Post-employment  restrictions

1. Concept

“Post-employment restrictions” – refer to limitations imposed on former employees after exiting employment in relation to their next work or business, as well as what they can say about their previous work which may be sensitive or confidential.

a. Purpose of post-employment restrictions

There are several purposes of post-employment restrictions, to wit:

1) To protect trade secrets;

2) To protect confidential and sensitive information;

3) To prevent former employees from using what they learned to directly compete with the previous employer;

4) To prevent former employees from disparaging the previous employer and its employees.

2. Test

For a post-employment restriction to be valid, it has to be reasonable.

The following are the factors to test reasonableness:

1) Whether the covenant protects a legitimate business interest of the employer;

2) Whether the covenant creates an undue burden on the employee;

3) whether the covenant is injurious to the public welfare;

4) Whether the time and territorial limitations contained in the covenant are reasonable; and

5) Whether the restraint is reasonable from the standpoint of public policy. (Rivera v. Solidbank Corporation, G.R. No. 163269, 19 April 2006)

a. Circumstances to be considered

The question of reasonableness of a restraint requires a thorough consideration of surrounding circumstances, including the subject matter of the contract, the purpose to be served, the determination of the parties, the extent of the restraint and the specialization of the business of the employer. The court has to consider whether its enforcement will be injurious to the public or cause undue hardships to the employee, and whether the restraint imposed is greater than necessary to protect the employer. Thus, the court must have before it evidence relating to the legitimate interests of the employer which might be protected in terms of time, space and the types of activity proscribed. (Ibid.)

3. Validity of post-employment restrictions

Post-employment restrictions are subject to the autonomy principle of contracts. That is to say, the parties may freely stipulate provided these are not contrary to law, morals, good customs, or public policy. Hence, so long as the post-employment restrictions comply with the limitations, then they are valid, binding, and enforceable.

4. Burden on employer

Respondent, as 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. (Rivera v. Solidbank Corporation, supra.)

Cases involving contracts in restraint of trade are to be judged according to their circumstances, to wit: … There are two principal grounds on which the doctrine is founded that a contract in restraint of trade is void as 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. (Ibid.)

In cases where an employee assails a contract containing a provision prohibiting him or her from accepting competitive employment as against public policy, the employer has to adduce evidence to prove that the restriction is reasonable and not greater than necessary to protect the employer’s legitimate business interests. The restraint may not be unduly harsh or oppressive in curtailing the employee’s legitimate efforts to earn a livelihood and must be reasonable in light of sound public policy. (Ibid.)

5. Samples of post-employment restrictions

a. Non-Disclosure Agreements

In competitive industries where trade secrets are critical to the success of a business, employees may be required not to disclose any confidential information that they may have obtained in connection with their employment. Such a limitation may be for a certain period of time or in perpetuity.

b. Non-Compete

A post-retirement competitive employment restriction is designed to protect the employer against competition by former employees who may retire and obtain retirement or pension benefits and, at the same time, engage in competitive employment. (Rivera v. Solidbank Corporation, supra.)

# Case Law: Century Properties, Inc. v. Concepcion, G.R. No. 220978, 05 July 2016

Verily, the foregoing clause is not only clear and unambiguous in stating that the employee is barred to “work for whatsoever capacity… with any person whose business is in direct competition with [the employer] while [he is] employed and for a period of one year from date of [his] resignation or termination from the company,” it also expressly provided in no uncertain terms that should the employee “[breach] any term of [the employment contract], forms of compensation including commissions and incentives will be forfeited.” Here, the contracting parties – namely Babiano on one side, and [the Company] as represented by its COO-Vertical, [J.V.R.] Antonio, and Director for Planning and Controls, [J.C.R.] Antonio, on the other – indisputably wanted the said clause to be effective even during the existence of the employer-employee relationship between Babiano and [the Company], thereby indicating their intention to be bound by such clause by affixing their respective signatures to the employment contract. More significantly, as [the Company’s] Vice President for Sales, Babiano held a highly sensitive and confidential managerial position as he “was tasked, among others, to guarantee the achievement of agreed sales targets for a project and to ensure that his team has a qualified and competent manpower resources by conducting recruitment activities, training sessions, sales rallies, motivational activities, and evaluation programs.” Hence, to allow Babiano to freely move to direct competitors during and soon after his employment with [the Company] would make the latter’s trade secrets vulnerable to exposure, especially in a highly competitive marketing environment. As such, it is only reasonable that [the Company] and Babiano agree on such stipulation in the latter’s employment contract in order to afford a fair and reasonable protection to [the Company]. Indubitably, obligations arising from contracts, including employment contracts, have the force of law between the contracting parties and should be complied with in good faith. Corollary thereto, parties are bound by the stipulations, clauses, terms, and conditions they have agreed to, provided that these stipulations, clauses, terms, and conditions are not contrary to law, morals, public order or public policy, as in this case. #

c. Non-Disparagement

“Non-disparagement” – refers to the act of prohibiting an individual from speaking ill or destroying the name and reputation of another.

For certain industries where reputation is critical to their business, employers may provide a non-disparagement clause to prohibit former employees from speaking ill of their previous work and/or colleagues.

It should be noted that there are existing laws that also prohibit individuals from making malicious imputations against another, such as libel, cyber libel, and defamation.

/Last Updated: December 25, 2022

Disclaimer: All information is for educational and general information only. These should not be taken as professional legal advice or opinion. Please consult a competent lawyer to address your specific concerns. Any statements or opinions of the author are solely his own and do not reflect that of any organization he may be connected.

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