Chapter Five

MANAGEMENT PREROGATIVES
TOPICS PER SYLLABUS
V.
MANAGEMENT PREROGATIVES
1. RIGHT OF EMPLOYER TO REGULATE ALL ASPECTS OF EMPLOYMENT.
It is a well-recognized principle that employers have the right and prerogative to regulate
every aspect of their business, generally without restraint in accordance with their own discretion and
judgment.1 This privilege is inherent in the right of employers to control and manage their enterprise
effectively.2 Such aspects of employment include hiring, work assignments, working methods, time,
place and manner of work, tools to be used, processes to be followed, supervision of workers, working
regulations, transfer of employees, lay-off of workers and the discipline, dismissal and recall of
workers.3
Our laws and jurisprudence extend recognition and respect to such exercise by the employers
of their rights and prerogatives. For this reason, courts often decline to interfere in legitimate business
decisions of employers. In fact, labor laws discourage interference in employers’ judgment
concerning the conduct of their business.4 The Labor Code and its implementing rules do not vest
managerial authority in the Labor Arbiters or in the different divisions of the NLRC, or in the courts.
Even as the law is solicitous of the welfare of employees, it must also protect the right of employers to
exercise what are clearly management prerogatives. The free will of management to conduct its own
business affairs to achieve its purpose cannot be denied.5
2. LIMITATIONS ON THE EXERCISE OF MANAGEMENT PREROGATIVES.
1. Limitations imposed by:
a) law;
b) CBA;
c) employment contract;
d) employer policy;
e) employer practice; and
f) general principles of fair play and justice.6
2. It is subject to police power.7
3. Its exercise should be without abuse of discretion.8
4. It should be done in good faith and with due regard to the rights of labor.9
Ineluctably, the exercise of management prerogatives is not absolute. The prerogatives
accorded to management cannot defeat the very purpose for which labor laws exist - to balance the
conflicting interests of labor and management, not to tilt the scale in favor of one over the other, but to
guarantee that labor and management stand on equal footing when bargaining in good faith with each
other.10
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Chapter Five
MANAGEMENT PREROGATIVES
TOPICS PER SYLLABUS
A. Discipline
A.
DISCIPLINE
1. COMPONENTS.
The right or prerogative to discipline covers the following:
 1) Right to discipline;
2) Right to dismiss;
3) Right to determine who to punish;
4) Right to promulgate rules and regulations;
5) Right to impose penalty; proportionality rule;
6) Right to choose which penalty to impose; and
7) Right to impose heavier penalty than what the company rules prescribe.
2. RIGHT TO DISCIPLINE.
The employer’s right to conduct the affairs of its business according to its own discretion and
judgment includes the prerogative to instill discipline among its employees and to impose reasonable
penalties, including dismissal, upon erring employees. This is a management prerogative where the free
will of management to conduct its own affairs to achieve its purpose takes form.1
The employer cannot be compelled to maintain in his employ the undeserving, if not
undesirable, employees.2 The only criterion to guide the exercise of its management prerogative to
discipline or dismiss erring employees is that the policies, rules and regulations on work-related
activities of the employees must always be fair and reasonable and the corresponding penalties, when
prescribed, should be commensurate to the offense involved and to the degree of the infraction.3
3. RIGHT TO DISMISS.
The right of the employer to dismiss its erring employees is a measure of self-
protection.4 The law, in protecting the rights of the laborer, authorizes neither oppression nor self-
destruction of the employer. While the constitution is committed to the policy of social justice and the
protection of the working class, it should not be supposed that every labor dispute will be automatically
decided in favor of labor. Management also has its own rights which, as such, are entitled to respect
and enforcement in the interest of simple fair play. Out of its concern for those with less privilege in
life, the Supreme Court has inclined more often than not towards the worker and upheld his cause in
his conflicts with the employer. Such favoritism, however, has not blinded the Court to rule that justice
is, in every case, for the deserving, to be dispensed in the light of the established facts and applicable
law and doctrine.5
4. RIGHT TO DETERMINE WHO TO PUNISH.
The employer has wide latitude to determine who among its erring officers or employees
should be punished, to what extent and what proper penalty to impose.6
5. RIGHT TO PRESCRIBE COMPANY RULES AND REGULATIONS OR CODE OF
DISCIPLINE.
The prerogative of an employer to prescribe reasonable rules and regulations necessary or
proper for the conduct of its business and to provide certain disciplinary measures in order to
implement said rules and to assure that the same would be complied with has been recognized in this
jurisdiction.7
6. RIGHT TO IMPOSE PENALTY; PROPORTIONALITY RULE.
The employer may lawfully impose appropriate penalties on erring workers pursuant to its
company rules and regulations.8 However, the “proportionality rule” should be observed. This means
that infractions committed by an employee should merit only the corresponding sanction demanded by
the circumstances. The penalty must be commensurate with the gravity of the offense, the act, conduct
or omission imputed to the employee and imposed in connection with the employer’s disciplinary
authority.9 Accordingly, in determining the validity of dismissal as a form of penalty, the charges for
which an employee is being administratively cited must be of such nature that would merit the
imposition of the said supreme penalty. Dismissal should not be imposed if it is unduly harsh and
grossly disproportionate to the charges.10
7. RIGHT TO CHOOSE WHICH PENALTY TO IMPOSE.
The matter of imposing the appropriate penalty depends on the employer. It is certainly within
the employer’s prerogative to impose on the erring employee what it considered the appropriate penalty
under the circumstances pursuant to its company rules and regulations. Like all other business
enterprises, its prerogative to discipline its employees and to impose appropriate penalties on erring
workers pursuant to company rules and regulations must be respected.11
8. RIGHT TO IMPOSE HEAVIER PENALTY THAN WHAT THE COMPANY RULES
PRESCRIBE.
 The employer has the right to impose a heavier penalty than that prescribed in the company
rules and regulations if circumstances warrant the imposition thereof. The fact that the offense was
committed for the first time or has not resulted in any prejudice to the company was held not to be a
valid excuse. No employer may rationally be expected to continue in employment a person whose lack
of morals, respect and loyalty to his employer, regard for his employer’s rules, and appreciation of the
dignity and responsibility of his office, has so plainly and completely been bared. Company rules and
regulations cannot operate to altogether negate the employer’s prerogative and responsibility to
determine and declare whether or not facts not explicitly set out in the rules may and do constitute such
serious misconduct as to justify the dismissal of the employee or the imposition of sanctions heavier
than those specifically and expressly prescribed therein. This is dictated by logic, otherwise, the rules,
literally applied, would result in absurdity; grave offenses, e.g. , rape, would be penalized by mere
suspension, this, despite the heavier penalty provided therefor by the Labor Code or otherwise dictated
by common sense.12
In Cruz v. Coca-Cola Bottlers Phils. , Inc. ,13 admittedly, the violation of the company rules
committed by petitioner is punishable with the penalty of suspension for the first offense. However, the
Supreme Court affirmed the validity of his dismissal because respondent company has presented evidence
showing that petitioner has a record of other violations from as far back as 1986.
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Chapter Five
MANAGEMENT PREROGATIVES
TOPICS PER SYLLABUS
B. Transfer of Employees
B.
TRANSFER OF EMPLOYEES
1. CONCEPT.
a. Two (2) kinds of transfer. - A transfer means a movement:
1. From one position to another of equivalent rank, level or salary, without a break in the
service;1 or
