G.R. No.

153674 December 20, 2006

AVON COSMETICS, INCORPORATED and JOSE MARIE FRANCO, petitioners,

vs.
LETICIA H. LUNA, respondent.

ISSUE: Whether or not the inclusion of the exclusivity clause in the terms and condition of the agreement
between herein parties is a valid exercise of management prerogative

FACTS: Being a supervisor and make up artist of herein petitioner Avon Cosmetics, herein respondent, Leticia
Luna entered into a Supervisor agreement with the former. Said agreement contains among others a so called
“exclusivity clause” which states as follows: That the Supervisor shall sell or offer to sell, display or promote only
and exclusively products sold by the Company. Soon after said agreement took effect, Luna, impelled by a legal
opinion of a lawyer that the stipulation in question was invalid for being contrary to public policy continued after
accepting the offer to be the Group Franchise Director of Sandré Philippines, Inc. – a newly formed business
which is also engaged in direct-selling. Alleging that the said subsequent engagement of Luna was a violation of
the agreement, Avon cosmetics notified Luna of the termination or cancellation of the agreement which prompted
Latter to file a complaint for damages.

RULINGS: Yes, the inclusion of the exclusivity clause in the terms and condition of the agreement between
herein parties is a valid exercise of management prerogative. According to the court, restrictions upon trade may
be upheld when not contrary to public welfare and not greater than is necessary to afford a fair and reasonable
protection to the party in whose favor it is imposed. Even contracts which prohibit an employee from engaging in
business in competition with the employer are not necessarily void for being in restraint of trade.

In sum, contracts requiring exclusivity are not per se void. Each contract must be viewed vis-à-vis all the
circumstances surrounding such agreement in deciding whether a restrictive practice should be prohibited as
imposing an unreasonable restraint on competition.

Applying the preceding principles to the case at bar, there is nothing invalid or contrary to public policy either in
the objectives sought to be attained by paragraph 5, i.e., the exclusivity clause, in prohibiting respondent Luna,
and all other Avon supervisors, from selling products other than those manufactured by petitioner Avon. We
quote with approval the determination of the U.S. Supreme Court in the case of Board of Trade of Chicago v.
U.S.26 that "the question to be determined is whether the restraint imposed is such as merely regulates and perhaps
thereby promotes competition, or whether it is such as may suppress or even destroy competition."

Such prohibition is neither directed to eliminate the competition like Sandré Phils., Inc. nor foreclose new entrants
to the market. In its Memorandum, it admits that the reason for such exclusion is to safeguard the network that it
has cultivated through the years. Admittedly, both companies employ the direct selling method in order to peddle
their products. By direct selling, petitioner Avon and Sandre, the manufacturer, forego the use of a middleman in
selling their products, thus, controlling the price by which they are to be sold. The limitation does not affect the
public at all. It is only a means by which petitioner Avon is able to protect its investment.

Doctrine: An employer may validly restrict its employees engagement in other employment or business provided
that it is not contrary to public policy and done to protect its interest.