Brew Master International, Inc. v. National Federation of Labor Unions, et al.

Facts:

This is a special civil action for certiorari seeking the reversal of the 7 October 1994 decision of the
National Labor Relations Commission (NLRC) in NLRC Case No. 00-06-04136-93 (CA No. L-007370-94),
which modified the 11 July 1994 decision of the Labor Arbiter by directing the reinstatement of private
respondent Antonio D. Estrada, the complainant, without loss of seniority rights and benefits.

Private respondent National Federation of Labor Unions (NAFLU), a co-complainant in the labor case, is
a labor union of which complainant is a member.

Complainant was first employed by respondent on 16 September 1991 as route helper with the latest
daily wage of P119.00. From 19 April 1993 up to 19 May 1993, for a period of one (1) month,
complainant went on absent without permission (AWOL). On 20 May 1993, respondent thru Mr.
Rodolfo Valentin, sent a Memo to complainant.

In answer to the aforesaid memo, complainant explained that he’s absence is due to the fact that he
brought his kids home to Samar since his wife left them and no one would be around to take care of his
children and that he has no money to place a call nor send a telegram and that he is debt.

Finding said explanation unsatisfactory respondent thru its Sales Manager, Mr. Henry A. Chongco issued
a Notice of Termination.

Complainants contend that individual complainant’s dismissal was done without just cause; that it was
not sufficiently established that individual complainant’s absence from April 19, 1993 to June 16,
1993 are unjustified; that the penalty of dismissal for such violation is too severe; that in imposing
such penalty, respondent should have taken into consideration complainant’s length of service and as a
first offender, a penalty less punitive will suffice such as suspension for a definite period.

On the other hand, respondent contends that individual complainant was dismissed for cause
allowed by the company Rules and Regulations and the Labor Code that absence without
permission for six (6) consecutive working days is considered abandonment of work.; that the act
of complainant in absenting from work for one (1) month without official leave is deleterious to the
business of respondent; that it will result to stoppage of production which will not only destructive to
respondent’s interests.

Ruling of LA

The Labor Arbiter dismissed the complaint for lack of merit, citing the principle of managerial control,
which recognizes the employer’s prerogative to prescribe reasonable rules and regulations to govern the
conduct of his employees. The principle allows the imposition of disciplinary measures which are
necessary for the efficiency of both the employer and the employees.

The Labor Arbiter, relying on Shoemart, Inc. vs. NLRC, thus concluded:

Verily, it is crystal clear that individual complainant has indeed abandoned his work. The
filing of the complaint on 25 June 1993 or almost two (2) months from the date
complainant failed to report for work affirms the findings of this Office and therefore,
under the law and jurisprudence which upholds the right of an employer to discharge an
employee who incurs frequent, prolonged and unexplained absences as being grossly
remiss in his duties to the employer and is therefore, dismissed for cause, (Shoemart,
Inc. vs. NLRC, 176 SCRA 385).

An employee is deemed to have abandoned his position or to have resigned from the
same, whenever he has been absent therefrom without previous permission of the
 employer for three consecutive days or more. This justification is the obvious harm to
employer’s interest, resulting from [sic] the non-availability of the worker’s services, and
ruled that complainant’s termination from his employment was “legal, the same with just
or authorized cause and due process.”

Complainant appealed to the NLRC, alleging that the immediate filing of a complaint for illegal
dismissal verily indicated that he never intended to abandon his work, then cited Policarpio v.
Vicente Dy Sun, Jr. where the NLRC ruled that prolonged absence does not, by itself,
necessarily mean abandonment. Accordingly, there must be a concurrence of intention and
overt acts from which it can be inferred that the employee is no longer interested in working.
Complainant likewise invoked compassion in the application of sanctions, as dismissal
from employment brings untold hardship and sorrows on the dependents of the wage
earners. In his case, a penalty less punitive than dismissal could have sufficed.

Ruling of NLRC:

NLRC modified the Labor Arbiter’s decision and held that complainant’s dismissal was
invalid for the following reasons:

Complainant-appellant’s prolonged absences, although unauthorized, may not amount to gross

neglect or abandonment of work to warrant outright termination of employment. Dismissal is too
severe a penalty. For one, the mere fact that complainant-appellant is a first offender must be
considered in his favor. Besides, it is generally impossible for an employee to anticipate when
he would be ill or compelled to attend to some family problems or emergency like in the case at
bar.

Reliance on the ruling enunciated in the cited case of Shoemart Inc. vs. National Labor
Relations, 176 SCRA 385, is quite misplaced because of the obvious dissimilarities of the
attendant circumstances in the said case vis-a-vis those obtaining in the case at bar. Unlike in
the aforecited Shoemart Case, herein complainant-appellant was not dismissed for
unauthorized absences and eventually reinstated anterior to his second dismissal for the same
offense nor was he given a second chance which he could have ignored.

Otherwise stated, the difference between the two cases greatly lies [in] the fact that complainant
in the Shoemart Case in the language of the Supreme Court was “an inveterate absentee who
does not deserve reinstatement” compared to herein complainant-appellant who is a first
offender.

Petitioner’s motion for the reconsideration was denied by the NLRC.