2. From one office to another within the same business establishment.2
b. Other forms of transfer. - The prerogative to transfer is broad enough to include the
following prerogatives that involve movements of personnel:
1. Prerogative to reorganize;
2. Prerogative to promote; and
3. Prerogative to demote.
These prerogatives will be discussed hereunder.
2. SOME PRINCIPLES ON THE PREROGATIVE TO TRANSFER EMPLOYEES.
 The exercise of the prerogative to transfer or assign employees from one office or area of
operation to another is valid provided there is no demotion in rank or diminution of salary, benefits
and other privileges. The transfer should not be motivated by discrimination or made in bad faith
or effected as a form of punishment or demotion without sufficient cause.3
 The Court cannot look into the wisdom of the transfer of an employee.4
 Commitment made by the employee in the employment contract to be re-assigned anywhere in the
Philippines is binding on him.5
 Even if the employee is performing well in his present assignment, management may reassign him
to a new post.6
 The transfer of an employee may constitute constructive dismissal when it amounts to an
involuntary resignation resorted to when continued employment is rendered impossible,
unreasonable or unlikely; when there is a demotion in rank and/or a diminution in pay; or when a
 clear discrimination, insensibility or disdain by the employer becomes unbearable to the employee
leaving him with no option but to forego with his continued employment.7
 More specifically, the following three (3) conditions must concur in order for the transfer to be
considered as constructive dismissal:
1) When the transfer is unreasonable, inconvenient or prejudicial to the employee;
2) When the transfer involves a demotion in rank or diminution of salaries, benefits and other
privileges; and
3) When the employer performs a clear act of discrimination, insensibility, or disdain towards the
employee, which forecloses any choice by the latter except to forego his continued
employment.8
 Transfer made in compliance with a government order does not amount to constructive dismissal.9
 Burden of proof in transfer cases is on the employer.10
 An employee cannot claim any vested right to his position. While an employee may have a right
to security of tenure, this does not give her such a vested right to her position as would deprive the
employer of its prerogative to change her assignment or transfer her where her service will be
most beneficial to the employer’s interest.11
 The refusal of an employee to be transferred may be held justified if there is a showing that the
transfer was directed by the employer under questionable circumstances. For instance, the transfer
of employees during the height of their union’s concerted activities in the company where they
were active participants is illegal.12
 An employee who refuses to be transferred, when such transfer is valid, is guilty of
insubordination or willful disobedience of a lawful order of an employer under Article 282 of the
Labor Code.13 For example: The dismissal of a medical representative who acceded in his
employment application to be assigned anywhere in the Philippines but later refused to be
transferred from Manila to a provincial assignment, was held valid. The reason is that when he
applied and was accepted for the job, he agreed to the policy of the company regarding assignment
anywhere in the Philippines as demanded by his employer’s business operation.14
 Refusal to transfer due to parental obligations, additional expenses, inconvenience, hardship and
anguish is not valid. An employee could not validly refuse lawful orders to transfer based on these
grounds.15
 Refusal to transfer to overseas assignment is valid.16
 Refusal to transfer consequent to promotion is valid.17
 Transfer pursuant to the company policy of preventing connivance is valid.18
 Transfer in accordance with pre-determined and established office policy and practice is valid.19
 Rotation among employees of banks as required in the Manual of Regulations for Banks and
Other Financial Intermediaries issued by the Bangko Sentral ng Pilipinas is valid.20
 Transfer due to the standard operating procedure of rotating employees from the day shift to the
night shift is valid.21
 Transfer to avoid conflict of interest is valid.22
 A transfer from one position to another occasioned by the abolition of the position is valid.23
 Reassignment and transfer pending investigation of irregularities is valid.24
3. PREROGATIVE TO REORGANIZE.
Implementation of a job evaluation program or a reorganization is valid for as long as it is not
contrary to law, morals or public policy25 and it is carried out in good faith.26
If the purpose of a reorganization is to be achieved, changes in the positions and rankings of the
employees should be expected. To insist on one’s old position and ranking after a reorganization
would render such endeavor ineffectual.27
It is hard to accept the claim that an employer would go through all the expenditure and effort
incidental and necessary to a reorganization just to dismiss a single employee whom they no
longer deemed desirable.28
Reorganization does not necessarily give rise to promotional increases.29
4. PREROGATIVE TO PROMOTE.
a. Promotion, defined.
Promotion is the advancement from one position to another involving increase in duties and
responsibilities as authorized by law and usually accompanied by an increase in compensation and
benefits.30
b. Transfer vs. Promotion.
Promotion denotes a scalar ascent of an officer or an employee to another position, higher
either in rank or salary. Transfer, on the other hand, involves lateral movement from one position to
another of equivalent level, rank or salary.31
c. Some principles on promotion.
 An employee has the right to refuse promotion. There is no law which compels an
employee to accept a promotion. Promotion is in the nature of a gift or reward. Any
person may refuse to accept a gift or reward. Such refusal to be promoted is a valid
exercise of such right and he cannot be punished therefor.32
 An employee cannot be promoted without his consent even if merely as a result of a
transfer. A transfer that results in promotion or demotion, advancement or reduction or a
transfer that aims to lure the employee away from his permanent position cannot be done
without his consent.33
 An employee cannot be dismissed because of his refusal to be promoted. It cannot
amount to insubordination or willful disobedience of a lawful order of the employer.34
 Employer’s decision on whether to promote an employee or not is valid for as long as it
does not appear to have been actuated by bad faith.35
5. PREROGATIVE TO DEMOTE.
a. Concept.
Demotion involves a situation where an employee is relegated to a subordinate or less
important position constituting a reduction to a lower grade or rank with a corresponding decrease in
duties and responsibilities and usually accompanied by a decrease in salary.36
b. Some principles on demotion.
 Demotion may result from transfer when the same results in reduction in position and
rank or diminution in salary.37
 Transfer from a highly technical position to one requiring mechanical work - virtually a
transfer from a position of dignity to a servile or menial job - is demotion.38
 Change in workplace may result in demotion. Hence, there is demotion in the case of
transfer of an employee from the laboratory - the most expensive work area, on a per
square-meter basis in the company’s premises - to the vegetable processing section
which involves processing of vegetables alone. Definitely, this is a transfer from a
workplace where only highly trusted authorized personnel are allowed to access to a
workplace that is not as critical.39
 Mere title or position held by an employee in a company does not determine whether a
transfer constitutes a demotion. Rather, it is the totality of the following circumstances,
to wit: economic significance of the work, the duties and responsibilities conferred, as
well as the rank and salary of the employee, among others, that establishes whether a
transfer is a demotion.40
 The employer has the right to demote and transfer an employee who has failed to
observe proper diligence in his work and incurred habitual tardiness and absences and
indolence in his assigned work.41
 Demotion may be validly imposed due to failure to comply with productivity
standards.42
 Due process principle in termination cases applies to demotions.43 Simply put, even the
employer’s right to demote an employee requires the observance of the twin-notice
requirement.44

