No. 163269.

April 19, 2006]

Facts:
Rivera applied for retirement under the Special Retirement Program. Solidbank
approved the
application and Rivera was entitled to receive the net amount of P
However in 1995 Solidbank discovered that Equitable Bank employed Rivera as
Manager of its
Credit Investigation and Appraisal Division of its Consumers Banking Group.
Solidbank then
informed Rivera that he had violated the Undertaking and demanded the return of
all the monetary
benefits he received. When Rivera refused to return the amount demanded within
the given period,
Solidbank filed a complaint for recovery of sum of money.
963,619.28. He signed an undated
Release, Waiver and Quitclaim, which was notarized on March 1, 1995. Rivera
acknowledged receipt
of the net proceeds of his separation and retirement benefits and promised that
"[he] would not, at
any time, in any manner whatsoever, directly or indirectly engage in any unlawful
activity prejudicial to
the interest of Solidbank, its parent, affiliate or subsidiary companies, their
stockholders, officers,
directors, agents or employees, and their successors-in-interest and will not disclose
any information
concerning the business of Solidbank, its manner or operation, its plans, processes,
or data of any kind.
Issue:
whether the employment ban incorporated in the Undertaking which petitioner
executed upon his
retirement is unreasonable, oppressive, hence, contrary to public policy
Held:
In determining whether the contract is 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.
At first glance, the post-retirement competitive employment ban is unreasonable
because it has no
geographical limits; respondent is barred from accepting any kind of employment in
any competitive
bank within the proscribed period. Although the period of one year may appear
reasonable, the
matter of whether the restriction is reasonable or unreasonable cannot be
ascertained with finality
solely from the terms and conditions of the Undertaking, or even in tandem with the
Release, Waiver
and Quitclaim.
However, a distinction must be made between restrictive covenants barring an
employee to accept a
post-employment competitive employment (restraint on trade) and restraints on
post-retirement
competitive employment in pension and retirement plans. A restriction in the
contract which does
not preclude the employee from engaging in competitive activity, but simply
provides for the loss of
rights or privileges if he does so is not in restraint of trade.
The strong weight of authority is that forfeitures for engaging in subsequent
competitive
employment included in pension and retirement plans are valid even though
unrestricted in time or
geography. The reasoning behind this conclusion is that the forfeiture, unlike the
restraint included in
the employment contract, is not a prohibition on the employees engaging in
competitive work but is

merely a denial of the right to participate in the retirement plan if he does so

engage.
A post-retirement competitive employment restriction is designed to protect the
employer against
competition by former employees who may retire and obtain retirement or pension
benefits and, at
the same time, engage in competitive employment.
Moreover, the Undertaking and the Release, Waiver and Quitclaim do not provide for
the automatic
forfeiture of the benefits petitioner received under the SRP upon his breach of said
deeds. Thus, the
post-retirement competitive employment ban incorporated in the Undertaking of
respondent does
not, on its face, appear to be unreasonable. The terms of the Undertaking merely
states that any
breach by petitioner of his promise would entitle respondent to a cause of action for
protection in the
courts of law.

Non-involvement clause in a contract; valid, provided there is limitation as to time,

place and trade.
In Daisy Tiu v. Platinum Plans, Inc., G.R. No. 163512, February 28, 2007, the
petitioner was employed as Division Marketing Director of the respondent, a preneed company. In 1995, she stopped working and became the Vice President for
Sales of Professional Pension Plans, Inc., another pre-need company. She was sued
for damages for violating her contract with respondent which prohibited her in a
business of the same nature within two (2) years separation, whether voluntary or
involuntary. The RTC and the CA held her liable. Before the SC, the petitioner
contended that the non-involvement clause is offensive to public policy since the
restraint imposed is much greater than what is necessary to afford respondent a fair
and reasonable protection. She added that since the products sold in the pre-need
industry are more or less the same, the transfer to a rival company is acceptable.
She likewise argued that a strict application of the non-involvement clause would
deprive her of the right to engage in the only work she knows.
Respondent countered that the validity of a non-involvement clause has been
sustained by the Supreme Court in a long line of cases. It contended that the
inclusion of the two-year non-involvement clause in the contract of employment
was reasonable and needed since her job gave her access to the companys
confidential marketing strategies. It added that the non-involvement clause merely

enjoined her from engaging in pre-need business akin to respondents within two
years from her separation from respondent. She had not been prohibited from
marketing other service plans. In brushing aside respondents contention, the SC
Held: As early as 1916, the validity of a non-involvement clause has already been
discussed. In Ferazzini v. Gsell, 34 Phil. 697 (1916), it was held 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 her were to do
so. The 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, forced an employee
to leave the Philippines to work should his employer refuse to give a written
permission.
In G. Martini, Ltd. v. Glaiserman, 39 Phil. 120 (1918), a similar stipulation was
declared as void for being unreasonable restraint of trade. There, the employee was
prohibited from engaging in any business similar to that of his employer for a period
of one year. Since the employee was employed only in connection with the purchase
and export of abaca, among the many business of the employer, the restraint was
considered too broad since it effectively prevented the employee from working in
any other business similar to his employer even if his employment was limited only
to one of its multifarious business activities.
However, in Del Castillo v. Richmond, 45 Phil. 679 (1974), a similar stipulation was
upheld 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. 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, G.R. No. 145443, March 18, 2005, 453 SCRA
732, a non-involvement clause was held 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. 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 the termination of the agents contract and was therefore a
reasonable restriction designed to prevent acts prejudicial to the employer.
Conformably 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.

