e_management_prerogatives.pdf

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LABOR LAW: E. MANAGEMENT PREROGATIVES

Prof. Joselito Guianan Chan

LAST-MINUTE NOTES ON THE 2012 BAR EXAMINATION IN LABOR LAW BASED ON THE

SUPREME COURT-PRESCRIBED SYLLABUS


E. MANAGEMENT PREROGATIVES [These 8-part Notes discuss all topics/sub-topics in the Supreme Court-prescribed Syllabus for Labor Law] ========================================================================

TOPICS UNDER THE SYLLABUS E. MANAGEMENT PREROGATIVES

1. Discipline 2. Transfer of employees 3. Productivity standard 4. Grant of Bonus 5. Change of working hours 6. Marital discrimination 7. Post-employment ban 8. Limitations in its exercise

-------------------------------------------------------------------------------------------------------------------------------------------- ============================= TOPIC UNDER THE SYLLABUS: E. MANAGEMENT PREROGATIVES ============================= 1. MANAGEMENT RIGHTS AND PREROGATIVES.

a. 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

Employers have the freedom and prerogative, according to their discretion and best judgment, to regulate and control all aspects of employment in their business organizations. 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 in the Labor Arbiters nor in the different divisions of the NLRC, nor in the courts, managerial authority. 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

============================= TOPIC UNDER THE SYLLABUS: E. MANAGEMENT PREROGATIVES 8. Limitations in its exercise ============================= 1. LIMITATIONS IN IITS EXERCISE.

a. Limitations on the exercise of management prerogatives. The exercise of management prerogative is subject to the following: 1. Limitations imposed by:

a. law; b. CBA;

1 Deles, Jr. v. NLRC, G.R. No. 121348, March 9, 2000; Castillo v. NLRC, G.R. No. 104319, June 17, 1999; Autubus Workers’ Union v. NLRC, G.R. No. 117453, June 26, 1998, 291 SCRA 219, 228. 2 Mendoza v. Rural Bank of Lucban, G.R. No. 155421, 07 July 2004. 3 Philippine Airlines, Inc. v. NLRC, G.R. No. 115785, Aug. 4, 2000; OSS Security and Allied Services, Inc. v. NLRC, G.R. No. 112752, Feb. 9, 2000, 325 SCRA 157. 4 Coca-Cola Bottlers Philippines,Inc. v. Del Villar, G.R. No. 163091, Oct. 6, 2010; Philippine Industrial Security Agency Corporation v. Aguinaldo, G.R. No. 149974, June 15, 2005. 5 Valiao v. Hon. CA, G.R. No. 146621, July 30, 2004.

ChanRobles Internet Bar Review : ChanRobles Professional Review, Inc.

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2 LABOR LAW: E. MANAGEMENT PREROGATIVES


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 2. It should be done in good faith and with due regard to the right of labor.9 Ineluctably, the exercise of management prerogatives is not absolute. The prerogatives accorded 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 ============================= TOPIC UNDER THE SYLLABUS: E. MANAGEMENT PREROGATIVES 1. Discipline ============================= 1. PREROGATIVE TO DISCIPLINE.

a. 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 his 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.11

The employer cannot be compelled to maintain in his employ the undeserving, if not undesirable, employees.12 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.13 3. RIGHT TO DISMISS.

The right of the employer to dismiss its erring employees is a measure of self‐protection.14 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 privileges 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.15 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.16 6 Coca-Cola Bottlers Philippines,Inc. v. Del Villar, G.R. No. 163091, Oct. 6, 2010; The Philippine American Life and General Insurance Co. v. Gramaje, G.R. No. 156963, Nov. 11, 2004. 7 Farrol v. CA, [G.R. No. 133259, February 10, 2000]; Associated Labor Unions-TUCP v. NLRC, G.R. No. 120450, Feb. 10, 1999. 8 Pantranco North Express, Inc. v. NLRC, G.R. No. 106516, Sept. 21, 1999. 9 Unicorn Safety Glass, Inc. v. Basarte, G.R. No. 154689, Nov. 25, 2004. 10 Philippine Airlines, Inc. v. Pascua, G.R. No. 143258, Aug. 15, 2003, 409 SCRA 195. 11 Deles, Jr. v. NLRC, G.R. No. 121348, March 9, 2000; Philippine Airlines, Inc. v. NLRC, G.R. No. 115785, Aug. 4, 2000. 12 Shoemart, Inc. v. NLRC, G.R. No. 74229, Aug. 11, 1989. 13 St. Michael’s Institute v. Santos, G.R. No. 145280, Dec. 4, 2001. 14 Reyes v. Minister of Labor, G.R. No. 48705, Feb. 9, 1989; Filipro, Inc. v. NLRC, G.R. No. 70546, Oct. 16, 1986. 15 Sime Darby Pilipinas, Inc. v. NLRC, G. R. No. 119205, April 15, 1998; PLDT v. Pingol, G.R. No. 182622, Sept. 8, 2010; Maribago Bluewater Beach Resort, Inc. v. Dual, G.R. No. 180660, July 20, 2010. 16 Soriano v. NLRC, G.R. No. 75510, Oct. 27, 1987.