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 Chapter Five
MANAGEMENT PREROGATIVES
TOPICS PER SYLLABUS
C. Productivity Standard
C.
PRODUCTIVITY STANDARD
1. CONCEPT.
The employer has the prerogative to prescribe the standards of productivity which the
employees should comply. The productivity standards may be used by the employer as:
1. an incentive scheme; and/or
2. a disciplinary scheme.
As an incentive scheme, employees who surpass the productivity standards or quota are
usually given additional benefits.
As a disciplinary scheme, employees may be sanctioned or dismissed for failure to meet the
productivity standards or quota.
Illustrative cases:
In the 2014 case of International School Manila v. International School Alliance of
Educators (ISAE) ,1 the teacher2 was held guilty of gross inefficiency meriting her dismissal on the
basis of the Court’s finding that she failed to measure up to the standards set by the school in teaching Filipino
classes.
In the 2012 case of Reyes-Rayel v. Philippine Luen Thai Holdings Corp. ,3 the validity of
the dismissal of petitioner who was the Corporate Human Resources (CHR) Director for
Manufacturing of respondent company, on the ground of inefficiency and ineptitude, was affirmed on the
basis of the Court’s finding that petitioner, on two occasions, gave wrong information regarding issues on
leave and holiday pay which generated confusion among employees in the computation of salaries and
wages.
In another 2012 case, Realda v. New Age Graphics, Inc. ,4 petitioner, a machine operator of
respondent company, was dismissed on the ground, among others, of inefficiency. In affirming the validity
of his dismissal, the Supreme Court reasoned:
“xxx (T)he petitioner‟ s failure to observe Graphics, Inc. ‟ s work standards constitutes
inefficiency that is a valid cause for dismissal. Failure to observe prescribed standards of work,
or to fulfill reasonable work assignments due to inefficiency may constitute just cause for
dismissal. Such inefficiency is understood to mean failure to attain work goals or work quotas,
either by failing to complete the same within the allotted reasonable period, or by producing
unsatisfactory results.”

