What You Need to Know About Non-Compete Agreements in the Philippines
What You Need to Know About Non-Compete Agreements in the Philippines
Non-compete agreements are common in employment and business contracts. But what do they really mean, and are they enforceable in the Philippines? Whether you're an employer, employee, or freelancer, it's important to understand how these agreements work—and when they might cross the line. In this post, we'll break down everything you need to know in simple terms.
What Is a Non-Compete Agreement?
A non-compete agreement is a contractual restriction that prevents a person from engaging in business or work that competes with a former employer or business partner. It usually applies during or after employment and may specify a time period (e.g., one year), a location (e.g., Metro Manila), and specific activities (e.g., selling similar products or working for direct competitors).
These agreements are designed to protect a company’s trade secrets, customer relationships, and business reputation, especially when the departing individual holds a sensitive or strategic role.
Are Non-Compete Agreements Legal in the Philippines?
Yes, they are legal, but with an important caveat: they must be reasonable.
Non-compete clauses are generally governed by Article 1306 of the Civil Code of the Philippines, which provides that:
"The contracting parties 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."
This means that while parties are free to agree on a non-compete clause, it cannot be enforced if it violates the public's right to earn a living or if it creates an unfair burden on one party.
What Are the Legal Limitations of a Non-Compete Agreement?
Philippine courts assess the reasonableness of a non-compete clause based on key factors such as:
Duration – How long is the restriction? A few months to a couple of years is usually acceptable.
Geographic Scope – Is the restriction limited to a specific location or area? A national or global ban may be questioned if the business is local.
Scope of Prohibited Activities – Is the restriction specific to the same line of business or role? Overly broad restrictions may be invalid.
The Supreme Court in cases like Rivera v. Solidbank Corporation (G.R. No. 163269, April 19, 2006) and Tiu v. Platinum Plans (G.R. No. 163512, February 28, 2007) has consistently emphasized that these clauses must balance the rights of the employer with the right of the individual to livelihood. As long as the limitations as to time, trade, and place are reasonable and not excessive, then such clauses are not necessarily void.
How Long Can a Non-Compete Agreement Last?
There is no law that sets a fixed maximum period, but the general rule is that the restriction must be reasonable and not excessive. In most cases, courts have upheld durations of up to 2–3 years, especially for high-level employees or those with access to sensitive business information.
A restriction that lasts 5 years or more may raise concerns unless it can be clearly justified by the nature of the business or position held.
Can I Work for a Competitor If I Signed a Non-Compete Clause?
It depends on the wording and fairness of the agreement you signed. If the clause is narrow, time-bound, and justified, your former employer may try to enforce it. But if it is too broad, unreasonable, or deprives you of your livelihood, courts may consider it void or unenforceable.
You should have the agreement reviewed by a lawyer before making decisions, especially if the employer threatens legal action. In many cases, courts favor balancing business protection with individual rights.
Understanding Article 1306 of the Civil Code
At the heart of the issue is Article 1306, which allows individuals to enter into contracts freely, as long as they do not go against public policy. This is the legal basis used to determine whether a non-compete agreement is fair and enforceable.
The article supports freedom of contract, but it also acts as a check against abuse, particularly in employment relationships where power may be unequal.
Final Thoughts
Non-compete agreements in the Philippines are legal, but their enforceability depends on reasonableness and public interest. If you’re drafting one or are being asked to sign one, make sure:
The time limit is fair.
The restricted area is appropriate.
The scope of activities is clearly defined.
There is a valid business reason behind it.
Whether you're an employee, business owner, or contractor, understanding your rights under Philippine law can help you make smarter decisions.
Download our free template from the Dulay Law Co. Resources Page at https://www.dulaylaw.com/resources.
If you’re unsure about your current agreement or need help drafting one, don’t hesitate to reach us at +63.927.487.0737, email us at contact@dulaylaw.com, or visit our website www.dulaylaw.com/contact-us to learn more about how we can help you.
Disclaimer: This blog post is for informational and general educational purposes only. It does not constitute legal advice or create an attorney-client relationship.