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5. RIGHT TO PRESCRIBE COMPANY RULES AND REGULATIONS. 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.17

6. RIGHT TO IMPOSE PENALTY; PROPORTIONALITY RULE.

The employer may lawfully impose appropriate penalties on erring workers pursuant to its company rules and

regulations.18 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.19 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.20 7. RIGHT TO CHOOSE WHICH PENALTY TO IMPOSE.

The matter of imposing the appropriate penalty depends on the employer. It Is certainly within the petitioner’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.21 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.22

In Cruz v. Coca‐Cola Bottlers Phils., Inc., [G.R. No. 165586, June 15, 2005], 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.

============================= TOPIC UNDER THE SYLLABUS: E. MANAGEMENT PREROGATIVES 2. Transfer of employees ============================= 1. PREROGATIVE TO TRANSFER EMPLOYEES.

a. Concept. A transfer means a movement: 1. From one position to another of equivalent rank, level or salary, without a break in the service;23 or 2. From one office to another within the same business establishment.24

b. Some principles on transfer of employees. 1. 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,

17 Phimco Industries, Inc. v. NLRC, G.R. No. 118041, June 11, 1997. 18 Philippine Airlines, Inc. v. NLRC, G.R. No. 115785, Aug. 4, 2000, 337 SCRA 286. 19 Farrol v. CA, G.R. No. 133259, Feb. 10, 2000; Manila Memorial Park Cemetery, Inc. v. Panado, G.R. No. 167118, June 15, 2006. 20 Felix v. NLRC, G.R. No. 148256, Nov. 17, 2004; Gutierrez v. Singer Sewing Machine Company, G.R. No. 140982, Sept. 23, 2003. 21 China Banking Corporation v. Borromeo, [G.R. No. 156515, October 19, 2004]. 22 Stanford Microsystems, Inc. v. NLRC, [G.R. No. L-74187, January 28, 1988]. 23 Coca-Cola Bottlers Philippines,Inc. v. Del Villar, G.R. No. 163091, Oct. 6, 2010. 24 Sentinel Security Agency, Inc. v. NLRC, G.R. No. 122468, Sept. 3, 1998; Blue Dairy Corporation v. NLRC, G.R. No. 129843, Sept. 14, 1999.



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and the action is not motivated by discrimination, made in bad faith, or effected as a form of punishment or demotion without sufficient cause.25

2. The Court cannot look into the wisdom of the transfer of an employee.26 3. Commitment made by the employee in the employment contract to be reassigned anywhere in the

Philippines is binding on him.27 4. Even if the employee is performing well in his present assignment, management may reassign him to a new

post.28 5. 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 an employer becomes unbearable to the employee leaving him with no option but to forego with his continued employment.29 More specifically, the following three (3) conditions must concur in order for the transfer to be considered as constructive dismissal: a. When the transfer is unreasonable, inconvenient or prejudicial to the employee; b. When the transfer involves a demotion in rank or diminution of salaries, benefits and other privileges;

and c. 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.30 6. Transfer made in compliance with a government order does not amount to constructive dismissal.31 7. Burden of proof in transfer cases is on the employer.32 8. 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.33

9. 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.34

10. 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.35 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.36

11. Refusal to transfer due to parental obligations, additional expenses, inconvenience, hardship and anguish, held not valid. An employee could not validly refuse lawful orders to transfer based on these grounds.37

