Dear PAO,

I am working in an accounting firm. We have a prohibition in our contract that prevents us from working in other accounting firms for one year after our resignation. If we breach this contract provision, our benefits will be forfeited, and we will not be issued a certificate of employment. Is this prohibition lawful and enforceable?

Casper

Dear Casper,

The provision you mentioned is referred to as a “Non-Compete Clause,” a type of post-employment restriction. In this type of clause, a former employee is prohibited from directly competing with his or her previous employer upon severance of employment by working for a competitor or setting up a business in the same line of business as the previous employer. Like any other agreement, Article 1306 of the New Civil Code shall apply, which provides that, although the parties may freely stipulate the terms and conditions of the contract, the same must not be contrary to law, morals, good customs, public order, or public policy.

In the case of Rolando C. Rivera v. Solidbank Corporation (GR 163269, April 19, 2006, Ponente: Associate Justice Romeo Callejo, Sr.), the Supreme Court provided the factors to be considered to determine whether a non-compete clause is reasonable or not, to wit:

“(a) [W]hether the covenant protects a legitimate business interest of the employer; (b) whether the covenant creates an undue burden on the employee; (c) whether the covenant is injurious to the public welfare; (d) whether the time and territorial limitations contained in the covenant are reasonable; and (e) whether the restraint is reasonable from the standpoint of public policy.”

In the said case, the Supreme Court struck down as unreasonable the non-compete clause because it has no geographical limit.

On the other hand, in the case of Century Properties, Inc. v. Edwin J. Babiano and Emma B. Concepcion (GR 220978, July 5, 2016, ponente: Associate Justice Estela Perlas-Bernabe), the Supreme Court upheld the validity of a non-compete clause despite the absence of a specific geographical limitation; even stating that it is in order to afford a fair and reasonable protection to the employer.

To reconcile these rulings, it is essential to emphasize the earlier pronouncement of the Supreme Court that the particular facts and circumstances of each case shall be examined to determine the validity and reasonableness of a post-employment clause, such as those in your situation. The factors mentioned in the Rivera Case must be taken into account. Ultimately, the 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 case) Failure to do so would render invalid the non-compete clause.

Lastly, on the matter of Certificate of Employment, under Labor Advisory 06-20 dated Jan. 31, 2020, or the “Guidelines on the Payment of Final Pay and Issuance of Certificate of Employment,” the employer shall issue a certificate of employment within three days from the time of the request by the employee. Said provision is without any condition or restriction.

We hope that we were able to answer your queries. This advice is based solely on the facts you have narrated and our appreciation of the same. Our opinion may vary when other facts are changed or elaborated.

Editor’s note: Dear PAO is a daily column of the Public Attorney’s Office. Questions for Chief Acosta may be sent to [email protected]