Petitioner thus filed this special civil action contending that the NLRC committed grave abuse of
discretion in ordering complainant’s reinstatement, which in effect countenances the
reinstatement of an employee who is found guilty of “excessive” absences without prior
approval. It further argued that the NLRC failed to consider the rationale behind petitioner’s
Rules and Regulations; that it was deprived of its prerogative to enforce them; and that
complainant’s reinstatement would adversely affect its business and send the wrong signals to
its employees.

In its comment for public respondent NLRC, the Office of the Solicitor General maintained that
dismissal from employment was too severe a penalty for a first time offender like complainant.
Although he violated petitioner’s rules and regulations, his absences were justified.

Issue/s:
Whether or not the NLRC committed grave abuse of discretion in modifying the decision of the
Labor Arbiter. [NO]

Held:

Petitioner’s finding that complainant was guilty of abandonment is misplaced. Abandonment as

a just and valid ground for dismissal requires the deliberate, unjustified refusal of the employee
to resume his employment. Two elements must then be satisfied: (1) the failure to report for
work or absence without valid or justifiable reason; and (2) a clear intention to sever the
employer-employee relationship. The second element is the more determinative factor and
must be evinced by overt acts.

Likewise, the burden of proof is on the employer to show the employee’s clear and deliberate
intent to discontinue his employment without any intention of returning, mere absence is not
sufficient.

These elements are not present here. First, as held above, complainant’s absence was justified
under the circumstances. As to the second requisite, we are not convinced that complainant
ever intended to sever the employer-employee relationship.

Complainant immediately complied with the memo requiring him to explain his absence , and
upon knowledge of his termination, immediately sued for illegal dismissal. These plainly refuted
any claim that he was no longer interested in returning to work. Without doubt, the intention is
lacking.

Moreover, petitioner failed to discharge the burden of proof that complainant was guilty of
abandonment. No evidence other than complainant’s letter explaining his absence was
presented. Needless to state, the letter did not indicate, in the least, that complainant was no
longer interested in returning to work. On the contrary, complainant sought petitioner’s
understanding. In declaring him guilty of abandonment, petitioner merely relied on its Rules and
Regulations which limited its application to a six-day continuous absence, contrary to the
purpose of the law. While the employer is not precluded from prescribing rules and regulations
to govern the conduct of his employees, these rules and their implementation must be fair, just
and reasonable.

It must be underscored that no less than our Constitution looks with compassion on the
workingman and protects his rights not only under a general statement of a state policy, but
under the Article on Social Justice and Human Rights, thus placing labor contracts on a higher
plane and with greater safeguards. Verily, relations between capital and labor are not merely
contractual. They are impressed with public interest and labor contracts must, perforce, yield to
the common good.

DP: WHEREFORE, the petition is hereby DISMISSED and the decision of the National Labor
Relations Commission in NLRC Case No. 06-04136-93 is hereby AFFIRMED.
Leyte Geothermal Power Progressive Employees Union – ALU- TUCP v. Philippine
National Oil Company – Energy Development Corporation

Facts:

 [Respondent Philippine National Oil Corporation]-Energy Development Corporation [PNOC-EDC] is a

government-owned and controlled corporation engaged in exploration, development, utilization,
generation and distribution of energy resources like geothermal energy. Petitioner is a legitimate
labor organization.

 Among [respondent’s] geothermal projects is the Leyte Geothermal Power Project.

 Majority of the respondent’s hired employees had become members of the petitioners on a
contractual basis, whereby, their employment was only good up to the completion or termination of
the project and would automatically expire upon the completion of such project.

 In view of that circumstance, the petitioner demands from the [respondent] for recognition of it as the
collective bargaining agent of said employees and for a CBA negotiation with it. However, the
respondent did not heed such demands of the petitioner. Sometime in 1998 when the project was
about to be completed, the [respondent] proceeded to serve Notices of Termination of Employment
upon the employees who are members of the petitioner.

 Petitioners then filed a notice of strike against the respondent for “Refusal bargain collectively, union
busting and mass termination”. On the same day they conducted the strike.

 Despite earnest efforts on the part of the Secretary of Labor and Employment to settle the dispute
amicably, the petitioner remained adamant and unreasonable in its position, causing the failure of the
negotiation towards a peaceful compromise. In effect, the petitioner did not abide by [the] assumption
order issued by the Secretary of Labor.

 NLRC rendered a decision in favor of respondent: (there are 5) 1. Declaring the officers and
members of [petitioner] Union as project employees; 2. Declaring the termination of their employment
by reason of the completion of the project, or a phase or portion thereof, to which they were
assigned, as valid and legal; 3. Declaring the strike staged and conducted by [petitioner] Union
through its officers and members on December 28, 1998 to January 6, 1999 as illegal for failure to
comply with the mandatory requirements of the law on strike.

 Petitioner Union first contends: that its officers and members performed activities that were usually
necessary and desirable to respondent’s usual business.

 Petitioner’s second contention: contend that the proviso in the second paragraph of Art. 280 is
applicable to their case and that the Labor Arbiter should have considered them regular by virtue of
said proviso. The contention is without merit.