12. Refusal to transfer to overseas assignment is valid.38 13. Refusal to transfer consequent to promotion is valid.39 14. Transfer pursuant to the company policy of preventing connivance is valid.40 15. Transfer in accordance with pre‐determined and established office policy and practice is valid.41 16. 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.42 17. Transfer due to the standard operating procedure of rotating employees from the day shift to the night

shift is valid.43 18. Transfer to avoid conflict of interest is valid.44 19. A transfer from one position to another occasioned by the abolition of the position is valid.45 20. Reassignment and transfer pending investigation of irregularities is valid.46

2. OTHER RELATED PREROGATIVES.

Other rights and prerogatives closely related to the right to transfer are the following: 1. Prerogative to reorganize;

25 Pharmacia and Upjohn, Inc. v. Albayda, Jr., G.R. No. 172724, Aug. 23, 2010. 26 Id. 27 Id. 28 Id.; See also Abbott Laboratories (Phils.), Inc. v. NLRC, [G.R. No. L-76959, October 12, 1987, 154 SCRA 713]. 29 Floren Hotel v. NLRC, G.R. No. 155264, May 6, 2005; Mendoza v. Rural Bank of Lucban, G.R. No. 155421, July 7, 2004; Suldao v. Cimech System Construction, Inc., G.R. No. 171392, Oct. 30, 2006; Blue Dairy Corporation v. NLRC, G.R. No. 129843, Sept. 14, 1999, 314 SCRA 401. 30 Tinio v. CA, G.R. No. 171764, June 8, 2007; Mendoza v. Rural Bank of Lucban, G.R. No. 155421, July 7, 2004. 31 Bisig Manggagawa sa Tryco v. NLRC, [G.R. No. 151309, October 15, 2008]. 32 (The Philippine American Life and General Insurance Co. v. Gramaje, G. R. No. 156963, Nov. 11, 2004; Suldao v. Cimech System Construction, Inc., G.R. No. 171392, Oct. 30, 2006. 33 OSS Security & Allied Services, Inc. v. NLRC, G.R. No. 112752, Feb. 9, 2000; See also Tan v. NLRC, G.R. No. 128290, Nov. 24, 1998, 299 SCRA 169, 180. 34 Yuco Chemical Industries, Inc. v. Ministry of Labor and Employment, [G.R. No. 75656, May 28, 1990]. 35 Pharmacia and Upjohn, Inc. v. Albayda, Jr., G.R. No. 172724, Aug. 23, 2010; San Miguel Corp. v. Pontillas, G.R. No. 155178, May 7, 2008. 36 Abbott Laboratories, Inc. v. NLRC, [G.R. No. 76959, October 12, 1987]. 37 Allied Banking Corporation v. CA, G.R. No. 144412, Nov. 18, 2003; Homeowners Savings and Loan Association, Inc. v. NLRC, G.R. No. 97067, Sept. 26, 1996, 262 SCRA 406. 38 Allied Banking Corporation v. CA, [G.R. No. 144412, November 18, 2003]; Dosch v. NLRC, [G.R. No. L-51182, July 5, 1983, 208 Phil. 259; 123 SCRA 296]. 39 Dosch v. NLRC, [supra]. 40 Cinema, Stage and Radio Entertainment Free Workers v. CIR, G.R. No. L-19879, Dec. 17, 1966, 18 SCRA 1068. 41 Philippine Industrial Security Agency v. Dapiton, G.R. No. 127421, Dec. 8, 1999, 320 SCRA 124, 138. 42 Allied Banking Corporation v. CA, [G.R. No. 144412, November 18, 2003]. 43 Castillo v. CIR, G.R. Nos. L-26124 and L-32725, May 29, 1971, 39 SCRA 75. 44 Duncan Association of Detailman-PTGWO v. Glaxo Welcome Philippines, Inc., [G.R. No. 162994, September 17, 2004]. 45 Benguet Electric Cooperative v. Fianza, G.R. No. 158606, March 9, 2004; Equitable Banking Corporation v. NLRC, G.R. No. 102467, June 13, 1997, 339 Phil. 541. 46 Duldulao v. The CA and Baguio Colleges Foundation, [G.R. No. 164893, March 1, 2007]; Consolidated Food Corp. v. NLRC, G.R. No. 118647, Sept. 23, 1999, 315 SCRA 129; 373 Phil. 751, 762.



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2. Prerogative to promote; and 3. Prerogative to demote. The exercise of these three (3) prerogatives obviously result in the transfer of employees.