In Buiser v. Leogardo, Jr. ,5 the petitioners’ failure to meet the sales quota assigned to each
of them was deemed a just cause for their dismissal, regardless of the permanent or probationary
status of their employment. Failure to observe prescribed standards of work, or to fulfill reasonable
work assignments due to inefficiency, well constitutes a just cause for dismissal.
In fine, according to the 2012 case of Aliling v. Feliciano,6 an employee’s failure to meet
sales or work quotas falls under the concept of gross inefficiency, which in turn is analogous to gross
neglect of duty that is a just cause for dismissal under Article 282 of the Labor Code. However, in
order for the quota imposed to be considered a valid productivity standard and thereby validate a
dismissal, management’s prerogative of fixing the quota must be exercised in good faith for the
advancement of its interest. The duty to prove good faith, however, rests with the employer as part of
its burden to show that the dismissal was for a just cause. The employer must show that such quota was
imposed in good faith.
2. DOLE TO ESTABLISH STANDARD OUTPUT RATES.
 In appropriate cases, the DOLE intervenes, motu proprio or upon the initiative of any
interested party, to establish productivity standards.
For instance, in the case of workers paid by results who are considered “non-time” workers
as their compensation is based not on the basis of the time spent on their work but according to the
quantity, quality or kind of job and the consequent results thereof, it is subject to more regulations in
order to ensure the payment of fair and reasonable wage rates. Thus, on petition of any interested party
or upon its own initiative, the DOLE shall use all available measures, including the use of time and
motion studies and individual/collective bargaining agreement between the employer and its workers as
approved by the DOLE Secretary and consultation with representatives of employers’ and workers’
organizations, to determine whether the employees in any industry or enterprise are being compensated
in accordance with the minimum wage requirements of the rule on wages.7
In the case of homeworkers, at the initiative of the DOLE or upon petition of any interested
party, the DOLE Secretary or his authorized representative is mandated to establish the standard output
rate or standard minimum rate in appropriate orders for the particular work or processing to be
performed by the homeworkers.8
3. STANDARD OUTPUT RATES OR PIECE RATES; HOW DETERMINED.
The standard output rates or piece rates shall be determined through any of the following
procedures:
a. Time and motion studies;
b. An individual/collective agreement between the employer and its workers as approved by
the DOLE Secretary or his authorized representative; or
c. Consultation with representatives of employers’ and workers’ organizations in a tripartite
conference called by the DOLE Secretary.
4. TIME AND MOTION STUDIES.
The time and motion study is the more scientific and preferred method. The basis for the
establishment of rates for piece, output or contract work is the performance of an ordinary worker of
minimum skill or ability.9 An ordinary worker of minimum skill or ability is the average worker of the
lowest producing group representing fifty percent (50%) of the total number of employees engaged in
similar employment in a particular establishment, excluding learners, apprentices and handicapped
workers employed therein.10
In the case of homeworkers, the time and motion studies should be undertaken by the DOLE
Regional Office having jurisdiction over the location of the premises used regularly by the
homeworker/s. However, where the job operation or activity is being likewise performed by regular
factory workers at the factory or premises of the employer, the time and motion studies should be
conducted by the DOLE Regional Office having jurisdiction over the location of the main undertaking
or business of the employer. Piece rates established through time and motion studies conducted at the
factory or main undertaking of the employer shall be applicable to the homeworkers performing the
same job activity. The standard piece rate shall be issued by the DOLE Regional Office within one (1)
month after a request has been made at said office. Upon request of the DOLE Regional Office, the
Bureau of Working Conditions (BWC) shall provide assistance in the conduct of such studies.11
5. ALLOWED TIME; MEANING.
In incentive wage system, the number of minutes allowed for tool care, personal needs and
fatigue, is added to operating time in establishing job standards or “task” as a basis for determining piece
rates or incentive bonus.
6. BASE RATE; MEANING.
In incentive wage system, the rate for the established task or job standard production is called
“base rate. ” The base rate usually represents the one hundred percent (100%) basis for measuring the
incentive bonus. It is also used to describe the regular rate for time worked which is the established rate
per hour for the assigned job, exclusive of extras resulting from merit or service increase or overtime,
among others.
7. OUTPUT RATES IN WORK PAID BY RESULTS; EFFECT IF DETERMINED BY
EMPLOYER OR BY DOLE.
The employer shall basically prescribe the output rates in work paid by results. He may
prescribe it himself or secure first the prior approval of the DOLE.
If the output rates are prescribed solely by the employer and the same do not conform with the
standards prescribed under the implementing rules, or with the rates prescribed by the DOLE in an
appropriate order, the employees are entitled to the difference between the amount which they are
entitled to receive under such prescribed standards or rates and that actually paid to them by the
employer.12
Moreover, if by multiplying the rate per piece as determined by the employer without the
approval of the DOLE and the actual output of the worker paid by results, the amount arrived at
conforms with or exceeds the statutory minimum wage, then such worker should receive such higher
amount. But if after such computation, the amount arrived at is less than the statutory minimum wage,
then, the employer should pay the difference in order to assure the worker of the statutory minimum
wage.
In the case of Framanlis Farms, Inc. v. Minister of Labor,13 the High Court ruled that
respondent Minister of Labor did not err in requiring the petitioners to pay wage differentials to their
“pakyaw” workers who worked for at least eight (8) hours daily and earned less than P8.00 per day.
The same thing may not be said if the output rates are prescribed by the DOLE, in which case, the
employer is duty-bound to follow it. Consequently, the wages of workers paid by results under this situation are
determined by simply multiplying the number of pieces produced by the rate fixed per piece. Consequently,
whether or not the eight-hour normal working hours is exceeded or that the total output is equivalent to, more
than or less than the statutory minimum wage, is immaterial. What is material is the actual output or earnings
for that particular day.
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Chapter Five
MANAGEMENT PREROGATIVES
TOPICS PER SYLLABUS
D. Grant of Bonus
D.
GRANT OF BONUS
1. GENERAL RULE; NOT DEMANDABLE OR ENFORCEABLE.
Bonus, as a general rule, is an amount granted and paid ex gratia to the employee. Its payment
constitutes an act of enlightened generosity and self-interest on the part of the employer rather than as a
demandable or enforceable obligation.1
It is an amount granted and paid to an employee for his industry and loyalty which contributed
to the success of the employer’s business and made possible the realization of profits.2 It is something
given in addition to what is ordinarily received by or strictly due the recipient.3
It is a gratuity or act of liberality of the giver which the recipient has no right to demand as a
matter of right.4 Its grant is a management prerogative.5 It cannot be forced upon the employer who
may not be obliged to assume the onerous burden of granting bonuses or other benefits aside from the
employees’ basic salaries or wages. It is something given in addition to what is ordinarily received by,
or strictly due to, the recipient.6
If there is no profit, there should be no bonus. If profit is reduced, bonus should likewise be
reduced, absent any agreement making such bonus part of the compensation of the employees.7
2. BONUS; WHEN DEMANDABLE AND ENFORCEABLE.
Notwithstanding the fact that a bonus does not form part of the wage or salary of the
employees, it becomes demandable and enforceable under any of the following circumstances:
1. When it is stipulated in an employment contract or CBA;
2. When the grant of bonus is a company policy or practice;8
3. When it is granted as an additional compensation which the employer agreed to give
without any condition such as success of business or more efficient or more productive
operation and, thus, must be deemed part of wage or salary; hence, demandable.9
It thus becomes a demandable and enforceable obligation only when it is made part of the
wage or salary or compensation. When considered as part of the compensation and, therefore,
demandable and enforceable, the amount is usually fixed. But if the amount of bonus isdependent
upon the realization of profits, the bonus is not demandable and enforceable.10
3. FORFEITURE OF BONUS.
 It is valid for an employer to establish as policy that once an employee is found guilty of an
administrative charge, he shall forfeit his bonus in favor of the employer.
In the case of Republic Planters Bank, now known as PNB-Republic Bank v. NLRC,11 the
Supreme Court recognized as valid the forfeiture of the 1988 mid-year and year-end bonus of an
employee who was found guilty of an administrative charge in 1988, in accordance with the existing
company policy of the employer.
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Chapter Five
MANAGEMENT PREROGATIVES
TOPICS PER SYLLABUS
E. Change of Working Hours