Issue/s:

Whether the officers and members of petitioner Union are project employees of respondent. [YES]

Whether the officers and members of petitioner Union engaged in an illegal strike. [YES]

Held:

1.) Yes. They are project employees of the respondent. In the case at bar, the records reveal that
the officers and the members of petitioner Union signed employment contracts indicating the
specific project or phase of work for which they were hired, with a fixed period of employment.
The NLRC correctly disposed of this issue:

A deeper examination also shows that [the individual members of petitioner Union] indeed signed and
accepted the [employment contracts] freely and voluntarily. No evidence was presented by [petitioner]
Union to prove improper pressure or undue influence when they entered, perfected and consummated
[the employment] contracts. In fact, it was clearly established in the course of the trial of this case, as
explained by no less than the President of [petitioner] Union, that the contracts of employment were read,
comprehended, and voluntarily accepted by them.

The distinction between a regular and a project employment is provided in Article 280, paragraph 1, of the
Labor Code:

“ART. 280. Regular and Casual Employment.— The provisions of written agreement to the contrary
notwithstanding and regardless of the oral agreement of the parties, an employment shall be deemed to
be regular where the employee has been engaged to perform activities which are usually necessary or
desirable in the usual business or trade of the employer, except where the employment has been fixed for
a specific project or undertaking the completion or termination of which has been determined at the time
of the engagement of the employee or where the work or service to be performed is seasonal in nature
and the employment is for the duration of the season.”

Article 280 of the Labor Code, quoted earlier, the principal test for determining whether particular
employees are properly characterized as "project employees" as distinguished from "regular employees,"
is whether or not the "project employees" were assigned to carry out a "specific project or undertaking,"
the duration (and scope) of which were specified at the time the employees were engaged for that project.

In the case at bar, both the NLRC and the CA were one in the conclusion that the officers and the
members of petitioner Union were project employees. Nonetheless, petitioner Union insists that they were
regular employees since they performed work which was usually necessary or desirable to the usual
business or trade of the Construction Department of respondent.

Plainly, the litmus test to determine whether an individual is a project employee lies in setting a fixed
period of employment involving a specific undertaking which completion or termination has been
determined at the time of the particular employee’s engagement.

The general rule is that the office of a proviso is to qualify or modify only the phrase immediately
preceding it or restrain or limit the generality of the clause that it immediately follows. Thus, it has
been held that a proviso is to be construed with reference to the immediately preceding part of
the provision to which it is attached, and not to the statute itself or to other sections thereof.

Hence, the proviso is applicable only to the employees who are deemed "casuals" but not to the "project"
employees nor the regular employees treated in paragraph one of Art. 280. Petitioners being project
employees, or, to use the correct term, seasonal employees, their employment legally ends upon
completion of the project or the [end of the] season. The termination of their employment cannot and
should not constitute an illegal dismissal.

2.) Yes. The petitioners engaged illegal strike. The failure to comply with the mandatory requisites
for the conduct of strike is both admitted and clearly shown on record. Hence, it is undisputed
that no strike vote was conducted; likewise, the cooling-off period was not observed and that the
7-day strike ban after the submission of the strike vote was not complied with since there was no
strike vote taken.
The factual issue of whether a notice of strike was timely filed by [petitioner] Union was resolved by the
evidence on record. The evidence revealed that [petitioner] Union struck even before it could file the
required notice of strike.

In fine, petitioner Union’s bare contention that it did not hold a strike cannot trump the factual findings of
the NLRC that petitioner Union indeed struck against respondent. In fact, and more importantly, petitioner
Union failed to comply with the requirements set by law prior to holding a strike.

Article 263 of the Labor Code enumerates the requisites for holding a strike:

Art. 263. Strikes, picketing, and lockouts. – (a) x x x.

x x x x.

(c) In cases of bargaining deadlocks, the duly certified or recognized bargaining agent may file a notice of
strike or the employer may file a notice of lockout with the Department at least 30 days before the
intended date thereof. In cases of unfair labor practice, the period of notice shall be 15 days and in the
absence of a duly certified bargaining agent, the notice of strike may be filed by any legitimate labor
organization in behalf of its members. However, in case of dismissal from employment of union officers
duly elected in accordance with the union constitution and by-laws, which may constitute union busting,
where the existence of the union is threatened, the 15-day cooling-off period shall not apply and the union
may take action immediately.

(d) The notice must be in accordance with such implementing rules and regulations as the Department of
Labor and Employment may promulgate.

(e) During the cooling-off period, it shall be the duty of the Department to exert all efforts at mediation and
conciliation to effect a voluntary settlement. Should the dispute remain unsettled until the lapse of the
requisite number of days from the mandatory filing of the notice, the labor union may strike or the
employer may declare a lockout.

(f) A decision to declare a strike must be approved by a majority of the total union membership in the
bargaining unit concerned, obtained by secret ballot in meetings or referenda called for that purpose. A
decision to declare a lockout must be approved by a majority of the board of directors of the corporation
or association or of the partners in a partnership, obtained by secret ballot in a meeting called for that
purpose. The decision shall be valid for the duration of the dispute based on substantially the same
grounds considered when the strike or lockout vote was taken. The Department may, at its own initiative
or upon the request of any affected party, supervise the conduct of the secret balloting. In every case, the
union or the employer shall furnish the Department the results of the voting at least seven days before the
intended strike or lockout, subject to the cooling-off period herein provided.

