Dismissals in Peru

1. Dismissal of employees

1.1 Reasons for dismissal

According to the Constitution, the law offers employees protection against unfair dismissal. This protection not only encompasses union members or any given class of workers, but all those who work at least four hours a day and have exceeded the probationary period. These employees may not be dismissed without fair reasons, as expressly provided for by law. If the reason for dismissal is not one of a number of ‘fair reasons’ included in the law, an employee has the right to choose one of the following alternatives:

  • Bring a claim against the employer for reinstatement; or
  • Bring a claim against the employer to receive compensation due to unfair dismissal.

The following are considered fair reasons, as provided for by law, that allow employers to dismiss employees:

i. Reasons related to capability:

  • The employee loses his physical or mental faculties or becomes suddenly incompetent in a manner detrimental to his job performance; the employee performs poorly compared to the average performance of other personnel and the employee; or the employee unjustifiably refuses to undergo a medical examination related to the performance of duties.
  • Court conviction for an intentional crime.
  • Disability.

ii. Reasons related to major faults or misconduct that are specifically provided for in the law:

  • Failure to comply with duties.
  • Decline in performance.
  • Misappropriation or attempted misappropriation of the goods or services of the employer.
  • Disclosure of confidential information or provision of false information that may be detrimental to the employer.
  • Unfair competition.
  • Attendance in the workplace under the influence of alcohol or drugs.
  • Committing violence, severe indiscipline, or intentional damage to the employer’s goods.
  • Unjustified absences of more than three consecutive days or five non-consecutive days and repeated delays.

Nevertheless, according to Peruvian law, the first three months of services constitute an employee’s probationary period. During this time, the employee is not legally protected against dismissal and therefore may be dismissed by the employer without invoking any reason or complying with any formality. 

The law authorises parties to establish a probationary period of a maximum of six months for qualified employees or persons of trust who work closely with senior staff and have access to the company’s confidential information. In these cases, the term of the probationary period in the contract must reflect the requirement for training, adjustment requirements or the position’s level of responsibility.   

1.2 Form

Formalities to be observed in cases of fair dismissal include the following:

  1. Dismissal due to lack of capability: The employer must send a prior written notice of dismissal to the employee stating the reason for dismissal and must grant 30 calendar days for the employee to reply. At the end of this period, the employer can proceed with  the dismissal if the employee was unable to sufficiently defend his actions or lack thereof.
  2. Dismissal related to major faults or misconduct: The employer must send a prior written notice of dismissal stating the reason for dismissal and attaching all the evidence supporting it. The employee has six calendar days to issue the reply. At the end of this period, the employer can proceed with the dismissal if the employee was unable to sufficiently defend his actions or lack thereof.

1.3 Notice period

  1. Dismissal due to lack of capability: prior notice of 30 calendar days’ 
  2. Dismissal related to major faults or misconduct: prior notice of six calendar days.  

In both cases, it is necessary to follow the procedure detailed in point 1.2.

1.4 Involvement of works council

No legal requirement for involvement.

1.5 Involvement of a union

No legal requirement for involvement.

1.6 Approval of state authorities necessary

Not necessary other than in the case of collective redundancies (see below).

1.7 Collective redundancies

The employer can terminate employment contracts without paying compensation for dismissal for reasons of force majeure or for economic, technological, structural or similar reasons, which then make the dismissals necessary. In this case, the employer must obtain the prior authorisation of the Labour Ministry, based on an expert report prepared by an independent auditor supporting the need for the dismissals. In practice, there have been few cases in which the Ministry of Labour authorised a company to make its employees collectively redundant.  

Legally, the parties may negotiate and reach an agreement to terminate the employment contracts of the personnel included in the measure before the Ministry of Labour issues its opinion. In these cases, if the employees are affiliated with a union, then the union’s participation in the negotiations is mandatory.  

In the case of the dissolution and liquidation of a company, or if it is declared bankrupt by a competent authority, authorisation from the Ministry of Labour is not required and five days’ prior notice shall suffice.

1.8 Summary dismissals

Summary dismissal (dismissal without notice) is only lawful when the employee has committed a breach of contract that is sufficiently serious for the employer to terminate the employment contract with immediate effect. Although the law regulates this kind of dismissal, it is recommended that the regular dismissal proceeding be used.

1.9 Consequences if requirements are not met

If a fair reason is not given or the legal formalities are not complied with, the employee may alternatively claim:

  • Reinstatement of position, which can only be claimed by employees who do not occupy leading positions (management positions) and/or were not in positions of trust (employees who work in close contact with senior staff and who have access to the company’s confidential information). Workers in management or trust positions are only entitled to claim compensation for dismissal if they are unfairly dismissed.
  • Compensation for unfair dismissal, which is equivalent to: (i) for employees hired for an indefinite period of time, one and a half monthly salaries for each year of service, with a maximum of 12 salaries; and (ii) for employees hired for a fixed term, one and a half monthly salaries for each month that remains until the end of their contract, with a maximum of 12 salaries.

