Dear Atty. Angela,

I was hired as a Sales Manager of an online streaming platform and in the employment contract, there is a stipulation that I am prohibited from engaging in any business similar to that of my employer for a period of two years. In case of breach, there is a penalty of P250,000. I have been hesitant to sign the contract as I find the period too long if in case I resign or separated and would want to work for a similar business industry. Is this non-compete clause legal and binding?

Vince

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Dear Vince,

A non-compete contract is a legal agreement between an employer and an employee, where the employee agrees not to engage in or start a similar profession or trade in competition against the employer for a certain period after the employment ends.

Article 1306 of the Civil Code provides that parties to a contract 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. Article 1159 likewise provides that obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith.

In the case of Tiu v. Platinum Plans Phil., Inc., G.R. No. 163512 (2007), the Court 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 employer’s place of business during the time the employer was operating his drugstore. It was 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.

The restriction here does not prohibit you from engaging in any other business, or from being connected with any other company, for as long as the business or company do not compete with the employer’s business. Further, the prohibition applied only for two years which is therefore a reasonable restriction designed to prevent acts prejudicial to your employer.

Atty. Angela Antonio