E.
CHANGE OF WORKING HOURS

1. PREROGATIVE TO CHANGE WORKING HOURS.

Employers have the freedom and prerogative, according to their discretion and best judgment,
to regulate and control the time when workers should report for work and perform their respective
functions.1
2. ILLUSTRATIVE CASES.
Sime Darby Pilipinas, Inc. v. NLRC. 2 - The exercise of this prerogative is best exemplified
in this case where it was held that management retains the prerogative to change the working hours of its
employees whenever exigencies of the service so require.
Manila Jockey Club Employees Labor Union - PTGWO, v. Manila Jockey Club, Inc. 3 -
The validity of the exercise of the same prerogative to change the working hours was affirmed in this
case. It was found that while Section 1, Article IV of the CBA provides for a 7-hour work schedule
from 9:00 a.m. to 12:00 noon and from 1:00 p.m. to 5:00 p.m. from Mondays to Saturdays, Section 2,
Article XI thereof expressly reserves to respondent the prerogative to change existing methods or
facilities and to change the schedules of work. Consequently, the hours of work of regular monthly-
paid employees were changed from the original 9:00 a.m. to 5:00 p.m.schedule to 1:00 p.m. to 8:00
p.m. when horse races are held, that is, every Tuesday and Thursday. The 9:00 a.m. to 5:00 p.m. schedule
for non-race days was, however, retained. Respondent, as employer, cited the change in the program of horse
races as reason for the adjustment of the work schedule. It rationalized that when the CBA was signed, the horse
races started at 10:00 a.m. When the races were moved to 2:00 p.m. , there was no other choice for
management but to change the work schedule as there was no work to be done in the morning. Evidently, the
adjustment in the work schedule is justified.
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Chapter Five
MANAGEMENT PREROGATIVES
TOPICS PER SYLLABUS