In addition to the compensation for arbitrary dismissal provided by law, the judges have recently been admitting claims for compensation for damages arising from the dismissal. Such compensation is generally made up of the concepts of emergent damages, loss of profits and moral damages, the amount of which must be determined by the court. Additionally, the judges have established the right of dismissed workers to demand a new concept called “punitive damages”, the amount of which equals the amount that the worker stopped contributing to the pension system during the time he was laid off.

As we mentioned above, unfair dismissal does not release the employer from a claim for moral damages in addition to the compensation for unfair dismissal to be paid to the employee. Although legally an employee only has the right to claim compensation for unfair dismissal as compensation for the termination of employment, recent case law criteria provides compensation for moral damages, emergent damages, loss of profits and "punitive damages" to employees who are subject to unfair dismissal where there is evidence of malicious conduct by the employer. 

In addition to the compensation for arbitrary dismissal provided by law, judges are recently admitting claims for compensation for damages arising from dismissal. Such compensation is generally based on the concepts of emergent damages, loss of profits and moral damages, the amount of which must be determined by the Court. Additionally, judges have established the right of fired workers to demand a new concept called “punitive damages”, the amount of which equals the amount that the worker stopped contributing to the pension system during the time he was laid off.

1.10 Severance pay

Compensation for unfair dismissal:

  1. For employees hired for an indefinite period (provided they have passed the trial period) compensation is equal to one and a half monthly salaries for each full year of service with a maximum of 12 salaries. Fractions of the year are computed proportionally.
  2. For employees hired for a fixed term (provided they have passed the trial period), compensation is equal to one and a half monthly salaries for each month that remains until the end of their contract, with a maximum of 12 salaries. Fractions of the month are computed proportionally.

1.11 Non-competition clauses

During the employment contract term, an employee is forbidden to compete with the employer in its line of business (this is considered a major fault). After the employment contract is terminated, there is no regulation in this regard. However, a post-contractual non-compete clause can be included, which must be for a set period of time and the employee must receive adequate economic compensation for this.

1.12 Miscellaneous

Not applicable.

2. Dismissal of managing directors

2.1 Reasons for dismissal

In Peru, directors do not qualify as employees, so they can be removed from their position without observing any legal formalities, except as provided for in the company’s bylaws. However, if a director is also in charge of the management of the company, he is considered an employee and in this case the legal provisions regarding the dismissal of employees must be observed.

Managers and managing directors who have passed the probationary period can be dismissed (i) for fair reasons, in which case it is necessary to follow the dismissal formalities applicable to all employees in general or (ii) via a vote of no-confidence (without invoking a fair reason), in which case the person in question has the right to receive compensation for unfair dismissal.  

Regarding the dismissal of managers, the following should be taken into account: 

  • If the employee was hired from the beginning as a trusted employee or to occupy a position classified as an executive one (someone who works in direct contact with managers and who has access to confidential information belonging to the company) and is dismissed without fair reason, they will be entitled to receive compensation for unfair dismissal. 
  • If the manager was initially hired to fill a non-executive position or position of trust, attains a management position and is then dismissed without fair reason, the person has the right to choose whether to claim reinstatement in the last position not qualified as an executive or trust position, or to receive compensation for unfair dismissal. 

Despite the provisions in law, the Supreme Court recently established jurisprudential criteria for the rights of management or trusted employees upon dismissal via a vote of no confidence that differs from the Law:

  • For those employees who directly entered into an executive position or position of trust, the compensation payment for arbitrary dismissal does not need to be paid if their employer terminates the employment relationship via a vote of confidence. 
  • For employees who initially began their employment in a position in which they performed common or ordinary functions, and subsequently acceded to an executive position or a position of trust, they are entitled to receive compensation for arbitrary dismissal if (i) their employer prevents them from taking up their former position after the withdrawal of confidence; or (ii) if the employee himself decides not to take up his former position again.

It is important to point out that these criteria do not formally constitute binding precedents of mandatory application. However, in practice they are applied to judicial instances. This should be taken into consideration when negotiating the termination of employment agreements. 

It is also important to bear in mind that a few months ago the Government published a draft supreme decree to modify the regulations of the Law on Labor Productivity and Competitiveness, in which, among other things, the right to compensation for arbitrary dismissal corresponds to any employee dismissed without justification, including management and trust workers. If this regulation is approved, judges would be forced to apply it.

