What is a non-compete clause?
A non-compete clause is a contract provision that restricts an employee, after leaving a company, from working for a competitor, engaging in a competing line of work, or starting a competing business within the scope stated in the agreement.
What is a non-solicitation clause?
A non-solicitation clause restricts a former employee from soliciting relationships connected with the former employer. Depending on its wording, it may prohibit the former employee from:
- Soliciting or pirating clients or customers;
- Recruiting former co-employees;
- Encouraging employees to resign and transfer to another company; or
- Using confidential business relationships for a competitive advantage.
Are non-compete clauses legal in the Philippines?
They may be valid and enforceable, but enforceability depends on whether the restriction is reasonable under the particular facts and circumstances. Philippine courts consider factors such as whether the covenant:
- Protects a legitimate business interest of the employer;
- Imposes a reasonable time limitation;
- Uses a reasonable territorial or geographic limitation where appropriate;
- Is limited to relevant competitive activities, trades, or businesses;
- Does not place an undue burden on the employee or unreasonably prevent the employee from earning a living; and
- Is consistent with public welfare and public policy.
A restriction that is broader than necessary, oppressive, indefinite, or otherwise unreasonable may be declared unenforceable. The validity of both non-compete and non-solicitation provisions depends on their exact language and the surrounding circumstances.
Legal basis: Rivera v. Solidbank Corporation, G.R. No. 163269, April 19, 2006; and Ticzon v. Video Post Manila, Inc., G.R. No. 136342, June 15, 2000.