F. Rules on Marriage Between Employees of Competitor-Employers

F.
RULES ON MARRIAGE BETWEEN EMPLOYEES OF COMPETITOR-EMPLOYERS
1. PREROGATIVE TO PRESCRIBE RULE ON MARRIAGE.
The employer has the prerogative to establish a policy on marriage. Jurisprudence has
recognized and established some definitive standards to determine whether such marital policy is valid
or not.
2. RULE AGAINST MARRIAGE, WHEN VALID.
In the case of Duncan Association of Detailman-PTGWO v. Glaxo Welcome Philippines,
Inc. ,1 the contract of employment expressly prohibited an employee from having a relationship with an
employee of a competitor company. It provides:
“10. You agree to disclose to management any existing or future relationship you
may have, either by consanguinity or affinity with co-employees or employees of
competing drug companies. Should it pose a possible conflict of interest in management
discretion, you agree to resign voluntarily from the Company as a matter of Company
policy.”
The Supreme Court ruled that this stipulation is a valid exercise of management prerogative. The
prohibition against personal or marital relationships with employees of competitor-companies upon its
employees is reasonable under the circumstances because relationships of that nature might
compromise the interests of the company. In laying down the assailed company policy, the employer
only aims to protect its interests against the possibility that a competitor company will gain access to its
trade secrets, manufacturing formulas, marketing strategies and other confidential programs and
information.
3. RULE AGAINST MARRIAGE, WHEN NOT VALID.
Article 136 of the Labor Code considers as an unlawful act of the employer to stipulate, as a
condition of employment or continuation of employment, that a woman employee shall not get
married, or that upon getting married, a woman employee shall be deemed resigned or separated. It is
likewise an unlawful act of the employer, to actually dismiss, discharge, discriminate or otherwise
prejudice a woman employee merely by reason of her marriage.2
In PT & T v. NLRC,3 it was held that a company policy of not accepting or considering as
disqualified from work any woman worker who contracts marriage runs afoul of the test of, and the
right against, discrimination afforded all women workers by our labor laws and by no less than the
Constitution.4
In a case decided by the Office of the President,5 Zialcita v. Philippine Airlines, Inc.,6 the
stipulation in the contract between PAL and the flight attendant which states that “flight attendant-
applicants must be single and that they shall be automatically separated from employment in the event
they subsequently get married” was declared null and void and cannot thus be enforced for being
contrary to Article 136 of the Labor Code and the protection-to-labor clause in the Constitution.
4. “REASONABLE BUSINESS NECESSITY RULE” AS APPLIED TO THE PROHIBITION
AGAINST MARRIAGE POLICY.
The employees in Star Paper Corp. v. Simbol,7 were terminated on various occasions, on the
basis of the following company policy promulgated in 1995, viz. :
“1. New applicants will not be allowed to be hired if in case he/she has [a] relative, up to
[the] 3 degree of relationship, already employed by the company.
rd

“2. In case two of our employees (both singles [sic], one male and another female)
developed a friendly relationship during the course of their employment and then
decided to get married, one of them should resign to preserve the policy stated above.”
According to the employer, said rule is only intended to carry out its no-employment-for-
relatives-within-the-third-degree-policy which is within the ambit of the prerogatives of management.
The Supreme Court, however, disagreed. It ruled that said policy failed to comply with the standard of
reasonableness which is being followed in our jurisdiction. The cases
of Duncan [supra] and PT&T [supra] instruct that the requirement of reasonableness must be clearly
established to uphold the questioned employment policy. The employer has the burden to prove the
existence of a reasonable business necessity. The burden was successfully discharged in Duncan but not in
PT&T. The High Court similarly did not find a reasonable business necessity in the case at bar. Thus, it
pronounced:
“Petitioners‟ sole contention that „the company did not just want to have two (2) or
more of its employees related between the third degree by affinity and/or consanguinity‟ is
lame. That the second paragraph was meant to give teeth to the first paragraph of the
questioned rule is evidently not the valid reasonable business necessity required by the
law.
 “It is significant to note that in the case at bar, respondents were hired after they were
found fit for the job, but were asked to resign when they married a co-employee.
Petitioners failed to show how the marriage of Simbol, then a Sheeting Machine Operator,
to Alma Dayrit, then an employee of the Repacking Section, could be detrimental to its
business operations. Neither did petitioners explain how this detriment will happen in the
case of Wilfreda Comia, then a Production Helper in the Selecting Department, who
married Howard Comia, then a helper in the cutter-machine. The policy is premised on the
mere fear that employees married to each other will be less efficient. If we uphold the
questioned rule without valid justification, the employer can create policies based on an
unproven presumption of a perceived danger at the expense of an employee‟ s right to
security of tenure.
“Petitioners contend that their policy will apply only when one employee marries a co-
employee, but they are free to marry persons other than co-employees. The questioned
policy may not facially violate Article 136 of the Labor Code but it creates a
disproportionate effect and under the disparate impact theory, the only way it could pass
judicial scrutiny is a showing that it is reasonable despite the discriminatory, albeit
disproportionate, effect. The failure of petitioners to prove a legitimate business concern in
imposing the questioned policy cannot prejudice the employee‟ s right to be free from
arbitrary discrimination based upon stereotypes of married persons working together in
one company.”

