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Mahusay served as operations director of Telecall Philippines, Inc. (TPI), a subsidiary of Telecall, Inc., a U.S.-based company with call center…

2026 Bar Exam · Labor Law & Social Legislation · Question 9 · Essay

The question

Mahusay served as operations director of Telecall Philippines, Inc. (TPI), a subsidiary of Telecall, Inc., a U.S.-based company with call center operations across Asia and Latin America. Mahusay’s employment contract contains confidentiality and non-compete clauses prohibiting him in perpetuity from disclosing TPI’s confidential information and trade secrets to third parties without the company’s written consent. The contract further bars him from engaging in any business or employment that competes with Telecall in any country where the company operates. Mahusay resigned and was later hired by a rival call center company with operations in the Philippines and other parts of Asia. TPI threatened legal action, invoking the confidentiality and non-compete clauses. Are the confidentiality and non-compete clauses valid and enforceable under Philippine laws? Explain.

Held

The confidentiality clause may be valid and enforceable only if there is a substantial factual basis that the information covered is indeed a trade secret or confidential, and the party seeking protection can show a compelling reason for confidentiality as required by Air Philippines Corporation v. Pennswell. The non-compete clause as written—being perpetual and global in scope—is invalid and unenforceable under Philippine law because it lacks reasonable limitations as to time, trade, and place, and is therefore contrary to public policy.

Explanation

Article 1306 of the Civil Code allows parties to agree on contract terms as long as they do not violate law, morals, good customs, public order, or public policy. Article 1183 further clarifies that impossible or unlawful conditions annul the obligation dependent on them, but the valid parts remain effective. The 1987 Constitution prohibits combinations in restraint of trade or unfair competition, reflecting public policy against unreasonable restrictions on employment and business.

Confidentiality clauses protecting trade secrets are valid because trade secrets are recognized proprietary rights that give employers a competitive advantage and deserve protection from disclosure. The Supreme Court in Air Philippines Corporation v. Pennswell affirmed that trade secrets must be kept confidential to preserve their economic value.

Non-compete clauses, however, must be reasonable in scope, duration, and territorial coverage to be enforceable. The Court in Tiu v. Platinum Plans Phil upheld a non-involvement clause limited to one year and specific trade, finding it reasonable and not contrary to public welfare. Conversely, a non-compete clause that prohibits employment in any competing business "in perpetuity" and "in any country where the company operates" is overly broad, unreasonable, and contrary to public policy because it unreasonably restrains the employee's right to work and livelihood.

Application to the facts

The confidentiality clause in Mahusay’s contract is valid and enforceable only to the extent that it covers information that is actually a trade secret or confidential information as defined in Air Philippines Corporation v. Pennswell. Not all information labeled confidential by the employer is automatically protected; there must be a substantial factual basis that the information is indeed a trade secret or confidential, such as being generally unknown to the public and giving the employer a competitive advantage.

However, the non-compete clause barring Mahusay from engaging in any competing business "in perpetuity" and "in any country where the company operates" is excessively broad in time and territorial scope. This restriction is not limited to a reasonable period after employment ends, nor is it confined to a reasonable geographic area. Such a clause effectively prevents Mahusay from earning a livelihood in his field indefinitely and globally, which is contrary to public policy as stated in the Civil Code and the Constitution. The Supreme Court’s ruling in Tiu shows that reasonable limitations on time, trade, and place are necessary for enforceability, which Mahusay’s clause lacks.

  • a constitutional provision is among the sources and controls over any conflicting statute
This is general legal information, not legal advice.