Non-Compete Agreement

A Non-compete Agreement is a document that may be used by individuals or business organizations to prevent another person that may be engaged with them in a business relationship, employer-employee relationship, or any other professional relationship, to compete with them whether directly or indirectly. In this agreement, there are two parties, one is the protected party and the other is the restricted party.

The protected party is the one who will be protected from competition by the acts that may be performed by the restricted party for the duration of their agreement or engagement and for a certain period thereafter. Acts that are competitive in nature are acts in which business secrets, trade secrets, and other confidential business information belonging to the protected party are used by the restricted party within another business that engages in the same or similar activities which leads to competition with the protected party. The restricted party in entering a Non-disclosure agreement must obtain or receive a consideration whether in the form of money, employment opportunity, or any other economic advantage.

This Agreement is especially useful in businesses or engagements that involve sensitive and technical data or information or in industries that are highly competitive such as technology, marketing, and sales.

The following are the common circumstances in which a Non-compete Agreement will be useful:

Employer-employee Relationship: If an employee obtains confidential information or trade secret from his employment with the employer, he may be restricted or prohibited from using that information for his own benefit or for the benefit of a third party, whether by being employed or involved in other businesses engaged in activities similar to that of the employer.

Business Relationship: If the relationship is brought about by two companies or business owners, acts that are competitive in nature may pertain to the usage of trade secrets and confidential information obtained during the relationship, for purposes of gaining a competitive advantage over the one who shared such information. This may either be performed by opening up another business to compete with the other party or the protected party, or by being a stakeholder in such business.

These common situations may be prevented through the use of a Non-disclosure Agreement whereby the restricted party may be liable for monetary damages once the covenants in the Non-disclosure Agreement are violated.

How to use this document

This Agreement should be completed by providing the identities and personal circumstances of the parties who may either be individuals or business organizations. The date and place of signing the agreement may also be provided. The following are the provisions of this agreement:

• The nature of the business or activity with which the protected party is engaged should be provided, and the type of industry it is in may also be provided.
• The duration of the agreement within which the obligations stated therein will be enforced. This starts during the business or professional relationship between the parties, and a certain period thereafter. The period of time involved must be guided with reasonability taking into consideration the customs and usages in the industry involved. For example, the Non-compete Agreement may reasonably last for 2 years or 24 months after the termination of employment of an associate lawyer with a law firm.
• The compensation or consideration that the restricted party will receive in exchange for complying with the terms of the Non-compete Agreement.
• The territory or location wherein the Non-compete Agreement may apply should also be provided. This is usually the territorial area where the protected party operates its business activities or where its clients and customers are situated.
• The competitive activities which the restricted party is specifically prohibited from doing may also be provided taking into consideration of its economic effects on the business or engagements of the protected party.
• There may also be an option to include whether the restricted party will not be allowed to poach or solicit clients, customers, and employees of the protected party, whether for the benefit of the restricted party, or a third person.
• It will also be optional to include a non-disclosure clause or an agreement that the restricted party will not be allowed to disclose or reveal information that is confidential in nature and belongs to the protected party.
• In case of an employer-employee relationship, there may be a clause that provides that signing the Non-compete Agreement is a condition for the employment or continued employment of the employee with the employer.
• A specific amount of damages that the restricted party must pay in case he violates the agreement.

After completing the document, the parties may acknowledge the same before a notary public, in which case, they must complete the relevant details, print at least 3 copies, and sign the same in front of the notary public. Each party must keep a copy and leave one copy to the notary public.

Applicable law

The general laws on Contracts and Obligations found in the Civil Code of the Philippines are applicable. The Intellectual Property Code (Republic Act No. 8293), the Securities Regulation Code of 2000, the Philippine Competition Act, and the Revised Penal Code are some of the laws that offer protection against competitive acts. Further, in case of an employer-employee relationship, the Labor Code is also applicable.

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