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Chapter Five
MANAGEMENT PREROGATIVES
TOPICS PER SYLLABUS
G. Post-Employment Ban
G.
POST-EMPLOYMENT BAN
1. RIGHT TO IMPOSE POST-EMPLOYMENT PROHIBITIONS.
The employer, in the exercise of its prerogative, may insist on an agreement with the
employee for certain prohibitions to take effect after the termination of their employer -employee
relationship.
The following stipulations in an employment contract are illustrative of the prohibitions
normally agreed upon by the employer and the employee:
1) Non-Compete or Non-Involvement Clause;
2) Forfeiture-for-Competition Clause or Compensation-for-Competition Clause;
3) Garden-Leave Clause;
4) Confidentiality and Non-Disclosure Clause;
5) Non-Solicitation Clause;
6) Non-Recruitment or Anti-Piracy Clause;
7) Inventions Assignment Clause (Intellectual Property Clause) .
I.
NON-COMPETE OR NON-INVOLVEMENT CLAUSE
1. FREEDOM TO CONTRACT.
The employer and the employee are free to stipulate in an employment contract prohibiting the
employee within a certain period from and after the termination of his employment, from:

(1) starting a similar business, profession or trade; or

(2) working in an entity that is engaged in a similar business that might compete with the
employer.
 The non-compete clause is agreed upon to prevent the possibility that upon an employee’s
termination or resignation, he might start a business or work for a competitor with the full
competitive advantage of knowing and exploiting confidential and sensitive information, trade
secrets, marketing plans, customer/client lists, business practices, upcoming products, etc. , which he
acquired and gained from his employment with the former employer. Contracts which prohibit an
employee from engaging in business in competition with the employer are not necessarily void for being
in restraint of trade.
2. PHILIPPINE JURISPRUDENCE ON THE NON-COMPETE CLAUSE.
The nature and extent to which a non-compete clause is legally allowed usually varies from
one jurisdiction to another. In the Philippines, several cases dating back to as early as 1910 have dealt
with issues on the validity of “non-compete” or “non-involvement” stipulations, also known
as Covenant Not to Compete (CNC) in an employment contract. In order to appreciate the principles
affecting this clause in our jurisdiction, the following cases of significance may be cited and are worth
looking into:

1. Carlos Gsell v. Pedro Koch;1

2. Anselmo Ferrazzini v. Carlos Gsell;2

3. William Ollendorf v. Ira Abrahamson (En Banc) ;3

4. G. Martini (Ltd. ) v. J. M. Glaiserman (En Banc) ;4

5. Alfonso del Castillo v. Shannon Richmond;5

6. Raquel P. Consulta v. CA, Pamana Philippines, Inc. ;6

7. Yusen Air and Sea Service Philippines, Inc. v. Villamor;7

8. Daisy B. Tiu v. Platinum Plans Philippines, Inc. 8

Two (2) cases dealing with the issue of jurisdiction over breach of the non-compete clause
have also been decided by the Supreme Court, namely:

1. Dai-Chi Electronics Manufacturing Corporation v. Hon. Villarama;9 and

2. Portillo v. Rudolf Lietz, Inc. 10

3. ILLUSTRATIVE CASE.
The most significant case that would broadly describe the historical development as well as
illustrate the legal complications and implications of a non-compete clause is the 2007 case of Daisy
B. Tiu v. Platinum Plans Philippines, Inc. ,11 where the non-compete clause (called “Non-Involvement
Provision” in this case) in the employment contract stipulates as follows:
“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.”

