8. Post-employment Restrictions; Elements of Validity

Types of Restrictive Covenants

• Non-compete clause When the Ee is prevented from directly competing or working for a competitor of his former Er, or when the Ee is prevented from setting up a competing business.
• Non-solicitation clause When a duty is imposed on the Ee not to approach his former Er’s customers or prospective customers, or when the Ee is prevented from taking customers/clients of his former Er.
• Non-poaching clause When the Ee is prevented from enticing his former Er’s staff away from the business, the aim is to prevent the Ee from taking key Ees with him to his new employment or business.

Non-Involvement Clause

A non-involvement clause is not necessarily void for being in restraint of trade if there are reasonable limitations as to time, trade, and place. It was also stated in this case that the Labor Law validity of a non-involvement clause depends upon the nature of work of the subject Ee. (Tiu v. Platinum Plans, Phils., Inc., G.R. No. 163512, 28 Feb. 2007)

Q: TRUE or FALSE. Answer TRUE if the statement is true, or FALSE if the statement is false. Explain your answer in not more than two (2) sentences.

An employment contract prohibiting employment in a competing company within one year from separation is valid. (2009 BAR)

A: FALSE, if validity is claimed solely because the prohibition lasts one year. A one-year prohibition may be valid if its restrictions are reasonable in light of the employee’s work and the employer’s legitimate interest in guarding its trade secrets, manufacturing formulas, marketing strategies, and other confidential programs and information.

Q: Genesis Fulgencio had been working for Solidbank Corporation since 1977. He later on applied for retirement. Solidbank required Genesis to sign an undated Undertaking where he promised that “he will not seek employment with a competitor bank or financial institution within one (1) year from 28 Feb. 1995, and that any breach of the Undertaking or the provisions of the Release, Waiver and Quitclaim would entitle Solidbank to a cause of action against him before the appropriate courts of law.” Equitable Banking Corporation (Equitable) employed Genesis.

Is the post-retirement employment ban incorporated in the Undertaking which Genesis executed upon his retirement unreasonable, oppressive, hence, contrary to public policy?

A: NO. There is a distinction between restrictive covenants barring an Ee to accept a post- employment competitive employment or restraint on trade in employment contracts and restraints on post-retirement competitive employment in pension and retirement plans either incorporated in employment contracts or in CBAs between the Er and the union of Ees, or separate from said contracts or CBAs which provide that an Ee who accepts post retirement competitive employment will forfeit retirement and other benefits or will be obliged to reinstitute the same to the Er.

The strong weight of authority is that forfeitures for engaging in subsequent competitive employment included in pension and retirement plans are valid even though unrestricted in time or geography. That forfeiture rule is not the direct basis for the answer here: the quoted Undertaking bars employment with a competitor bank or financial institution for one year and provides that a breach entitles Solidbank to a cause of action, rather than forfeiting retirement benefits. A post-retirement competitive employment restriction is designed to protect the Er against competition by former Ee who may retire and obtain retirement or pension benefits and, at the same time, engage in competitive employment. (Rivera v. Solidbank Corp., supra)

QUITCLAIMS

After a valid compromise has been entered into, a quitclaim usually follows. In this document, the employee waives or releases the employer from any claims he may have against him by reason of his employment. These are normally frowned upon because the employer and employee stand on unequal footing. Hence, a quitclaim may be held valid if the employee executed it voluntarily, with full understanding of its terms, without fraud or coercion, and for reasonable consideration; otherwise, it may be invalidated.