2.1. RIGHT 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 policy 47 and it is carried out in good faith.48 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.49 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.50

In the 2010 case of, it was pronounced that a job‐evaluation program is valid if the employer has not acted in bad faith and it was not intended to circumvent the law and deprive the affected employees of the benefits they are supposed to receive. The job evaluation program was undertaken to streamline respondent’s operations and to place its employees in their proper positions or groupings. A perusal of the CBAs of the parties showed that it merely provided the procedure for the implementation of the job evaluation and did not guarantee any adjustment in the salaries of the employees. 2.2. 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.51 b. Distinction between transfer and 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.52

c. Some principles on promotion. 1. 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.53

2. 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.54

3. 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.55

4. 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.56

2.3. 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.57

b. Some principles on demotion. 1. Demotion may result from transfer when the same results in reduction in position, rank or salary.58 2. 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.59 3. 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.

47 Hongkong and Shanghai Banking Corporation Employees Union v. NLRC, G.R. No. 125038, Nov. 6, 1997, 281 SCRA 509;See also Nagkahiusang Namumuo sa Dasuceco-National Federation of Labor (NAMADA-NFL) v. Davao Sugar Central Co., Inc., G.R. No. 145848, Aug. 0, 2006. 48 SCA Hygiene Products Corp. Employees Association-FFW v. SCA Hygiene Products Corp., [G.R. No. 182877, August 9, 2010]. 49 Arrieta v. NLRC, G.R. No. 126230, Sept. 18, 1997, 279 SCRA 326. 50 Ibid.. 51 Coca-Cola Bottlers Philippines,Inc. v. Del Villar, G.R. No. 163091, Oct. 6, 2010; Millares v. Subido, G.R. No. L-23281, Aug. 10, 1967, 20 SCRA 954, 127 Phil. 370, 378. 52 Millares v. Subido, G.R. No. L-23281, Aug. 10, 1967, 20 SCRA 954, 127 Phil. 370, 378. 53 Dosch v. NLRC, G.R. No. 51182, July 5, 1983; See also Erasmo v. Home Insurance & Guaranty Corporation, G.R. No. 139251, Aug. 29, 2002. 54 Philippine Telegraph & Telephone Corporation v. CA, G.R. No. 152057, Sept. 29, 2003. 55 Ibid.. 56 Nagkahiusang Namumuo sa Dasudeco-National Federation of Labor [NAMADA-NFL] v. Davao Sugar Central Co., Inc., [G.R. No. 145848, August 9, 2006]. 57 Coca-Cola Bottlers Philippines,Inc. v. Del Villar, G.R. No. 163091, Oct. 6, 2010; Tinio v. CA, G.R. No. 171764, June 8, 2007. 58 Philippine Wireless, Inc. [Pocketbell] v. NLRC, G.R. No. 112963, July 20, 1999; Brillantes v. Guevarra, G.R. No. L-22586, Feb. 27, 1969, 27 SCRA 138; Fernando v. Sto. Tomas, G.R. No. 112309, July 28, 1994, 234 SCRA 546; Coca-Cola Bottlers Philippines,Inc. v. Del Villar, [G.R.

No. 163091, October 6, 2010]. 59 Blue Dairy Corporation v. NLRC, G.R. No. 129843, Sept. 14, 1999; Quisaba v. Sta. Ines-Melale Veneer and Plywood, Inc., No. L-38088, Aug. 30, 1974, 58 SCRA 771.



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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.60

4. 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.61

5. 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.62

6. Demotion may be validly imposed due to failure to comply with productivity standards.63 7. Due process principle in termination cases applies to demotions.64 Simply put, even the employer’s right to

demote an employee requires the observance of the twin‐notice requirement.65 ============================= TOPIC UNDER THE SYLLABUS: E. MANAGEMENT PREROGATIVES 3. Productivity standards ============================= 1. PRODUCTIVITY STANDARDS OR QUOTA.

a. 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 for failure to meet the productivity standards or quota.

