Can a Former Employee Solicit the Company’s Client After Resignation?

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Running a business requires commitment of the owner and employees to a goal to increase the market, sales, and profitability.
Competition is healthy. However, competition that proceeds from theft of company’s trade secrets, methodologies, strategies, and systems is not healthy.
This refers to a situation where the former employee deals with the company’s customers without the knowledge of the latter. For instance, the employee has already resigned. Unfortunately, he was able to acquire the methods, knowledge, system, and trade secrets of the company and approaches the very same clients of his former employer.
In such case, what should the company do?
There is nothing in the Labor Code or any special labor law that specifically prohibits such act of the employee. While it may seem that it is serious misconduct or willful breach of trust under Article 297 of the Labor Code, that provision cannot anymore be enforced due to lack of employer-employee relationship on account of the resignation of such individual.
So, what principles shall apply when it comes to that situation where there is no employer-employee relationship anymore? The rules on non-compete, non-solicitation, and non-poaching clause may apply.
Non-compete clause is also known as Goodwill clause. It refers to a situation where the parties in an employment contract enter into a stipulation that the employee, for a certain period, shall not engage in activities that compete with that of the employer. A violation thereof makes the employee liable to his former employer for liquidated damages.
This matter as mentioned, is a post-employment incident. Thus, any action by the employer against the employee is not anymore labor in nature but a civil action.
In Dai-Chi Electronics Manufacturing Corporation vs. Villarama, Jr., (G.R. No. 112940, 21 November 1994, 238 SCRA 267) the Supreme Court reiterated the San Miguel ruling and allied jurisprudence, pronouncing that a non-compete clause, as in the “Goodwill Clause”, with a stipulation that a violation thereof makes the employee liable to his former employer for liquidated damages, refers to post-employment relations of the parties.
The “Goodwill Clause” or the “Non-Compete Clause” is a contractual undertaking effective after the cessation of the employment relationship between the parties. In accordance with jurisprudence, breach of the undertaking is a civil law dispute, not a labor law case. (Portillo vs. Rudolf Lietz, Inc., G.R. No. 196539, October 10, 2012)
Sample non-compete clause with non-solicitation provision:
“NON-COMPETE CLAUSE
- The REGULAR EMPLOYEE agrees and covenants within a period of two (2) years after the termination of this agreement, he shall not engage, directly or indirectly in any business, enterprise or employment which directly competes with the business of the EMPLOYER or any of its customers or get employed with any corporation, association or company, whose business, enterprise directly or indirectly competes with the business of the EMPLOYER or any of its customers. During the course of employment, he shall render full-time service and shall not get involved in any moonlighting, sideline, or get employed with another employer or company in whatever capacity, whether permanent, consultancy or temporary;
- The REGULAR EMPLOYEE shall not, during the same period directly or indirectly solicit to provide or provide, without the prior written consent of the EMPLOYER, any professional services for anyone who is a client of the EMPLOYER;
- If the REGULAR EMPLOYEE would in the future be directed by any governmental agency or judicial forum or court or asked to testify in any proceeding concerning any matter learned in the course of services provided to or on behalf of the EMPLOYER, she shall notify the latter before making any disclosure at least ten (10) days prior the date of testimony, hearing or disclosure;
- In the event of any breach of the stipulations herein such as the non-compete clause, the REGULAR EMPLOYEE shall compensate the EMPLOYER the amount equivalent to three (3) months of monthly pay by way liquidated damages or a higher amount as may be proven by the EMPLOYER at the latter’s option;
Payment of liquidated damages shall in no way affect the other rights which the EMPLOYER may have against the REGULAR EMPLOYEE, especially the right to obtain injunctive relief against her;”
The question is, can the employer hold the employee liable if the latter commits acts falling within the prohibitory provision of the non-compete clause during the course of employment?
Yes, the employee can be held the liable. As shown in paragraph 1 of the sample clause above, it istates that:
“During the course of employment, he shall render full-time service and shall not get involved in any moonlighting, sideline, or get employed with another employer or company in whatever capacity, whether permanent, consultancy or temporary”
Hence, the employee in signing the employment contract commits to render full service and shall not engage in moonlighting, sideline, or get involved with another employer in whatever capacity.
Hence, the employer, for instance, can agree to forfeit company-initiated benefits of the employee for violation of such provision. For instance, commission, or any similar benefit.
What is the legal basis of the enforceability of such provision? The case of Century Properties, Inc. vs. Babiano (G.R. No. 220978, July 5, 2016) applies.
In said case, the Supreme Court upheld the forfeiture by the employer of the unpaid commissions of the employee for violation of the non-compete clause during employment.
Below is a sample contract with the non-compete clause and similar protection.
Probationary Contract Templates and Metrics
Contract for Part-Time Employment
Contract for Regular Employment
Contract for Casual Employment
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