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08. Restrictive Covenants
Employment Law Overview Philippines

08. Restrictive Covenants

Definition and Types of Restrictive Covenants

Philippine contracts law recognize confidentiality, non-disclosure, non-solicitation, and non-compete agreements as types of restrictive covenants.

Confidentiality and non-disclosure agreements serve as legally binding agreements that restrict individuals from sharing any confidential or proprietary information with competitors or any other interested third parties. On the other hand, non-solicitation agreements are also restrictive covenants that prohibit employees from enticing their colleagues to leave their current employer and join a competitor. Additionally, these agreements forbid individuals from persuading customers or vendors of their employer to switch their business to a competing company.

Lastly, non-compete agreements are specifically designed to prevent employees from engaging in work within a field, practice, or business area that directly competes with their former employer. These agreements aim to safeguard the interests and competitive advantage of the employer, ensuring that their former employees do not pose a potential threat by leveraging their knowledge and expertise in a rival company.

In determining whether the these restrictions are reasonable or not, the trial court should consider the following factors: (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.

Enforcement of Restrictive Covenants – Process and Remedies

A claim to recover damages on the violation of restrictive covenants in employment contracts is a cause of action that falls under the realm of Civil Law, and therefore rests upon regular courts.

Use and Limitations of Garden Leave

The employer may put the worker on garden leave during the notice period but must ensure that the employee is still accorded his/her procedural rights. Nevertheless, care must be taken in implementing the garden leave since there is a risk that the employee on garden leave may claim constructive dismissal. There is constructive dismissal when the employee is compelled to give up his/her job because continued employment is rendered impossible, unreasonable, or unlikely as when there is clear discrimination, insensibility, or disdain on the part of the employer towards the employee.

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