Published 28 February 2022, The Daily Tribune
We often hear organizations say that their employees are their most valuable asset. For this reason, competition is not limited to disputes over customers and clients, but also includes efforts to recruit and retain the most brilliant, efficient, and talented workforce.
However, hiring a potential asset is not a walk in the park. A departing employee may have entered into post-employment restrictive agreements which might unduly expose a hiring employer to litigation. An example of a post-employment restrictive arrangement is a non-compete agreement.
A non-compete agreement prohibits an employee, within a certain number of years from the termination of his employment, from working in a firm or corporation that is engaged in a similar business or that might compete with the employer. In the case of Daisy B. Tiu v. Platinum Plans Phil. Inc. (G.R. No. 163512, 28 February 2007), the Supreme Court clarified that a non-compete 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 Tiu, the Court held that the employee’s non-compete clause is valid because it has a time limit: two years from the time her employment with the respondent ends. Further, it is also limited as to trade, since it only prohibits her from engaging in any pre-need business akin to respondent’s.
The next question is, will the hiring employer be held liable for tortious interference if it decides to hire a talent during the effectivity of the latter’s non-compete agreement with his former employer? It depends.
In So Ping Bun v. Court of Appeals (G.R. No. 120554, 21 September 1999), the Supreme Court explained that unlawful interference pertains to a situation where where a third person (hiring employer) induces a party (departing employee) to renege on or violate his undertaking under a contract (non-compete agreement with former employer). Notably, unlawful interference in contractual relationship is to be reckoned with at the time of the execution of the subsequent employment contract that tends to meddle with a previous contract such as a non-compete agreement. That is because one key element of tortious interference is bad faith in entering into a new contract with somebody who at that time is still legally bound to honor his/her commitment relative to another contract.
In this regard, bad faith consists in the knowledge on the part of the hiring employer of an existing commitment of the departing employee at the time of the execution of the new contract of employment, and not thereafter. Thus, if the hiring employer is totally clueless that a new-hire has a subsisting non-compete agreement with his former employer, then it cannot be made liable for supposedly interfering with a contract that it is unaware of.
That said, one should not simply pass hiring a top candidate with a non-compete agreement to avoid a legal conflict. Similarly, one should not hastily dismiss a promising talent if it subsequently discovers that the latter has a subsisting non-compete agreement with his/her former employer. Rather, the hiring employer should assess whether the non-compete agreement is valid or not and if valid, will the employer be sued if it decides to hire the person.
For more of Dean Nilo Divina’s legal tidbits, please visit www.divinalaw.com. For comments and questions, please send an email to email@example.com.