G.R. No. 196539 - Portillo vs. Rudolf Lietz, Inc.

In a letter agreement dated 3 May 1991, petitioner Marietta N. Portillo was hired by respondent Rudolf Lietz, with the employment terms including reference to work rules and policies.
The agreement contained a provision whereby Portillo undertook not to engage in any other gainful employment without written consent, with a breach rendering her liable for liquidated damages.

On 1 February 2002, Portillo was promoted to Sales Representative at Rudolf Lietz, Inc. and received a salary increase plus revised work conditions.
She signed a new letter agreement that reiterated the “Goodwill Clause” (or non-compete clause) stipulating that for a period of three years after the termination of her employment, she would not work in any similar or competitive business.
The clause further provided that a breach would cost her liquidated damages amounting to 100% of her gross compensation over the last 12 months.

Portillo resigned on 6 June 2005 and during her exit interview disclosed her intention to enter a rice dealership business (wholesale).
Upon her resignation, Rudolf Lietz, Inc. reminded her of the “Goodwill Clause.”
Portillo countered the reminder by noting that the memorandum she received did not constitute an employment contract containing the non-compete clause, to which the company responded by reaffirming the clause’s continuing effect.

Shortly after, Portillo took up employment with Ed Keller Philippines, Limited—a company identified as a direct competitor of Rudolf Lietz, Inc.
Simultaneously, Portillo demanded payment for her remaining salaries, commissions, and other monetary benefits.
Rudolf Lietz, Inc. acknowledged liability for the money claims (totalling Php110,662.16) but raised a defense based on legal compensation, asserting that Portillo owed them liquidated damages (approximately Php980,295.25) due to her alleged breach of the goodwill clause.

On 14 September 2005, Portillo filed a complaint with the National Labor Relations Commission (NLRC) for non-payment of benefits, which resulted in a ruling ordering the payment of the claimed benefits.
Rudolf Lietz, Inc. pursued offsetting Portillo’s money claims with its counterclaim for liquidated damages.
The NLRC Second Division affirmed the labor arbiter’s decision, and later the Court of Appeals initially affirmed, then modified its decision to allow for legal compensation (set-off) between the two conflicting claims.
Portillo then filed a petition for certiorari assailing the modified decision, raising issues of both procedural defect and substantive error.

It was noted that Portillo erroneously filed a petition for certiorari (a special civil action under Rule 65) instead of a petition for review on certiorari under Rule 45; under the Rules of Court, these remedies are mutually exclusive.
Despite the procedural error, the Court accepted the petition to serve the purpose of attaining substantial justice expeditiously.
The central issue revolved around whether the labor claim for unpaid benefits (within the purview of labor laws) could be offset against a claim for liquidated damages arising from a post-employment contractual non-compete clause (a civil matter).

Whether Portillo’s filing of a petition for certiorari (special civil action under Rule 65) instead of a petition for review on certiorari (under Rule 45) constitutes a fatal procedural defect warranting outright dismissal.

Whether Portillo’s monetary claims for unpaid salaries, commissions, and other benefits (labor claims) may be set-off or offset against Rudolf Lietz, Inc.’s counterclaim for liquidated damages stemming from her alleged violation of the goodwill (non-compete) clause.
Whether there exists a reasonable or causal connection between the claims arising during employment and those ensuing from a post-employment contractual breach.

Whether the claim for unpaid salaries, a matter arising from employer-employee relations, falls under the exclusive jurisdiction of the labor arbiters.
Whether the claim for liquidated damages based on breach of the goodwill clause constitutes a post-employment matter that inherently belongs to civil law and falls within the jurisdiction of the regular courts.