As a result of the dearth of express legislation, the current and longstanding Philippine standard on the enforceability of employment non-compete agreements is largely based on Supreme Court precedents.
These rulings interpret the principle of contractual autonomy under the Civil Code of the Philippines. They allow contracting parties to 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.
In Ferrazzini v Gsell (1916), the Supreme Court first held that an agreement prohibiting an employee from entering into the employ of any enterprise in the Philippines within five years from termination is unenforceable.
The court reasoned that the contract “is clearly one in undue and unreasonable restraint of trade and therefore against public policy; is limited as to time and space but not to trade; is not necessary for the protection of the (employer)”; and “would force the (employee) to leave the Philippines in order to obtain a livelihood”.
In Ollendorff v Abrahamson (1918), the court considered the agreement of an employee not to enter into, or engage himself directly or indirectly in, a similar or competitive business to that of the employer anywhere within the Philippines for a period of five years from the contract date.
Unlike the blanket ban in Ferrazzini, this restriction was limited to similar or competitive businesses.
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