Trixie is a scientist/researcher in the academe, specializing in vaccine research, particularly messenger ribonucleic acid (mRNA) technology. At the start of the pandemic in 2020, Trixie was hired by AZ Corp. to help formulate and produce a vaccine against COVID-19. The employment contract provides: “You shall not work for whatsoever capacity, either as an employee, agent, or consultant with any person, anywhere in the Philippines, whose business is in direct and indirect competition with the company during the period of this contract, and for a period of ten (10) years from date of resignation or separation from the company. Violation of this stipulation shall make you liable for liquidated damages in the amount of Php 5,000,000.00.” Trixie was able to successfully produce the vaccine and for which AZ Corp. paid her Php 50,000,000.00. Thereafter, Trixie resigned from AZ Corp. and returned to her work in the academe. AZ Corp. filed a complaint for damages in the amount of Php 5,000,000.00 against Trixie for violation of the above stipulation in her contract. 1a⍵⍴h!1 If you were the judge, rule on the validity of the stipulation. Explain briefly. (5 points)
Suggested answer only. Not an official answer and not legal advice.
As the judge, I would rule that the non-compete stipulation is invalid and void for being contrary to public policy. Under Article 1306 of the Civil Code and jurisprudence, a non-compete clause is valid only if
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Quick check
Under Article 1306 of the Civil Code, what requirement must a post-employment non-compete clause satisfy to be valid?
A post-employment non-compete clause is valid only if it imposes reasonable limitations as to duration, trade, and territorial scope.
Why is a ten-year nationwide non-compete clause generally considered void under Philippine law?
A ten-year nationwide restriction is void because it imposes an unreasonable restraint of trade contrary to public policy.
Does a scientist returning to teach and research in the academe violate a non-compete clause with a pharmaceutical corporation?
Returning to the academe does not violate the non-compete clause because an academic institution is not a commercial enterprise in competition with the employer.
What is the legal consequence of an unreasonable non-compete covenant in an employment contract?
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Which element is crucial when evaluating whether a non-compete restriction protects legitimate employer interests?
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Learn more about these topics
1. Non-Compete Validity
Under Article 1306 of the Civil Code, parties may establish stipulations provided they are not contrary to law, morals, good customs, public order, or public policy. A non-compete clause in an employment contract is a restrictive covenant in restraint of trade. To be legally enforceable, a non-compete clause must impose reasonable limitations as to duration, geographical scope, and trade activity. A restrictive stipulation that imposes an unreasonable or undue restraint upon an employee's freedom to earn a livelihood is void for being contrary to public policy.
2. Reasonableness Test
The validity of a post-employment non-compete covenant depends on the reasonableness of the restraint evaluated under the surrounding circumstances. The restraint must not be broader than necessary to protect the legitimate business interests of the employer, such as trade secrets or proprietary technical processes. A non-compete restriction lasting ten years across the entire nation is excessively harsh, oppressive, and disproportionate. Such an unreasonable temporal and territorial scope deprives the worker of exercising her profession, rendering the covenant completely void and unenforceable.
3. Competitive Enterprise
A non-compete clause prohibits an employee from engaging in or working for a business that directly or indirectly competes with the former employer. Academic and research institutions engaged in scientific education and scholarly research do not constitute commercial enterprises in competition with private pharmaceutical manufacturing corporations. Returning to work in the academe does not violate a non-compete covenant intended to prevent commercial trade competition, as educational institutions operate for academic advancement rather than commercial market rivalry.