03 Portillo v. Rudolf Lietz, Inc.

NOTES: Reiterated the San Miguel case

[G.R. No. 196539. October 10, 2012]
TOPIC: Labor Dispute
PONENTE: Perez, J.
CASE LAW/ DOCTRINE: No all labor disputes fall within the jurisdiction of the labor tribunal. The claim for violation of a
goodwill clause is a money claim based on an act done after the cessation of the employment relationship, the jurisdiction over
which rests on the regular courts.
Emergency Recit: Portillo was hired by RLI under an employment contract which contained a goodwill clause, prohibiting her for
a period of 3 years after the termination of her employment contract to engage directly or indirectly in a similar or competitive
business. The breach of the clause shall make her liable for liquidated damages. Portillo was hired by Ed Keller, a direct competitor
of RLI after her resignation. Portillo filed money claims against RLI for unpaid salaries but RLI claimed legal compensation,
alleging that Portillo’s claims must be set off by its claim for liquidated damages. CA agreed that legal compensation must be
allowed since both claims arose out of the employment contract. SC ruled that set-off cannot be allowed because there is no
reasonable causal connection between the claims for unpaid wages and liquidated damages, the former falling within the
jurisdiction of the labor tribunal and the latter within the regular court’s jurisdiction for being a civil case of breach of contract.
FACTS:
 Marietta Portillo was hired by Rudolf Lietz, Inc. (RLI). Under a letter agreement dated May 1991, Portillo agreed not to
engage in any other gainful employment by herself or with any other company either directly or indirectly without the
written consent of RLI.
 On her 10th year with RLI (2002), Portillo was promoted to Sales Representative. In this regard, Portillo signed another
letter agreement containing a “Goodwill Clause”: It remains understood and you agreed that, on the termination of
your employment by act of either you or [Lietz Inc.], and for a period of three (3) years thereafter, you shall not engage
directly or indirectly as employee, manager, proprietor, or solicitor for yourself or others in a similar or competitive
business or the same character of work which you were employed by [Lietz Inc.] to do and perform. Should you breach
this good will clause of this Contract, you shall pay [Lietz Inc.] as liquidated damages the amount of 100% of your
gross compensation over the last 12 months, it being agreed that this sum is reasonable and just.”
 3 years after, Portillo resigned and declared that she intended to engage rice dealership.
 RLI accepted Portillo’s resignation and reminded her of the “Goodwill Clause”. However, Portillo claimed that the
latest contract she signed in Feb. 2004 did not contain a Goodwill Clause.
 RLI subsequently learned that Portillo had been hired by Ed Keller Philippines, Ltd., its direct competitor, to head its
Pharma Raw Material Department.
 Meanwhile, as her demands from RLI for the payment of her remaining salaries and commissions went unheeded,
Portillo filed a complaint with the NLRC for non- payment of 1 ½ months’ salary, 2 months’ commission, 13th month
pay, and other damages.
 Although RLI admitted liability for Portillo’s money claims in the total amount of P110,662.16, it raised the defense of
legal compensation; that Portillo’s money claims should be offset against her liability to RLI for liquidated damages in
the amount of P869,633.097 for the alleged breach of the “Goodwill Clause” in the employment contract when she
became employed with Ed Keller Philippines, Ltd.
 The Labor Arbiter, NLRC, and the CA granted Portillo’s money claims against RLI.
 On MR however, the CA modified its previous decision and allowed the legal compensation or set-off of her money
claims by her liability for liquidated damages arising from the violation of the “Goodwill Clause”.
 CA’s contention: There is a causal connection between Portillo’s money claims and RLI’s claim for liquidated damages
[since the claim for liquidated damages arose from the “Goodwill Clause of the employment contract, it is therefore a
claim for damages arising from the employer-employee relations].
ISSUE: Whether the Labor Tribunal has jurisdiction over the dispute
HELD: No, the regular courts have jurisdiction over a civil case of breach of contract.
RATIO:
 In Dai-Chi Electronics Manufacturing Corporation v. Villarama, Jr., the Court ruled that the “Goodwill Clause”,
with a stipulation that a violation thereof makes the employee liable to his former employer for liquidated damages,
refers to post-employment relations of the parties. In accordance with jurisprudence, breach of the undertaking is a
civil law dispute, not a labor law case.
 Here, there should likewise be no argument that the Goodwill Clause is a post-employment issue. There is no dispute
as to the cessation of Portillo’s employment with RLI. She simply claims her unpaid salaries and commissions,
which RLI does not contest. At that juncture, Portillo was no longer an employee of RLI.
 It is clear, therefore, that while Portillo’s claim for unpaid salaries is a money claim that arises out of or in
connection with an employer-employee relationship, RLI’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 RLI’s claim rests on the regular courts.
 In the case at bar, the difference in the nature of the credits that one has against the other, conversely, the nature of
the debt one owes another, which difference in turn results in the difference of the forum where the different credits
can be enforced, prevents the application of compensation. Simply, the labor tribunal in an employee’s claim for
unpaid wages is without authority to allow the compensation of such claims against the post employment claim of
the former employer for breach of a post employment condition. The labor tribunal does not have jurisdiction over
the civil case of breach of contract.
 There is no causal connection between the petitioner employees’ claim for unpaid wages and the respondent
employers’ claim for damages for the alleged “Goodwill Clause” violation. Portillo’s claim for unpaid salaries did
not have anythingto do with her alleged violation of the employment contract as, in fact, her separation from
employment is not “rooted” in the alleged contractual violation. She resigned from her employment. She was not
dismissed. Portillo’s entitlement to the unpaid salaries is not even contested. Indeed, RLI’s argument about legal
compensation necessarily admits that it owes the money claimed by Portillo. The alleged contractual violation did
not arise during the existence of the employer-employee relationship. It was a post- employment matter, a post-
employment violation.