Article 62 of the Political Constitution of Peru guarantees freedom of contract, which means that the parties are free to validly enter into an agreement in accordance with the legal rules in force at the time of signing the agreement and that the provisions of the agreement cannot be modified by laws or other legal rules regardless of their class.
In the labor field, if a company enters into an employment contract honoring all social benefits and the country’s compulsory minimum wage, then it can rest assured that said contract will be honored in the future and no authority will oblige it to comply with a condition other than the ones agreed upon in the corresponding contract.
It is increasingly common to see that an employee, after working several years for an employer, finds out that a workmate who fills the same position, performs the same duties and has the same assessment rating, receives a higher salary. Faced with that circumstance, the employee decides to sue the company in order for his/her salary to be brought to the same level as that of his/her workmate. Before making a decision, the judge will require the employer to provide categorical evidence of the objective reasons why the plaintiff’s workmate receives a higher salary. If the employer does not have any evidence to prove the reason why a difference exists between both salaries, which is very common, the Judge will order the employer to match the plaintiff’s salary with that of his/her workmate, changing the terms of the contract agreed upon with the plaintiff, even retroactively, as the judge will order the employer to reimburse the plaintiff for former salary differences.
Faced with this increasingly common problem, businesspeople ask themselves: What happened with the freedom of contract and the respect for the conditions
agreed upon by the parties? The truth is that just as this principle exists and is regulated in the Constitution, the Constitution also regulates other principles that protect employees, which therefore support court decisions protecting employees. Thus, Article 24 of the Constitution provides that “Employees are entitled to a fair remuneration that should be enough…” and paragraph 1 of Article 26 provides that the principle of “equality of opportunities, without discrimination” is honored in the employment relationship.
Maybe the text of our Constitution is not as explicit as it should be, but Article 23 of the Universal Declaration of Human Rights clearly provides as follows: “Everyone, without any discrimination, has the right to equal pay for equal work”. In turn, Article 7 of the International Covenant on Economic and Cultural Rights clearly provides that all workers are entitled, as a minimum, to: “Fair wages and equal remuneration for work of equal value, without distinction of any kind …”.
What rule should the Judge elect if faced with a conflict between two precepts with constitutional hierarchy? The answer is found in the Constitution itself, as paragraph 3 of Article 23 of the Constitution provides that the Constitution should be interpreted in favor of the employee in case of doubt regarding the meaning of a legal rule. Accordingly, supported by this constitutional provision, it’s obvious that Judiciary and Constitutional Court officials will apply those rules which are more favorable to employees, as evidenced by many resolutions issued by the Judiciary and the Constitutional Court.
This situation creates problems to businesspeople because the different salaries paid to employees who fill the same position and perform the same duties are many times the result of the greater effort and contribution of a given employee or the result of the labor market conditions because it may happen that at a given point in time an employer hires an employee and pays him/her a lower salary as a result of an ongoing labor and unemployment crisis; however, a couple of years later the employer hires employees to fill the same position but pays them a higher salary because the market has grown and unemployment has dropped. In the latter case, those employees who were receiving a lower salary could ask for a salary matching.
Bearing in mind the existing reality in Peru’s judicial branch and the fact that labor judges almost always protect employees, the company’s defense argument against a salary matching lawsuit will not be a matter of law, but will rather focus on evidence. In fact, the defense strategy will focus on proving that the difference in salaries is due to objective reasons like greater contribution to the company, higher qualifications, leadership capacity and ability to motivate workmates, fulfillment of the company’s targets and objectives, and other similar arguments.
In order to be able to properly set up its defense based on this strategy, it is indispensable for the company to have the necessary supporting evidence in place, for which reason the company should carefully design its manpower management processes, establishing mandatory procedures requiring that every salary increase be supported by objective reasons and documented in the personal file of the employee, particularly if the salary increase is granted to one employee in particular and not to the rest of his/her workmates.
In this way, once lawyers are entrusted with the defense of a case where they must prove that objective reasons support the granting of different salaries, they will have the necessary evidence to prove their argument.