Mahusay served as operations director of Telecall Philippines, Inc. (TPI), a subsidiary of Telecall, Inc., a U.S.-based company with call center operations across Asia and Latin America. Mahusay’s employment contract contains confidentiality and non-compete clauses prohibiting him in perpetuity from disclosing TPI’s confidential information and trade secrets to third parties without the company’s written consent. The contract further bars him from engaging in any business or employment that competes with Telecall in any country where the company operates. Mahusay resigned and was later hired by a rival call center company with operations in the Philippines and other parts of Asia. TPI threatened legal action, invoking the confidentiality and non-compete clauses. Are the confidentiality and non-compete clauses valid and enforceable under Philippine laws? Explain.
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The confidentiality clause is valid and enforceable, but the non-compete clause is void and unenforceable. Under Article 1306 of the Civil Code (Rivera v. Solidbank; Tiu v. Platinum Plans), a non-compete clause is valid only if
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Quick check
Under Philippine jurisprudence, what are the essential requisites for a post-employment non-compete clause to be valid and enforceable?
A post-employment non-compete clause is valid and enforceable under Philippine law only if restricted by reasonable limitations as to time, trade, and territory.
Why is a confidentiality clause protecting company trade secrets valid even if it lacks a temporal limit?
Confidentiality clauses protecting trade secrets remain valid without time limits because they do not bar former employees from securing competitive employment or earning a living.
Under Article 1306 of the Civil Code, why was the non-compete clause in Mahusay's employment contract declared void?
The non-compete clause was void as an unreasonable restraint of trade because it applied in perpetuity and globally without reasonable geographic or time boundaries.
What doctrine renders post-employment covenants void if they impose blanket prohibitions that unduly deprive a person of their livelihood?
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Following his resignation, what are Mahusay's legal obligations regarding TPI's post-employment covenants?
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Learn more about these topics
1. Non-Compete Clauses
Under Article 1306 of the Civil Code, parties may stipulate post-employment restrictions provided they are not contrary to law, public order, or public policy. A non-compete clause is a post-employment covenant prohibiting a former employee from engaging in competitive business or employment after separation. To be valid and enforceable, a non-compete clause must contain reasonable limitations as to time, trade, and geographic territory. If a restrictive covenant lacks spatial or temporal boundaries, it is oppressive, unreasonable, and void for being an undue restraint of trade.
2. Confidentiality Clauses
Confidentiality and non-disclosure clauses protect an employer's proprietary trade secrets, technical formulas, and client records from unauthorized use or disclosure during and after employment. Unlike non-compete clauses, confidentiality covenants do not prohibit an employee from pursuing a chosen trade or earning a livelihood. Consequently, Philippine labor jurisprudence recognizes that a confidentiality agreement remains valid and enforceable even if it lacks temporal or territorial restrictions. Former employees remain legally bound to preserve company trade secrets in perpetuity to safeguard the employer's legitimate business interests.
3. Restraint of Trade
Philippine jurisdiction voids covenants in restraint of trade that inflict injury upon the public or unduly prejudice the employee. The doctrine rests on two grounds: depriving the public of the restricted party's industry and preventing the individual from pursuing an occupation to support themselves and their family. When evaluating restrictive covenants, courts balance the employer's need to protect legitimate business interests against the employee's right to earn a living. Blanket or perpetual prohibitions against competitive employment cross the threshold into unreasonable restraint of trade and are repugnant to public policy.