Leonardo v. NLRC, [G.R. No. 125303, June 16, 2000]66 The employer claims that the employee was demoted pursuant to a company policy intended to foster

competition among its employees. Under this scheme, its employees are required to comply with a monthly sales quota. Should a supervisor like Fuerte fail to meet his quota for a certain number of consecutive months, he will be demoted, whereupon his supervisor’s allowance will be withdrawn and be given to the individual who takes his place. When the employee concerned succeeds in meeting the quota again, he is re‐appointed supervisor and his allowance is restored. The Supreme Court said that this arrangement appears to be an allowable exercise of company rights. An employer is entitled to impose productivity standards for its workers and in fact, non‐compliance may be visited with a penalty even more severe than demotion. b. 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 Department of Labor and Employment 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.67

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.68

c. 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

60 Blue Dairy Corporation v. NLRC, [supra]. 61 Tinio v. CA, G.R. No. 171764, June 8, 2007; See also Rural Bank of Cantilan, Inc. v. Julve, [G.R. No. 169750, February 27, 2007]. 62 Petrophil Corporation v. NLRC, G.R. No. L-64048, Aug. 29, 1986; International Harvester Macleod, Inc. v. IAC, G.R. No. 73287, May 18, 1987. 63 Leonardo v. NLRC, [G.R. No. 125303, June 16, 2000] and Fuerte v. Aquino, [G.R. No. 126937, June 16, 2000]. 64 Leonardo v. NLRC, supra; Blue Dairy Corporation v. NLRC, supra; Jarcia Machine Shop and Auto Supply, Inc. v. NLRC, G.R. No. 118045, Jan. 2, 1997, 266 SCRA 97. 65 Floren Hotel v. NLRC, G.R. No. 155264, May 6, 2005; Jarcia Machine Shop and Auto Supply, Inc. v. NLRC, supra. 66 Fuerte v. Aquino, [G.R. No. 126937, June 16, 2000]. 67 Section 5 [a], Rule VII-A, Book III, Rules to Implement the Labor Code, as amended by Memorandum Circular No. 3, Nov. 4, 1992. 68 Section 7, Department Order No. 5 [Rule XIV, Book III, Rules to Implement the Labor Code.



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c. Consultation with representatives of employers’ and workers’ organizations in a tripartite conference called by the DOLE Secretary.

d. 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.69 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.70

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.71

e. 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.

f. 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.

g. 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 Department of Labor and Employment (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.72 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, [G.R. Nos. 72616‐17, March 8, 1989, 171 SCRA 87], 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. ============================= TOPIC UNDER THE SYLLABUS: E. MANAGEMENT PREROGATIVES 4. Grant of Bonus ============================= 1. BONUS.

a. 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

69 Section 5 [b], Rule VII-A, Book III, Rules to Implement the Labor Code, as amended by Memorandum Circular No. 3, Nov. 4, 1992. 70 Section 5 [c], Rule VII-A, Book III, Ibid.. 71 Section 7, Ibid. 72 Section 5 [d], Rule VII-A, Book III, Rules to Implement the Labor Code, as amended by Memorandum Circular No. 3, Nov. 4, 1992.



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obligation.73 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.74 It is something given in addition to what is ordinarily received by or strictly due the recipient.75 It is a gratuity or act of liberality of the giver which the recipient has no right to demand as a matter of right.76 Its grant is a management prerogative.77 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.78 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.79 b. 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;80 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.81

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 is dependent upon the realization of profits, the bonus is not demandable and enforceable.82 c. 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, [G.R. No. 117460, January 6, 1997], 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. ============================= TOPIC UNDER THE SYLLABUS: E. MANAGEMENT PREROGATIVES 5. 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.83 Sime Darby Pilipinas, Inc. v. NLRC, [G.R. No. 119205, April 15, 1998, 289 SCRA 86]. 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., [G.R. No. 167760, March 7,

