Dear Atty. Gab,

Musta Atty? I’m writing to you because I’m in a bit of a legal bind and not sure what to do. I recently resigned from my job at a pharmaceutical company in Makati after working there for five years. I had a good relationship with my boss and felt valued. However, I found a better-paying opportunity at another company, also in the pharmaceutical industry. Before I left, my employer reminded me of a clause in my employment contract stating that I couldn’t work for a competitor within two years of leaving. I didn’t think it would be a problem since I wasn’t in sales anymore.

Now, my former employer is refusing to release my final paycheck, claiming that I’ve violated this “non-compete clause” by joining the other company. They say they’re going to deduct a significant amount from my pay as ‘liquidated damages’ for supposedly breaching the contract. I badly need that money to support my family. Is this even legal? Can they withhold my salary like that? I’m really confused and worried about what to do next.

I hope you can shed some light on this situation. Any advice you can provide would be greatly appreciated.

Sincerely,
Andres Santiago

Dear Andres,

Musta Andres! I understand your concern about your former employer withholding your final paycheck due to the non-compete clause. It’s definitely a stressful situation, especially when your family’s financial stability is at stake. Generally, employers cannot simply deduct from your wages for alleged breaches of contract without due process. Let’s discuss your rights in this situation.

Is a “Goodwill Clause” Really Good For You?

The legality of withholding your salary hinges on several factors, including the enforceability of the non-compete clause and whether your new role genuinely constitutes a violation. Philippine labor laws prioritize the protection of workers’ wages. As a general rule, employers cannot make deductions from an employee’s wages except under very specific circumstances outlined in the Labor Code.

Article 113 of the Labor Code is very clear about wage deductions. It states:

ART. 113.  Wage Deduction. – No employer, in his own behalf or in behalf of any person, shall make any deduction from wages of his employees, except:

(a) In cases where the worker is insured with his consent by the employer, and the deduction is to recompense the employer for the amount paid by him as premium on the insurance;

(b) For union dues, in cases where the right of the worker or his union to check-off has been recognized by the employer or authorized in writing by the individual worker concerned; and

(c) In cases where the employer is authorized by law or regulations issued by the Secretary of Labor.

Therefore, your employer’s attempt to deduct from your wages for alleged breach of contract isn’t automatically permissible under this provision. Unless the deduction falls under the limited exceptions provided by law, they may be violating your rights.

Moreover, even if a non-compete clause exists, its enforceability depends on its reasonableness. For a non-compete clause to be valid, it must be reasonable in terms of scope, geographical area, and duration. It cannot be overly broad or restrictive, preventing you from earning a livelihood. It’s purpose shouldn’t be about limiting competition.

In your case, consider these points. Is the pharmaceutical company a direct competitor? Is your new role directly competitive? The Supreme Court has touched on this matter by defining jurisdiction over labor cases:

We reach the above conclusion from an examination of the terms themselves of Article 217, as last amended by B.P. Blg. 227, and even though earlier versions of Article 217 of the Labor Code expressly brought within the jurisdiction of the Labor Arbiters and the NLRC “cases arising from employer-employee relations, [citation omitted]” which clause was not expressly carried over, in printer’s ink, in Article 217 as it exists today.

This shows that in many ways, labor cases may be outside the realm of the employer-employee relationship.

If the clause is deemed unreasonable, the courts will likely not enforce it. The Supreme Court has previously addressed situations where the claims did not occur during employment:

While Portillo’s claim for unpaid salaries is a money claim that arises out of or in connection with an employer-employee relationship, Lietz Inc.’s claim against Portillo for violation of the goodwill clause is a money claim based on an act done after the cessation of the employment relationship. And, while the jurisdiction over Portillo’s claim is vested in the labor arbiter, the jurisdiction over Lietz Inc.’s claim rests on the regular courts.

Another important consideration is jurisdiction. If your former employer intends to pursue a claim for liquidated damages, they would generally need to file a separate civil case in a regular court, not simply deduct the amount from your wages without a court order. You were no longer an employee when the alleged damages occurred. As the Supreme Court has clearly explained, if the matter is about a post-employment breach:

As it is, petitioner does not ask for any relief under the Labor Code. It merely seeks to recover damages based on the parties’ contract of employment as redress for respondent’s breach thereof. Such cause of action is within the realm of Civil Law, and jurisdiction over the controversy belongs to the regular courts. More so must this be in the present case, what with the reality that the stipulation refers to the post-employment relations of the parties.

Based on your situation, a regular court, not the labor arbiter, has jurisdiction over the potential case, thus they can’t deduct from your wages for damages. It’s crucial to gather all relevant documents, including your employment contract, resignation letter, and any communication with your former employer regarding the non-compete clause and your final pay.

Practical Advice for Your Situation

• Demand Payment in Writing: Send a formal written demand to your former employer, requesting the release of your final paycheck within a reasonable timeframe (e.g., 5-7 business days).
• Consult with a Labor Lawyer: Seek advice from a labor lawyer to assess the enforceability of the non-compete clause in your employment contract.
• File a Complaint with DOLE: If your employer refuses to release your paycheck, consider filing a complaint with the Department of Labor and Employment (DOLE) for illegal withholding of wages.
• Assess the Competitive Impact: Evaluate whether your new role truly violates the non-compete clause by assessing the extent to which your new company directly competes with your former employer.
• Document Everything: Keep a detailed record of all communications, meetings, and documents related to your employment and the non-compete clause.
• Negotiate a Settlement: Explore the possibility of negotiating a settlement with your former employer to resolve the dispute amicably, potentially by limiting the scope of your new role.
• Prepare for Legal Action: Be prepared to defend yourself in court if your former employer pursues legal action to enforce the non-compete clause, but they can’t deduct money from your wages for damages.

I hope this clarifies your rights and provides you with a clearer path forward. Don’t hesitate to seek further legal assistance to protect your interests.

Hope this helps!

Sincerely,
Atty. Gabriel Ablola

For more specific legal assistance related to your situation, please contact me through gaboogle.com or via email at connect@gaboogle.com.

Disclaimer: This correspondence is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please schedule a formal consultation.