DP: WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R.
SP No. 65760 is AFFIRMED. Costs against petitioner Union.
Rolando Rivera v. Solid Bank Corporation

Facts:

Rivera started working with Solid Bank Corporation as an audit clerk since July 1, 1977. Then promoted
as credit investigator, senior clerk, assistant accountant, and finally as assistant manager. Prior to his
retirement, he became the Manager of the bank’s Credit Investigation and Appraisal Division of the
Consumer's Banking Group.

In the meantime, Rivera and his brother-in-law put up a poultry business in Cavite. In December 1994,
Solid Bank offered two retirement programs to its employees: (a) the Ordinary Retirement Program
(ORP), under which an employee would receive 85% of his monthly basic salary multiplied by the number
of years in service; and (b) the Special Retirement Program (SRP), under which a retiring employee
would receive 250% of the gross monthly salary multiplied by the number of years in service. Rivera
decided to devote his time and attention to his poultry business in Cavite and applied for retirement under
the SRP.

Solid Bank approved the application and confirmed his separation from Solid Bank on February 25, 1995.
However, Solid bank required Rivera to sign an undated Release, Waiver and Quitclaim, which were
notarized on March 1, 1995. He 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 Solid Bank, 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 Solid Bank, its manner or
operation, its plans, processes, or data of any kind." He also signed in an Undertaking upon which he
promised that "not to seek employment with a competitor bank or financial institution within one (1) year
from February 28, 1995, and that any breach of the Undertaking or the provisions of the Release, Waiver
and Quitclaim would entitle Solid Bank to a cause of action against him before the appropriate courts of
law”.

But on May 1, 1995, Rivera got employed with Equitable Banking Corporation (Equitable) as Manager of
its Credit Investigation and Appraisal Division of its Consumers' Banking Group. Upon learning this, Solid
Bank wrote a letter dated May 18, 1995, informing Rivera that he had violated the Undertaking and
demanded the return of all the monetary benefits he received in consideration of the SRP within five (5)
days from receipt; otherwise, appropriate legal action would be taken against him.

Issue/s:
Whether the employment ban incorporated in the Undertaking which petitioner executed upon his
retirement is unreasonable, oppressive, hence, contrary to public policy. [IN THIS CASE, CANNOT BE
ASCERTAINED WITH FINALITY]

Held:

On the face of the Undertaking, the post-retirement competitive employment ban is unreasonable
because it has no geographical limits. Rivera 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.

Retirement plans, in light of the constitutional mandate of affording full protection to labor, must be
liberally construed in favor of the employee, it being the general rule that pension or retirement plans
formulated by the employer are to be construed against it. Retirement benefits, after all, are intended to
help the employee enjoy the remaining years of his life, releasing him from the burden of worrying for his
financial support, and are a form of reward for being loyal to the employer.

Undeniably, Rivera retired under the SRP and received P963,619.28 from respondent. However, Rivera
is not proscribed, by waiver or estoppel, from assailing the post-retirement competitive employment ban
since under Article 1409 of the New Civil Code, those contracts whose cause, object or purpose is
contrary to law, morals, good customs, public order or public policy are inexistent or void from the
beginning. Estoppel cannot give validity to an act that is prohibited by law or one that is against public
policy.

There are two principal grounds on which the doctrine is founded that a contract in restraint of trade is
void as against public policy. One is, the injury to the public by being deprived of the restricted party’s
industry; and the other is, the injury to the party himself by being precluded from pursuing his occupation,
and thus being prevented from supporting himself and his family.

And in Gibbs vs. Consolidated Gas Co. of Baltimore, supra, the court stated the rule thus:

Public welfare is first considered, and if it be not involved, and the restraint upon one party is not greater
than protection to the other party requires, the contract may be sustained. The question is, whether, under
the particular circumstances of the case and the nature of the particular contract involved in it, the
contract is, or is not, unreasonable.

In cases where an employee assails a contract containing a provision prohibiting him or her from
accepting competitive employment as against public policy, the employer has to adduce evidence to
prove that the restriction is reasonable and not greater than necessary to protect the employer’s
legitimate business interests. The restraint may not be unduly harsh or oppressive in curtailing the
employee’s legitimate efforts to earn a livelihood and must be reasonable in light of sound public policy.

Courts should carefully scrutinize all contracts limiting a man’s natural right to follow any trade or
profession anywhere he pleases and in any lawful manner. But it is just as important to protect the
enjoyment of an establishment in trade or profession, which its employer has built up by his own honest
application to every day duty and the faithful performance of the tasks which every day imposes upon the
ordinary man. What one creates by his own labor is his. Public policy does not intend that another than
the producer shall reap the fruits of labor; rather, it gives to him who labors the right by every legitimate
means to protect the fruits of his labor and secure the enjoyment of them to himself. Freedom to contract
must not be unreasonably abridged. Neither must the right to protect by reasonable restrictions that which
a man by industry, skill and good judgment has built up, be denied.