Starting on January 1, 1993, petitioner worked for respondent as Senior Assistant Vice-
President and Territorial Operations Head in charge of its Hongkong and Asean operations under a 5-
year contract of employment containing the afore-quoted clause. 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. Respondent alleged, among
others, that petitioner’s employment with Professional Pension Plans, Inc. violated the above-quoted
non-involvement clause in her contract of employment. Respondent thus prayed for P100,000 as
compensatory damages;P200,000 as moral damages; P100,000 as exemplary damages; and 25% of
the total amount due plus P1,000 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.
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.
In affirming the validity of the Non-Involvement Clause, the Supreme Court ratiocinated as
follows:
“Petitioner avers that the non-involvement clause is offensive to public policy since the
restraint imposed is much greater than what is necessary to afford respondent a fair and
reasonable protection. She adds that since the products sold in the pre-need industry are more
or less the same, the transfer to a rival company is acceptable. Petitioner also points out that
respondent did not invest in her training or improvement. At the time she joined respondent,
she already had the knowledge and expertise required in the pre-need industry. Finally, petitioner
argues that a strict application of the non-involvement clause would deprive her of the right to
engage in the only work she knows.
“Respondent counters that the validity of a non-involvement clause has been sustained
by the Supreme Court in a long line of cases. It contends that the inclusion of the two-year
non-involvement clause in petitioner‟ s contract of employment was reasonable and needed
since her job gave her access to the company‟ s confidential marketing strategies.
Respondent adds that the non-involvement clause merely enjoined her from engaging in
pre-need business akin to respondent‟ s within two years from petitioner‟ s separation from
respondent. She had not been prohibited from marketing other service plans.
“As early as 1916, we already had the occasion to discuss the validity of a non-
involvement clause. In Ferrazzini v. Gsell,12 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,13 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,14 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 alimitation upon either
time or place and the restraint upon one party is not greater than the protection the other party
requires.
“Finally, in Consulta v. Court of Appeals,15 we considered a non-involvement clause
in accordance with Article 1306 of the Civil Code. While the complainant in that case was
an independent agent and not an employee, she was prohibited for one year from engaging
directly or indirectly in activities of other companies that compete with the business of her
principal. We noted therein that the restriction did not prohibit the agent from engaging in any
other business, or from being connected with any other company, for as long as the
business or company did not compete with the principal‟ s business. Further, the prohibition
applied only for one year after the termination of the agent‟ s contract and was therefore
a reasonable restriction designed to prevent acts prejudicial to the employer.
“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 alsolimited 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. In sum, we find the non-involvement clause not contrary to public welfare
and not greater than is necessary to afford a fair and reasonable protection to
respondent.
“In any event, Article 1306 of the Civil Code provides that parties to a contract may
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.
“Article 1159 of the same Code also provides that obligations arising from contracts have
the force of law between the contracting parties and should be complied with in good faith.
Courts cannot stipulate for the parties nor amend their agreement where the same does not
contravene law, morals, good customs, public order or public policy, for to do so would be to alter
the real intent of the parties, and would run contrary to the function of the courts to give force
and effect thereto. Not being contrary to public policy, the noninvolvement clause, which
petitioner and respondent freely agreed upon, has the force of law between them, and thus,
should be complied with in good faith.
“Thus, as held by the trial court and the Court of Appeals, petitioner is bound to pay
respondent P100,000 as liquidated damages. While we have equitably reduced liquidated
damages in certain cases, 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.” 16

I.
OTHER POST-EMPLOYMENT PROHIBITIONS
1. FORFEITURE-FOR-COMPETITION CLAUSE.
 “Forfeiture-for-Competition Clause” is a stipulation in an employment contract wherein an
employee forfeits certain benefits like stock option or incentive bonus or deferred compensation to
which an employee would have

been entitled because of his act of engaging in competitive employment or activities after
termination of his employment.

2. COMPENSATION-FOR-COMPETITION CLAUSE.

“Compensation-for-Competition Clause” is a provision in an employment contract which

requires the payment by the employee of some amount of money to his former employer in order to
engage in competitive employment or activities after termination of his employment. This is also
known as a "clawback" provision.

These two kinds of clauses may be combined for greater protection of the employer’s
interests.
3. GARDEN-LEAVE CLAUSE.
A “Garden-Leave Clause” is a variant of the non-compete agreement. Under this provision,
an employee who has left his work either by reason of termination or resignation is bound to stay at
home or in his “garden” during the garden-leave period at which time, he continues to receive all his
salaries and benefits but is prohibited from commencing employment with new employers until this
period has elapsed. He thus remains subject to all the strictures of his former employer as if he is still
under employment with the latter. The term “garden leave” is based on the old-fashioned and
attractive idea that the employee will be paid his salaries and benefits while he tends to his “garden” at
home.
4. CONFIDENTIALITY AND NON-DISCLOSURE CLAUSE.
The confidentiality and non-disclosure clause reflects the commitment of the employee that he shall
not, either during the period of his employment with the employer or at any time thereafter, use or disclose to
any person, firm or corporation any information concerning the business or affairs of his employment, for
his own benefit or to the detriment of the employer. This clause may also cover Former Employer
Information andThird Party Information.
5. NON-SOLICITATION CLAUSE.
To protect the legitimate business interests of the employer, including its business
relationships, the employee under this clause, may, directly or indirectly, be prohibited from soliciting or
approaching, or accept any business from any person or entity who shall, at any time within a fixed period
preceding the termination of his employment, have been (a) a client, talent, producer, designer, programmer,
distributor, merchandiser, or advertiser of the Company, (b) a party or prospective party to an agreement with
the employer, or (c) a representative or agent of any client, talent, producer, designer, programmer,
distributor, merchandiser, or advertiser of the employer for the purpose of offering to that person or entity
goods or services which are of the same type as or similar to any goods or services supplied by the employer at
termination.
6. NON-RECRUITMENT OR ANTI-PIRACY CLAUSE.
This clause prohibits the recruitment by the employee of personnel or employees of the
employer for a certain period after his termination of employment, either on his own account or in
conjunction with or on behalf of any other person.
7. INVENTIONS ASSIGNMENT CLAUSE (INTELLECTUAL PROPERTY CLAUSE) .
In industries engaged in research and development and related activities, this clause requires
the employee, within a certain period, to disclose in confidence to the employer and its subsidiaries and
to assign all inventions, improvements, designs, original works of authorship, formulas, processes,
compositions of matter, computer software programs, databases, mask works and trade secrets, whether
or not patentable, copyrightable or protectible as trade secrets (collectively, the “Inventions”) , which
the employee may solely or jointly conceive or develop or reduce to practice, or cause to be conceived or
developed or reduced to practice, during the period of his employment with the employer.

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