2007]. The validity of the exercise of the same prerogative to change the working hours was affirmed in this case 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, however, expressly reserves on 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 was changed from 9:00 a.m. to 5:00 p.m. 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 employees’ 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 employees’ work schedule as there was no work to be done in the morning. Evidently, the adjustment in the work schedule of the employees is justified. 73 Producers Bank of the Philippines v. NLRC, G.R. No. 100701, March 28, 2001, 355 SCRA 489; Philippine Duplicators, Inc. v. NLRC, G.R. No. 110068, Feb. 15, 1995. 74 UST Faculty Union v. NLRC, G.R. No. 90445, Oct. 2, 1990, 190 SCRA 215; Philippine Education Co., Inc. v. CIR, G.R. No. L-5103, Dec. 24, 1952, 92 Phil. 381, 385. 75 Protacio v. Laya Mananghaya & Co., G.R. No. 168654, March 25, 2009. 76 Aragon v. Cebu Portland Cement Co., 61 O. G. 4597. 77 Producers Bank of the Philippines v. NLRC, G.R. No. 100701, March 28, 2001, 355 SCRA 489, 496. 78 Kamaya Point Hotel v. NLRC, G.R. No. 75289, Aug. 31, 1989, 177 SCRA 160. 79 Luzon Stevedoring Corporation v. Court of Industrial Relations, G.R. No. L-17411, Dec. 31, 1965. 80 Marcos v. NLRC, G.R. No. 111744, Sept. 8, 1995; Manila Electric Company v. Secretary of Labor, G.R. No. 127598, Jan. 27, 1999; Davao Fruits Corporation v. Associated Labor Unions, G.R. No. 85073, Aug. 24, 1993, 225 SCRA 562. 81 Atok Big Wedge Mining Co., Inc. v. Atok Big Wedge Mutual Benefit Association, G.R. No. L-5276, March 3, 1953, 92 Phil. 754. 82 Protacio v. Laya Mananghaya & Co., G.R. No. 168654, March 25, 2009; See also The Manila Banking Corporation v. NLRC, G.R. No. 107487, Sept. 29, 1997; 345 Phil. 105, 106. 83 Philippine Airlines, Inc. v. NLRC, G.R. No. 115785, Aug. 4, 2000; OSS Security and Allied Services, Inc. v. NLRC, G.R. No. 112752, Feb. 9, 2000, 325 SCRA 157.



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============================= TOPIC UNDER THE SYLLABUS: E. MANAGEMENT PREROGATIVES 6. Marital discrimination ============================= 1. MARITAL DISCRIMINATION.

a. Prerogative to prescribe rule on marriage. The employer has the prerogative to establish a policy on marriage. Jurisprudence has ruled on the

validity/invalidity of certain policies on marriage. b. Rule against marriage, when valid. In Duncan Association of Detailman‐PTGWO v. Glaxo Welcome Philippines, Inc., [G.R. No. 162994,

September 17, 2004], 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.

c. 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.84

In PT & T v. NLRC, [G.R. No. 118978, May 23, 1997, 272 SCRA 596, 605], 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.85

In a case decided by the Office of the President, Zialcita v. Philippine Airlines, Inc., [Case No. RO4‐3‐398‐76, February 20, 1977], the provision in a contract between an airline company and a 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 a null and void provision, hence, cannot be enforced for being contrary to Article 136 of the Labor Code and the protection‐to‐labor clause in the Constitution.

d. “Reasonable business necessity rule” as applied to the prohibition against marriage policy. The employees in the 2006 case of Star Paper Corp. v. Simbol, Comia and Estrella, [G.R. No. 164774, April 12,

2006], 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] 3rd

degree of relationship, already employed by the company. “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

84 See also Section 13 [e], Rule XII, Book III, Rules to Implement the Labor Code; Gualberto v. Marinduque Mining Industrial Corporation, C. A.-G.R. No. 52753-R, June 28, 1978. 85 Gualberto v. Marinduque Mining & Industrial Corporation, [supra].



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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.”

============================= TOPIC UNDER THE SYLLABUS: E. MANAGEMENT PREROGATIVES 7. Post-employment ban ============================= 1. POST EMPLOYMENT BAN. 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‐Competition Clause 2. Confidentiality and Non‐Disclosure Clause 3. Inventions Assignment Clause (Intellectual Property Clause) 4. Non‐Solicitation Clause 5. Non‐Recruitment Clause

2. NON‐COMPETITION CLAUSE.

a. Freedom to contract. According to Philippine jurisprudence, the employer and the employee are free to stipulate in an

employment contract prohibiting the employee within a certain number of years from the termination of his employment, from working in a business firm or corporation that is engaged in a similar business or that might compete with the 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.