The Court reiterates that the determination of reasonableness is made on the particular facts and
circumstances of each case. In Esmerson Electric Co. v. Rogers, it was held that the question of
reasonableness of a restraint requires a thorough consideration of surrounding circumstances, including
the subject matter of the contract, the purpose to be served, the determination of the parties, the extent of
the restraint and the specialization of the business of the employer. The court has to consider whether its
enforcement will be injurious to the public or cause undue hardships to the employee, and whether the
restraint imposed is greater than necessary to protect the employer. Thus, the court must have before it
evidence relating to the legitimate interests of the employer which might be protected in terms of time,
space and the types of activity proscribed.

Consideration must be given to the employee’s right to earn a living and to his ability to determine with
certainty the area within which his employment ban is restituted. A provision on territorial limitation is
necessary to guide an employee of what constitutes as violation of a restrictive covenant and whether the
geographic scope is co-extensive with that in which the employer is doing business. In considering a
territorial restriction, the facts and circumstances surrounding the case must be considered.
Thus, 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.

Not to be ignored is the fact that the banking business is so impressed with public interest where the trust
and interest of the public in general is of paramount importance such that the appropriate standard of
diligence must be very high, if not the highest degree of diligence.

We are not impervious of the distinction between restrictive covenants barring an employee to accept a
post-employment competitive employment or restraint on trade in employment contracts and restraints on
post-retirement competitive employment in pension and retirement plans either incorporated in
employment contracts or in collective bargaining agreements between the employer and the union of
employees, or separate from said contracts or collective bargaining agreements which provide that an
employee who accepts post retirement competitive employment will forfeit retirement and other benefits
or will be obliged to restitute the same to the employer. 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 raison d’etre is explained by the United States Circuit Court
of Appeals in Rochester Corporation v. W.L. Rochester, Jr.:

x x x The authorities, though, generally draw a clear and obvious distinction between restraints on
competitive employment in employment contracts and in pension plans. The strong weight of authority
holds that forfeitures for engaging in subsequent competitive employment, included in pension 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
employee’s engaging in competitive work but is merely a denial of the right to participate in the retirement
plan if he does so engage. A leading case on this point is Van Pelt v. Berefco, Inc., supra, 208 N.E.2d at
p. 865, where, in passing on a forfeiture provision similar to that here, the Court said:

"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." (emphasis
added)

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.

We have reviewed the Undertaking which respondent impelled petitioner to sign, and find that in case of
failure to comply with the promise not to accept competitive employment within one year from February
28, 1995, respondent will have a cause of action against petitioner for "protection in the courts of law."
The words "cause of action for protection in the courts of law" are so broad and comprehensive, that they
may also include a cause of action for prohibitory and mandatory injunction against petitioner, specific
performance plus damages, or a damage suit (for actual, moral and/or exemplary damages), all inclusive
of the restitution of the P963,619.28 which petitioner received from respondent. 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 of the
same class or genre as that contemplated in Rochester.

It is settled that actual damages or compensatory damages may be awarded for breach of contracts.
Actual damages are primarily intended to simply make good or replace the loss covered by said
breach. They cannot be presumed. Even if petitioner had admitted to having breached the Undertaking,
respondent must still prove that it suffered damages and the amount thereof. In determining the amount
of actual damages, the Court cannot rely on mere assertions, speculations, conjectures or guesswork but
must depend on competent proof and on the best evidence obtainable regarding the actual amount of
losses. The benefit to be derived from a contract which one of the parties has absolutely failed to perform
is of necessity to some extent a matter of speculation of the injured party.

On the assumption that the competitive employment ban in the Undertaking is valid, petitioner is not
automatically entitled to return the P963,619.28 he received from respondent. To reiterate, the terms of
the Undertaking clearly state that any breach by petitioner of his promise would entitle respondent to a
cause of action for protection in the courts of law; as such, restitution of the P963,619.28 will not follow as
a matter of course. Respondent is still burdened to prove its entitlement to the aforesaid amount by
producing the best evidence of which its case is susceptible.

DP: IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The Decision of the Court of
Appeals in CA-G.R. CV No. 52235 is SET ASIDE. Let this case be REMANDED to the Regional Trial
Court of Manila for further proceedings conformably with this decision of the Court.
Daisy Tiu v. Platinum Plans Phil., Inc.

Facts:

Respondent Platinum Plans Philippines, Inc. is a domestic corporation engaged in the pre-need industry.
From 1987 to 1989, petitioner Daisy B. Tiu was its Division Marketing Director.

[The term "pre-need company" also refers to schools, memorial chapels, banks, nonbank financial
institutions and other entities which have also been authorized/licensed to sell or offer to sell pre-
need plans insofar as their pre-need activities or business are concerned.]

On January 1, 1993, respondent re-hired petitioner as Senior Assistant Vice-President and Territorial
Operations Head in charge of its Hongkong and Asean operations. The parties executed a contract of
employment valid for five years.4

On September 16, 1995, petitioner stopped reporting for work. In November 1995, she became the Vice-
President for Sales of Professional Pension Plans, Inc., a corporation engaged also in the pre-need
industry.