In this case, the non-involvement clause has a time limit: two years from the time
petitioners employment with respondent ends. It is also limited as to trade, since it
only prohibits petitioner from engaging in any pre-need business akin to
respondents.
In this case what makes the non-involvement clause valid is that, she had been
privy to confidential and highly sensitive marketing strategies of respondents
business. To allow her to engage in a rival business soon after she leaves would
make respondents trade secrets vulnerable especially in a highly competitive
marketing environment. In sum, the non-involvement clause is not contrary to
public welfare and not greater than is necessary to afford a fair and reasonable
protection to respondent. (Ollendorff v. Abrahamsom, 38 Phil. 585 (1918)).
In any event, 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 of the same Code also provides that obligations arising from contracts
have the force of law between the contracting parties and should be complied with
in good faith. Courts cannot stipulate for the parties nor amend their agreement
where the same does not contravene law, morals, good customs, public order or
public policy, for to do so would be to alter the real intent of the parties, and would
run contrary to the function of the courts to give force and effect thereto. (Phil.
Communications Satellite Corp. v. Telecom, Inc., G.R. Nos. 147324 and 147334, May
25, 2004, 429 SCRA 153).

CASE DIGEST

PEOPLE OF THE PHILIPPINES, plaintiff-appellee, vs. ROMULO SAULO,

AMELIA DE LA CRUZ, and CLODUALDO DE LA CRUZ, accused.

ROMULO SAULO, accused-appellant.

[G.R. No. 125903. November 15, 2000]

FACTS:
Accused-appellant, together with Amelia de la Cruz and Clodualdo de la
Cruz, were charged with violation of Article 38 (b) of the Labor Code[1] illegal
recruitment in large scale and the accused were also charged with three counts of
estafa.

During a meeting sometime in April or May, 1990, ROMULO

SAULO told BENNY MALIGAYA that she would be able to leave for Taiwan as a
factory worker once she gave him the fees for the processing of her documents.
Sometime in May, 1990, Maligaya also met with AMELIA DE LA
CRUZ and CLODUALDO DE LA CRUZ at their house in Baesa, Quezon City and
they assured her that they were authorized by the Philippine Overseas Employment
Administration (POEA) to recruit workers for Taiwan. Maligaya paid accusedappellant and Amelia de la Cruz the amount of P35,000.00, which is evidenced by a
receipt signed by accused-appellant and Amelia de la Cruz. Seeing that he had
reneged on his promise to send her to Taiwan, Maligaya filed a complaint against
accused-appellant with the POEA.
Meanwhile, ANGELES JAVIER was told by Ligaya, accused-appellants
wife, to apply for work abroad through accused-appellant. At a meeting in accusedappellants Quezon City residence, Javier was told by accused-appellant that he
could get her a job in Taiwan as a factory worker and that she should give him
P35,000.00 for purposes of preparing Javiers passport. Javier gave an initial amount
of P20,000.00 to accused-appellant, but she did not ask for a receipt as she trusted
him. As the overseas employment never materialized, Javier was prompted to bring
the matter before the POEA.
On April 19, 1990, LEODIGARIO MAULLON, upon the invitation of his
neighbor Araceli Sanchez, went to accused-appellants house in order to discuss his
prospects for gaining employment abroad. As in the case of Maligaya and Javier,
accused-appellant assured Maullon that he could secure him a job as a factory
worker in Taiwan if he pays him for the processing of his papers. Maullon pay to
accused-appellants wife, who issued a receipt. Thereafter, Maullon paid an
additional amount in the presence of accused-appellant and Amelia de la Cruz,
which payment is also evidenced by a receipt. Finally, Maullon pay to a certain
Loreta Tumalig, a friend of accused-appellant, as shown by a receipt. Again,
accused-appellant failed to deliver on the promised employment. Maullon thus filed
a complaint with the POEA.

ISSUE:
Whether or not ROMULO SAULO is guilty of the act of Illegal Recruitment
and estafa.

HELD:
Yes. The Court finds that the trial court was justified in holding that
accused-appellant was engaged in unlawful recruitment and placement activities.
The prosecution clearly established that accused-appellant promised the three
complainants - Benny Maligaya, Angeles Javier and Leodigario Maullon employment
in Taiwan as factory workers and that he asked them for money in order to process
their papers and procure their passports. It is not disputed that accused-appellant is

not authorized nor licensedby the Department of Labor and Employment to engage
in recruitment and placement activities. The absence of the necessary license or
authority renders all of accused-appellants recruitment activities criminal.
It is also well established in jurisprudence that a person may be charged
and convicted for both illegal recruitment and estafa. The reason for this is that
illegal recruitment is a malum prohibitum, whereas estafa is malum in se, meaning
that the criminal intent of the accused is not necessary for conviction in the former,
but is required in the latter.