In the language of Ferrassini v. Gsell,86 the question is whether, under the particular circumstances of the case and the nature of the particular contract involved in it, the contract is, or is not, unreasonable. A stipulation in an employment contract barring the employee from competing with the employer after termination of the employment is enforceable if it is reasonable and supported by a valuable consideration. There is no inflexible formula for deciding the ubiquitous question of reasonableness. Precedents are of little value because the question of reasonableness must be decided on an ad hoc basis. The question whether the agreement will be enforced is to be determined in view of the circumstances.

b. There must be limitation on the prohibition as to time and trade. A contract embodying such prohibition that is limited as to time and trade is considered reasonable and,

therefore, valid and enforceable. In Del Castillo v. Richmond,87 the Supreme Court observed that the law concerning contracts which tend to restrain business and trade has gone through a long series of changes from time to time with the changing conditions of trade and commerce. With trifling exceptions, said changes have been a continuous development of a general rule. The early cases show plainly a disposition to avoid and annul all contracts which prohibited or restrained any one from using a lawful trade at any time or at any place, as being against the benefit of the state. Later cases and the rule is now well‐established that a contract in restraint of trade is valid provided there is a limitation upon either time or place. A contract, therefore, which restrains a man from entering into a business or trade without either a limitation as to time or place will be held invalid. On the other hand, a contract may be limited in duration but not as to trade, rendering it unenforceable just the same for being unreasonable. In this connection, the Supreme Court in Ferrassini, [supra] said that the contract under consideration, tested by the law, rules and principles above set forth, is clearly one in undue or unreasonable 86 Ferrassini v. Gsell, G.R. No. 10712, August 10, 1966, 34 Phil. 697, 713, citing Gibbs v. Consolidated Gas Co. of Baltimore, [130 U.S. 396]. 87 G.R. No. 21127, February 9, 1924, 45 Phil. 679.



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restraint of trade and, therefore, against public policy. It is limited as to time and place but not as to trade. It is not necessary for the protection of the defendant, as this is provided for in another part of the clause. It would force the plaintiff to leave the Philippines in order to obtain a livelihood in case the defendant declined to give him the written permission to work elsewhere in this country.

c. Illustration of a Non‐Competition Clause. Following the discussion above, the following clause may be illustrative thereof:

“In consideration of the salary paid to the Employee by the Company, the Employee agrees that during the term of the Employment and for a period of one (1) year following the termination or expiration of this Agreement (for whatever reason):

a. the Employee will not approach clients, customers or contacts of the Company or other persons or entities introduced to the Employee in his/her capacity as a representative of the Company for purposes of doing business with such persons or entities and will not interfere with the business relationship between the Company and such persons and/or entities;

b. unless expressly consented to by the Company, the Employee will not assume employment with or provide services as a director or otherwise for any competitor of the Company, or engage, whether as principal, partner, licensor or otherwise, in any business which is in direct or indirect competition with the business of the Company and its subsidiaries. The Company shall compensate any Employee who, after termination of the employment, complies with the requirements set forth herein, in the amount of 50% of the Employee’s annual salary; and

c. unless expressly consented to by the Company, the Employee will not seek directly or indirectly, by the offer of alternative employment or other inducement whatsoever, to solicit the services of any employee of the Company and its subsidiaries employed as at or after the date of such termination, or in the year preceding such termination.

“The provisions provided in this Section shall be separate and severable, enforceable independently of each other, and independent of any other provision of this Agreement. “The provisions contained in this Section are considered reasonable by the Employee and the Company but, in the event that any such provisions should be found to be void under applicable laws but would be valid if some part thereof was deleted or the period or area of application reduced, such provisions shall apply with such modification as may be necessary to make them valid and effective. “This Section shall survive the termination of this Agreement for any reason.”

3. 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 and Third Party Information. This may be illustrated by the following provisions in an employment contract:

“(a) Company Information. The Employee agrees at all times during the term of his

employment and thereafter, to hold in strictest confidence, and not to use or disclose, except for the benefit of the Company, to any person, firm or corporation without written authorization of the Chief Executive Officer of the Company, any Confidential Information of the Company. The Employee understands that “Confidential Information” means any Company proprietary information, technical data, trade secrets or know-how, including, but not limited to, research, product plans, products, services, customer lists and customers (including, but not limited to, customers of the Company on whom he called or with whom he became acquainted during the term of his employment), markets, software, developments, inventions, processes, formulas, technology, designs, drawings, engineering data, hardware configuration information, marketing, financial or other business information disclosed to him by the Company either directly or indirectly in writing, orally or by drawings or observation of parts or equipment. The Employee further understands that Confidential Information does not include any of the foregoing items which has become publicly known and made generally available through no wrongful act of his or of others who were under confidentiality obligations as to the item or items involved or improvements or new versions thereof.