Consequently, respondent sued petitioner for damages before the RTC of Pasig City, Branch 261.
Respondent alleged, among others, that petitioner’s employment with Professional Pension Plans, Inc.
violated the non-involvement clause in her contract of employment, to wit:

8. NON INVOLVEMENT PROVISION – The EMPLOYEE further undertakes that during his/her
engagement with EMPLOYER and in case of separation from the Company, whether voluntary or for
cause, he/she shall not, for the next TWO (2) years thereafter, engage in or be involved with any
corporation, association or entity, whether directly or indirectly, engaged in the same business or
belonging to the same pre-need industry as the EMPLOYER. Any breach of the foregoing provision shall
render the EMPLOYEE liable to the EMPLOYER in the amount of One Hundred Thousand Pesos
(P100,000.00) for and as liquidated damages.5

Respondent thus prayed for ₱100,000 as compensatory damages; ₱200,000 as moral damages;
₱100,000 as exemplary damages; and 25% of the total amount due plus ₱1,000 per counsel’s court
appearance, as attorney’s fees.

Petitioner countered that the non-involvement clause was unenforceable for being against public order or
public policy: First, the restraint imposed was much greater than what was necessary to afford respondent
a fair and reasonable protection. Petitioner contended that the transfer to a rival company was an
accepted practice in the pre-need industry. Since the products sold by the companies were more or less
the same, there was nothing peculiar or unique to protect. Second, respondent did not invest in
petitioner’s training or improvement. At the time petitioner was recruited, she already possessed the
knowledge and expertise required in the pre-need industry and respondent benefited tremendously from
it. Third, a strict application of the non-involvement clause would amount to a deprivation of petitioner’s
right to engage in the only work she knew.

In upholding the validity of the non-involvement clause, the trial court ruled that a contract in restraint of
trade is valid provided that there is a limitation upon either time or place. In the case of the pre-need
industry, the trial court found the two-year restriction to be valid and reasonable. The dispositive portion of
the decision reads:

On appeal, the Court of Appeals affirmed the trial court’s ruling. It reasoned that petitioner entered into the
contract on her own will and volition. Thus, she bound herself to fulfill not only what was expressly
stipulated in the contract, but also all its consequences that were not against good faith, usage, and law.
The appellate court also ruled that the stipulation prohibiting non-employment for two years was valid and
enforceable considering the nature of respondent’s business.

Petitioner moved for reconsideration but was denied. Hence, this appeal.

Issue/s: Whether or not the non-involvement clause is valid. [YES]

Held:

As early as 1916, we already had the occasion to discuss the validity of a non-involvement clause. In
Ferrazzini v. Gsell,8 we said 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 he 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, forces
an employee to leave the Philippines to work should his employer refuse to give a written permission.

In G. Martini, Ltd. v. Glaiserman,9 we also declared a similar stipulation as void for being an 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 businesses of the employer, the Court considered the
restraint 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,10 we upheld a similar stipulation 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 employer’s place of
business during the time the employer was operating his drugstore. We said that 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.

Conformably then 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 petitioner’s 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 respondent’s.

More significantly, since petitioner was the Senior Assistant Vice-President and Territorial Operations
Head in charge of respondent’s Hongkong and Asean operations, she had been privy to confidential and
highly sensitive marketing strategies of respondent’s business. To allow her to engage in a rival business
soon after she leaves would make respondent’s trade secrets vulnerable especially in a highly
competitive marketing environment.

Thus, as held by the trial court and the Court of Appeals, petitioner is bound to pay respondent ₱100,000
as liquidated damages. While we have equitably reduced liquidated damages in certain cases, 17 we
cannot do so in this case, since it appears that even from the start, petitioner had not shown the least
intention to fulfill the non-involvement clause in good faith.

DP: WHEREFORE, the petition is DENIED for lack of merit. The Decision dated January 20, 2004, and
the Resolution dated May 4, 2004, of the Court of Appeals in CA-G.R. CV No. 74972, are AFFIRMED.
Costs against petitioner.
Ferrazzini v. Gsell

Facts:

Employee (Ferrazzini) worked at employer’s (Gsell) industrial enterprise engaged in the manufacturing of
umbrellas. Ferrazzini was discharged by employer for the former’s absences, unfaithfulness and
disobedience to others. Employee sought for damages for an alleged wrongful discharge by not giving
him the "written advice of six months in advance" as provided in the contract. On the other hand,
employer filed a counterclaim against the employee for alleged breach of the contract upon engaging as a
foreman on some construction work for a cement factory within a few days after his discharge without the
former’s request or consent. A portion of the contract contains the following provisions:

That during the term of this contract, and for the period of five years after the termination of the
employment of the said party of the second part, whether this contract continue in force for the
period of one, two, three or more years, or be sooner terminated, the said party of the second
party shall not engage or interest himself in any business enterprises similar to or in competition
with those conducted, maintained or operated by the said party of the first day in the Philippines,
and shall not assist, aid or encourage any such enterprise by the furnishing of information, advice
or suggestions of any kind, and shall not enter into the employ of any enterprises in the
Philippine Islands, whatever, save and except after obtaining special written permission
therefor from the said party of the first part. It is further stipulated and agreed that the said
party of the second part is hereby obligated and bound to pay unto the party of the first part the
sum of ten thousand pesos, Philippine currency (P10,000) as liquidated damages for each and
every breach of the present clause of this contract, whether such breach occurred during the
employment of the said party of the second part or at any time during the period of five years
from and after the termination of said employment, and without regard to the cause of the
termination of said employment.

