of the Hongkong and Asean operations, which means that she had been privy to confidential and highly sensitive marketing strategies of the business. To allow her to engage in a rival business soon after she leaves would make the employer's trade secrets vulnerable especially in a highly competitive marketing environment.  (Source: Tiu vs. Platinum Plans, Phil., Inc., G.R. No. 163512, 28 February 2007)