“(b) Former Employer Information. The Employee agrees that he will not, during his employment with the Company, improperly use or disclose any proprietary information or trade secrets of any former or concurrent employer or other person or entity and that he will not bring onto the premises of the Company any unpublished document or proprietary information belonging to any such employer, person or entity unless consented to in writing by such employer, person or entity.



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“(c) Third Party Information. The Employee recognizes that the Company has received and in the future will receive from third parties their confidential or proprietary information subject to a duty on the Company’s part to maintain the confidentiality of such information and to use it only for certain limited purposes. The Employee agrees to hold all such confidential or proprietary information in the strictest confidence and not to disclose it to any person, firm or corporation or to use it except as necessary in carrying out his work for the Company consistent with the Company’s agreement with such third party.”

4. INVENTIONS ASSIGNMENT CLAUSE (INTELLECTUAL PROPERTY CLAUSE).

In industries engaged in research and development and related activities, the following Inventions

Assignment Clause deserves to be incorporated in the Employment Contract of employees involved in said activities:

“The Employee understands that the Company and its subsidiaries are engaged in research and development and other activities in connection with its business and that, as an essential part of the Employment, the Employee is expected to make new contributions to and create inventions of value for the Company and its subsidiaries. “From and after the Effective Date, the Employee shall disclose in confidence to the Company and its subsidiaries 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/her employment at the Company. The Employee acknowledges that copyrightable works prepared by him/her within the scope of and during the period of his/her employment with the Company are “works for hire” and that the Company and its subsidiaries will be considered the author thereof. The Employee agrees and acknowledges that all the Inventions are works made for hire and shall be the sole and exclusive property of the Company and its subsidiaries, including any copyrights, patents, mask work rights, trade secrets, or other intellectual property rights pertaining hereto. If it is determined that any such works are not works made for hire, the Employee hereby assigns all his/her right, title and interest, including rights of copyrights, patents, mark work rights, trade secrets, and other intellectual property rights, to or in such Inventions to the Company and its subsidiaries or its successor in interest without further consideration.

“The Employee agrees to assist the Company and its subsidiaries in every proper way to obtain for the Company and its subsidiaries and enforce patents, copyrights, mark work rights, trade secret rights, and other legal protection for the Inventions. The Employee will execute any documents that the Company and its subsidiaries may reasonably request for use in obtaining or enforcing such patents, copyrights, mask work rights, trade secrets and other legal protections. His/Her obligations under this paragraph will continue beyond the termination of his/her employment with the Company, provided that the Company will compensate the Employee at a reasonable rate after such termination for time or expenses actually spent by the Employee at the Company’s request on such assistance. The Employee appoints the Secretary of the Company as his/her attorney-in-fact to execute documents on his/her behalf for this purpose. “This Section shall survive the termination of this Agreement for any reason.”

5. NON‐SOLICITATION CLAUSE. To protect the legitimate business interests of the Employer, including its business relationships, the Employee may, directly or indirectly, be prohibited from making solicitations under a Non‐Solicitation Clause best illustrated under the following provision:

“For a period of three (3) years after termination of employment, the Employee shall not identify, solicit, approach, cause to be solicited or approached, assist any other person or entity in soliciting or approaching, or accept any business from any person or entity who shall at any time within the year preceding the termination 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 Company, or (c) a representative or agent of any client, talent, producer, designer, programmer, distributor, merchandiser, or advertiser of the Company 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 Company at termination.”



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6. NON‐RECRUITMENT CLAUSE.

Prohibition may also pertain to the recruitment of personnel or employees of the Employer under a Non‐Recruitment Clause as follows:

“For a period of three (3) years after termination of employment, either on his own account or in conjunction with or on behalf of any other person, solicit or entice or hire away or attempt to solicit or entice or hire away from any member of the Company, offer employment to or offer to conclude any contract of services with, any person who is at termination or who was at any time during the period of six months immediately preceding said termination employed in a managerial, supervisory, technical or sales capacity by, or engaged as a consultant to the Company and who remains so employed or engaged in the six months prior to the relevant breach of this clause 2.2(iv) (whether or not such person would commit a breach of contract by reason of leaving such employment or engagement).”

END OF DISCUSSION ON TOPIC E. MANAGEMENT PREROGATIVES

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e_management_prerogatives.pdf

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