EMPLOYER GSELL: The first reason that led to his dismissal – employee had the habit of going out in
the morning and afternoon for having a drink; not one but many drinks, because he was out sometimes
an hour and an hour and a half; Also, despite giving instructions to the manager, employee’s habit still
persisted. Lastly, employee provoked one of the new employees and said that employer have no
confidence in them and that the new employee’s salary was not sufficient to live on and that he should not
continue to work.

EMPLOYEE FERRAZZINI: He saw the employer measuring the goods for the umbrellas which gave him
an idea that employer has no confidence in his employees. Also, it was alleged that his employer allowed
him to leave the factory in the morning and in the afternoon for about 10-15 minutes to have a drink of
beer or whisky and soda during the hot season.

TRIAL COURT: Judgment in favor of employee.

Issue/s:

1. Whether or not employer GSELL was justified in dismissing employee FERRAZZINI. [YES]

2. WON the provisions of the contract containing restrictive covenants are valid and binding upon
employee FERRAZZINI. [NO]

Held:

1. Yes. All of the foregoing show a course of conduct inconsistent with the due and faithful
performance of his duties as an employee of the employer. He sought to create a feeling of
unrest among the employees by inducing them to believe that the employer had no confidence in
them and that at least one employee was not receiving sufficiently salary. If it were true that the
 employer was measuring the cloth for the umbrellas, he had a right to do so and this fact would
not justify the employee in saying that the employer had no confidence in the employees .
Likewise, if it be true that the employer or his manager did at first authorize the plaintiff to absent
himself during working hours for the purpose of drinking, the employer had a perfect right to
withdraw this permission at anytime he saw fit to do so. In fact, the employer, through his
manager, expressly directed the plaintiff to cease leaving the factory for that purpose, but the
employee violated this order numerous times. The employee, being at times foreman and at other
times in charge of important departments of the factory wherein some four hundred employees
were at work, it cannot be questioned but that the employer not only had a right to prohibit
drinking during working hours, but it was his duty to do so for his own interests and the safety of
his other employees. But it is intimated in the record that the employer discharged the employee
on account of the conversation at the mess. If it be true that the employer gave this as his sole
reason for so acting at the time he discharged the employee, yet he would not be prevented from
setting up at the trial the fact that the employee continued to disobey his orders with reference to
absenting himself for the purpose of drinking. The employer was, at the time he discharged the
employee, authorized to take into consideration the latter's whole course of conduct in
determining whether the contract of employment should be terminated. We are, therefore,
convinced that real errors were committed by the trial court in its findings of fact and that
the record fully justifies a reversal of such findings, and a declaration to the effect that the
employer was justified in terminating the contract of employment.

2. No. The provisions in the contract are against public policy as they constitute restraint of trade.

Articles 1091 and 1255 of the Civil Code read:

ART. 1091. Obligations arising from contracts have legal force between the contracting parties,
and must be fulfilled in accordance with their stipulations."

ART. 1255. The contracting parties may make the agreement and establish the clauses and
conditions which they may deem advisable, provided they are not in contravention of law, morals,
or public order.

Hence, the policy of the law requires that the freedom of persons to enter into contracts shall not
be lightly interfered with, but if a contract be not founded upon a legal consideration (causa) or if it
conflicts with the morals of the times or contravenes some established interest of society, the
courts will not aid in its enforcement.

Manresa, Vol. 8 p. 606, says:

Public policy (orden publico) — which does not here signify the material keeping of public order
— represents in the law of persons the public, social and legal interest, that which is permanent
and essential of the institutions, that which, even if favoring an individual in whom the right lies,
cannot be left to his own will. It is an idea which, in cases of the waiver of any right, is manifested
with clearness and force.

Mucius Scaevola's (vol. 20, p., 505) conclusion is that:

Agreements in violation of orden publico must be considered as those which conflict with law,
whether properly, strictly and wholly a public law (derecho) or whether a law of the person, but
law which in certain respects affects the interest of society.

Articles 1893 and 1895 of Merrick's Revised Civil Code of Louisiana, a civil law state, read:

ART. 1893. An obligation without a cause, or with a false or unlawful cause, can have no effect.
ART. 1895. Illegal or immoral cause. — The cause is unlawful, when it is forbidden by law, when
it is contra bonos mores or to public order.

By "public policy," as defined by the courts in the United States and England, is intended that
principle of the law which holds that no subject or citizen can lawfully do that which has a
tendency to be injurious to the public or against the public good , which may be termed the
"policy of the law," or "public policy in relation to the administration of the law." Public
policy is the principle under which freedom of contract or private dealing is restricted by law for
the good of the public. In determining whether a contract is contrary to public policy the nature of
the subject matter determines the source from which such question is to be solved.

In the United States it is well settled that contracts in undue or unreasonable restraint of trade are
unenforceable because they are repugnant to the established public policy in that country. Such
contracts are illegal in the sense that the law will not enforce them.

There are two principal grounds on which the doctrine is founded that a contract in restraint of
trade is void as against public policy. One is, the injury to the public by being deprived of the
restricted party's industry; and the other is, the injury to the party himself by being
precluded from pursuing his occupation , and thus being prevented from supporting
himself and his family.