2.2 Form

If the manager or managing director is dismissed with fair reason, formalities for the dismissal of any employee must be observed. However, if the employee is dismissed via a vote of no confidence (i.e. without fair reason), the dismissal can be carried out immediately without notice.

2.3 Notice period

i. The notice periods for dismissals for fair reasons are as follows: 

  • Dismissal due to lack of capability: notice of 30 calendar days.
  • Reasons related to major faults or misconduct: notice of six calendar days.

In both cases, it is necessary to follow the dismissal procedure provided for employees in general. 

ii. Dismissal due to withdrawal of trust (dismissal without fair reason): no notice.

The following is the legal dismissal procedure provided for employees in general that is applicable for managers:

According to the Constitution, the law offers an employee protection against unfair dismissal, as long as the employee has exceeded the probationary period. These employees may not be dismissed without fair reasons, as expressly provided for by law. If the reason for dismissal is not one of a number of ‘fair reasons’ included in the law, the employee has the right to bring a claim against the employer to receive compensation due to unfair dismissal.

The following are considered fair reasons, as provided for by law, that allow employers to dismiss employees:

iii. Reasons related to capability:

  • The employee loses his physical or mental faculties or becomes suddenly incompetent in a manner detrimental to job performance; the employee performs poorly compared to the average performance of other personnel and the employee; or the unjustified refusal of the employee to undergo a medical examination related to the performance of duties.
  • Court conviction for an intentional crime.
  • Disability.

iv. Reasons related to major faults or misconduct that are specifically provided for in the law:

  • Failure to comply with duties.
  • Decline in performance.
  • Misappropriation or attempted misappropriation of the goods or services of the employer.
  • Disclosure of confidential information or provision of false information that may be detrimental to the employer.
  • Unfair competition.
  • Attendance at the workplace under the influence of alcohol or drugs.
  • Committing violence, severe indiscipline, or intentional damage to the employer’s goods.
  • Unjustified absences of more than three consecutive days or five non-consecutive days and repeated delays.

Nevertheless, according to Peruvian law, the first three months of services constitute the employee’s probationary period. During this time, the employee is not legally protected against dismissal and therefore may be dismissed by the employer without invoking any reason or complying with any formality. 

The law authorises the parties to establish a probationary period of more than three months for managers or directors, whose probationary period can reach up to a maximum of one year.   

2.4 Involvement of works council

Not applicable.

2.5 Involvement of a union

No involvement.

2.6 Approval of state authorities necessary

Not required.

2.7 Collective redundancies

Not applicable.

2.8 Summary dismissals

Not applicable.

2.9 Consequences if requirements are not met

If fair reason is not invoked or the legal formalities for a fair dismissal are not complied with, the manager or managing director has the right to receive payment of compensation for unfair dismissal.  

The manager can demand reinstatement only if he previously held a position that was not qualified as an executive position or a position of trust, provided he is reinstated to the last unqualified position he occupied.  

With regard to unfair dismissal, it must be taken into account that this method of dismissal does not release the employer from a claim to compensation for moral damages, in addition to the compensation for unfair dismissal to be paid to the manager. Although the employee only has the legal right to compensation for unfair dismissal as compensation for termination of the employment contract, recent case law has provided for payment of compensation for moral damages to employees who are subject to unfair dismissal when there is evidence of malicious conduct by the employer.

2.10 Severance pay

The compensation for withdrawal of trust (dismissal without fair reason) amounts to: 

  1. For employees hired for an indefinite period (provided they have passed the trial period), compensation is equal to one and a half monthly salaries for each full year of service with a maximum of 12 salaries. Fractions of the year are computed proportionally. 
  2. For employees hired for a fixed term (provided they have passed the trial period), compensation is equal to one and a half monthly salaries for each month that is missing so that the contract expires with a maximum of 12 salaries. Fractions of the month are computed proportionally.

In addition to the compensation for arbitrary dismissal provided by law, judges are recently admitting claims for compensation for damages arising from dismissal. Such compensation is generally based on the concepts of emergent damages, loss of profits and moral damages, the amount of which must be determined by the Court. Additionally, judges have recently established the right of fired employees to demand “punitive damages”, the amount of which equals the amount that the employee stopped contributing to the pension system during the time he was laid off.

2.11 Non-competition clauses

During the employment contract term, it is forbidden for an employee to compete with the employer in their line of business (this is considered a major fault). After the employment contract is terminated, there is no regulation in this regard. However, a post-contractual non-compete clause can be included, which must be for a set period of time and the employee must also receive adequate economic compensation.

2.12 Miscellaneous

Not applicable.