Legal Opinion Letter Romero Kristine Joy E.

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KRISTINE JOY E. ROMERO
Attorney at law
182 Samson Road, 2nd floor, Jose Bldg., Caloocan City
Telefax: (02) 926 87 70
[email protected]
November 26, 2018
Dr. Fe Sy
San Pedro
Laguna 4023
Dear Ms. Sy:
This legal opinion seeks to advise you whether or not the Lazaro dental clinic can enforce
the restrictive covenant you have signed when they hired you if you will pursue independent
practice in San Pedro, Laguna.
The Facts
Seven years ago, Lazaro Dental Clinic hired you and signed an employment contract that
includes a restrictive covenant. The covenant states that if you will leave the clinic, you agree not
to practice dentistry within a 160-kilometer radius of Pasay City for five years. However, the
contract did not specify the damages if you will breach the restrictive covenant.
Because you are tired of city living, you now want to leave the Lazaro Dental Clinic and
open her own practice in San Pedro, Laguna, just 26 kilometers south of Pasay City.
The Applicable Law
Article 1306, Civil Code states that:
“The contracting parties may establish such stipulations, clauses, terms and conditions as
they may deem convenient, provided they are not contrary to law, morals, good customs,
public order, or public policy.” (1255a)
Article 1159, Civil Code provides that:
“Obligations arising from contracts have the force of law between the contracting parties
and should be complied with in good faith.” (1091a)
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KRISTINE JOY E. ROMERO
Attorney at law
182 Samson Road, 2nd floor, Jose Bldg., Caloocan City
Telefax: (02) 926 87 70
[email protected]
The Applicable Jurisprudence
The Supreme Court of the Philippines, as held in Rivera vs. Solidbank Corporation that:
“restrictive covenants are enforceable in this jurisdiction unless they are unreasonable. And
in order to determine whether restrictive covenants are reasonable or not, the following factors
should be considered:(a) whether 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 Tiu vs. Platinum Plans, Inc., the Supreme Court gave several examples of what is an
invalid non compete clause/non-involvement clause versus a valid one:
“As early as 1916, we already had the occasion to discuss the validity of a non-involvement
clause. In Ferrazzini v. Gsell, we said that such clause was unreasonable restraint of trade and
therefore against public policy. In Ferrazzini, the employee was prohibited from engaging in any
business or occupation in the Philippines for a period of five years after the termination of his
employment contract and must first get the written permission of his employer if he were to do so.
T he Court ruled that while the stipulation was indeed limited as to time and space, it was not
limited as to trade. Such prohibition, in effect, forces an employee to leave the Philippines to
work should his employer refuse to give a written permission.
xxx
xxx
xxx
However, in Del Castillo v. Richmond, we upheld a similar stipulation as legal,
reasonable, and not contrary to public policy. In the said case, the employee was restricted from
opening, owning or having any connection with any other drugstore within a radius of four miles
from the employers place of business during the time the employer was operating his
drugstore. We said that a contract in restraint of trade is valid provided there is a limitation
upon either time or place and the restraint upon one party is not greater than the protection the
other party requires.
Finally, in Consulta v. Court of Appeals, we considered a non-involvement clause in
accordance with Article 1306 of the Civil Code. While the complainant in that case was an
independent agent and not an employee, she was prohibited for one year from engaging directly
or indirectly in activities of other companies that compete with the business of her principal. We
noted therein that the restriction did not prohibit the agent from engaging in any other business,
or from being connected with any other company, for as long as the business or company did
not compete with the principals business. Further, the prohibition applied only for one year after
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KRISTINE JOY E. ROMERO
Attorney at law
182 Samson Road, 2nd floor, Jose Bldg., Caloocan City
Telefax: (02) 926 87 70
[email protected]
the termination of the agents contract and was therefore a reasonable restriction designed to
prevent acts prejudicial to the employer.
Conformably then with the aforementioned pronouncements, a non-involvement clause is
not necessarily void for being in restraint of trade as long as there are reasonable limitations as
to time , trade , and place .”
Analysis and Condition
An employer and an employee may establish stipulation in their contract as they may deem
convenient (Art. 1306, Civil Code), and that the obligations arising from the agreement between
the employer and the employee have the force of law between them and should be complied with
in good faith (Art. 1159, Civil Code). But Such employer who is also the protector of business can
be considered a property right for which he may use reasonable means to protect such property
right or business interest through the use of a Non-Compete Clause in employment contracts with
its employees.
One of the reasonable means is to include restrictive covenant in their employee-employer
contract. Restrictive covenants may include: non-competition/non-compete clause – when the
employee is prevented from directly competing or working for a competitor of his former
employer, or when the employee is prevented from setting up a competing business; nonsolicitation clause – when a duty is imposed on the employee not to approach his former
employer’s customers or prospective customers, or when the employee is prevented from taking
customers/clients of his former employer; and non-poaching clause – when the employee is
prevented from enticing his former employer’s staff away from the business, the aim is to prevent
the employee from taking key employees with him to his new employment or business.
In determining whether a restrictive covenant (prohibiting an employee from accepting posttermination competitive employment) is reasonable, it should consider whether:
(a) The covenant protects a legitimate business interest of the employer;
(b) The covenant creates an undue burden on the employee;
(c) The covenant is injurious to the public welfare;
(d) The time and territorial limitations contained in the covenant are reasonable; and
(e) The restraint is reasonable from the standpoint of public policy.
Assuming that the non-compete clause is valid, its breach can give rise to a cause of action
on the part of the employer, and enforced through a variety of ways.
On the basis of a breach of contract, the employer can file a complaint for injunction and
damages. As a provisional remedy, the prayer for injunction seeks to restrain the employee from
working for the competitor company during the restricted period.
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KRISTINE JOY E. ROMERO
Attorney at law
182 Samson Road, 2nd floor, Jose Bldg., Caloocan City
Telefax: (02) 926 87 70
[email protected]
Essentially, the requisites that must be shown are:
• The applicant must have a clear and unmistakable right to be protected, that is, a right in
esse;
• There is a material and substantial invasion of such right;
• There is an urgent need for the writ to prevent irreparable injury to the applicant; and
• No other ordinary, speedy, and adequate remedy exists to prevent the infliction of
irreparable injury.
Recommendation
Restrictive Covenants are valid and enforceable if it meets the requisites. The contract you
have signed met the requisites such as (a) The covenant protects a legitimate business interest of
the employer; (b) The covenant creates an undue burden on the employee; (c) The covenant is
injurious to the public welfare; (d) The time and territorial limitations contained in the covenant
are reasonable; and (e) The restraint is reasonable from the standpoint of public policy.
Thus, your plan to pursue your career in Pasay City which is within the 160-kilometers
from Lazaro Dental Clinic is clearly a violation of your contract in said clinic. Such clinic may
sue you for damages because of breach of contract.
I suggest that you may pursue your profession in other places not within the 160kilometers away from Lazaro Dental Clinic. But if you insist, you may resign in that company
and establish your career in Pasay City after 5 years upon your resignation since such restrictive
covenant has only term of 5 years.
I appreciate the opportunity to advise you regarding this matter. Please let me know if you
wish to discuss any further. Thank you.
Respectfully Yours,
Kristine Joy E. Romero
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