The contract under consideration, tested by the law, rules and principles above set forth, is clearly
one in undue or unreasonable restraint of trade and therefore against public policy. It is limited
as to time and space but not as to trade. It is not necessary for the protection of the defendant,
as this is provided for in another part of the clause. It would force the employee to leave the
Philippine Islands in order to obtain a livelihood in case the employer declined to give him
the written permission to work elsewhere in this country.
Del Castillo v. Richmond

Facts:

The plaintiff alleges that the provisions and conditions contained in the third paragraph of said contract
constitute an illegal and unreasonable restriction upon his liberty to contract, are contrary to public policy,
and are unnecessary in order to constitute a just and reasonable protection to the defendant; and asked
that the same be declared null and void and of no effect.

CONTRACT FOR RENDERING SERVICES

3. That in consideration of the fact that the said Alfonso del Castillo has just graduated as a
pharmacist and up to the present time has not been employed in the capacity of a pharmacist and
in consideration of this employment and the monthly salary mentioned in this contract, the said
Alfonso del Castillo also agrees not to open, nor own nor have any interest directly or indirectly in
any other drugstore either in his own name or in the name of another; nor have any connection
with or be employed by any other drugstore situated within a radius of four miles from the district
of Legaspi, municipality and Province of Albay, while the said Shannon Richmond or his heirs
may own or have open a drugstore, or have an interest in any other one within the limits of the
districts of Legaspi, Albay, and Daraga of the municipality of Albay, Province of Albay.

The defendant interposed a general and special defense. In his special defense he alleges "that
during the time the plaintiff was in the defendant's employ he obtained knowledge of his trade and
professional secrets and came to know and became acquainted and established friendly relations
with his customers so that to now annul the contract and permit plaintiff to establish a competing
drugstore in the town of Legaspi, as plaintiff has announced his intention to do, would be
extremely prejudicial to defendant's interest."

The defendant further, in an amended answer, alleges "that this action not having been brought within
four years from the time the contract referred to in the complaint was executed, the same has prescribed."

Upon a consideration of the merits, the court a quo concluded "that the contract the annulment of which
is sought by the plaintiff is neither oppressive to him, nor unreasonably necessary to protect the
defendant's business, nor prejudicial to the public interests."

From that judgment the plaintiff appealed to this court. In this court the appellant still insists that said
contract is illegal, unreasonable, and contrary to public policy.

Issue/s:

Whether or not the provision in paragraph 3 of the contract entered into between plaintiff and defendant is
illegal, unreasonable and contrary to public policy. [NO]

Held:

No. Judgment from the lower court affirmed.

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.

It will be seen that the only restriction placed upon the right of the plaintiff is, that he shall "not open, nor
own, nor have any interest directly or indirectly in any other drugstore either in his own name or in the
name of another; nor have any connection with or be employed by any other drugstore as pharmacist or
in any capacity in any drug- store situated within a radius of four miles from the district of Legaspi,
municipality and Province of Albay, while the said Shannon Richmond or his heirs may own or have open
a drugstore, or have an interest in any other one within the limits of the districts of Legaspi, Albay, and
Daraga of the municipality of Albay, Province of Albay."

It will be noted that the restrictions placed upon the plaintiff are strictly limited (a) to a limited district
or districts, and (b) during the time while the defendant or his heirs may own or have open a
drugstore, or have an interest in any other one within said limited district.

The law concerning contracts which tend to restrain business or trade has gone through a long series of
changes from time to time with the changing conditions of trade and commerce. With trifling exceptions,
said changes have been a continuous development of a general rule. The early cases show plainly a
disposition to avoid and annul all contract which prohibited or restrained any one from using a lawful trade
"at any time or at any place," as being against the benefit of the state. Later, however, the rule became
well established that if the restraint was limited to "a certain time" and within "a certain place," such
contracts were valid and not "against the benefit of the state."

The public welfare of course must always be considered, and if it be not involved and the restraint upon
one party is not greater than protection to the other requires, contracts like the one we are discussing will
be sustained. The general tendency, we believe, of modern authority, is to make the test whether the
restraint is reasonably necessary for the protection of the contracting parties. If the contract is reasonably
necessary to protect the interest of the parties, it will be upheld. (Ollendorff vs. Abrahamson, 38 Phil.,
585.)

In that case we held that a contract by which an employee agrees to refrain for a given length of time,
after the expiration of the term of his employment, from engaging in a business, competitive with that of
his employer, is not void as being in restraint of trade if the restraint imposed is not greater than
that which is necessary to afford a reasonable protection. In all cases like the present, the question is
whether, under the particular circumstances of the case and the nature of the particular contract
involved in it, the contract is, or is not, unreasonable.

Of course in establishing whether the contract is a reasonable or unreasonable one, the nature of the
business must also be considered. What would be a reasonable restriction as to time and place upon the
manufacture of railway locomotive engines might be a very unreasonable restriction when imposed upon
the employment of a day laborer.

DP: Considering the nature of the business in which the defendant is engaged, in relation with the
limitation placed upon the plaintiff both as to time and place, we are of the opinion, and so decide, that
such limitation is legal and reasonable and not contrary to public policy. Therefore the judgment appealed
from should be and is hereby affirmed, with costs. So ordered.