Salary Equality Versus Freedom of Contract

Protecting Employee Rights in Peru

Article 62 of the Political Constitution of Peru guarantees the freedom of contract, allowing parties to form valid agreements within the legal framework. Once an employment agreement is established, it cannot be altered by subsequent laws or regulations. Employers who adhere to social benefits and the minimum wage requirements can be confident that the agreed-upon terms will be upheld, without external interference.

Challenging Salary Disparities

It has become increasingly common for employees to discover that their colleagues, who hold the same position, perform identical duties, and receive similar performance ratings, are earning higher wages. Faced with this frustrating situation, employees often resort to legal action to achieve salary parity. In such cases, judges require employers to provide concrete evidence justifying the salary discrepancy. If employers are unable to substantiate the wage difference, which is often the case, the judge may order the employer to adjust the plaintiff’s salary to match that of their coworker. In some instances, this adjustment can even be retroactive, resulting in the employer reimbursing the plaintiff for past salary differences.

Balancing Freedom of Contract and Employee Protection

The growing prevalence of such lawsuits raises concerns among business owners about the sanctity of freedom of contract and the respect for agreed-upon conditions. While freedom of contract is enshrined in the Constitution, so too are principles that safeguard employees’ rights. Article 24 of the Constitution stipulates that “employees are entitled to fair remuneration that should be sufficient,” while Article 26, paragraph 1, emphasizes the principle of “equality of opportunities without discrimination” in the employment relationship. Although the language of our Constitution may not be as explicit as desired, Article 23 of the Universal Declaration of Human Rights reinforces the right to “equal pay for equal work” for all individuals, without any form of discrimination. Similarly, Article 7 of the International Covenant on Economic and Cultural Rights guarantees “fair wages and equal remuneration for work of equal value.”

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Navigating Conflicting Precepts

When a judge is confronted with conflicting constitutional precepts, the Constitution itself provides guidance. Paragraph 3 of Article 23 states that the Constitution should be interpreted in favor of the employee when the meaning of a legal rule is in doubt. Hence, in line with this constitutional provision, officials in the judiciary and constitutional courts tend to apply rules that are more advantageous to employees. This fact is evident in numerous resolutions issued by these institutions.

Challenges for Employers

The discrepancy in salaries for employees holding the same position and performing equivalent tasks can stem from various factors, such as a particular employee’s exemplary effort and contribution or labor market conditions. For example, during times of economic crisis and high unemployment rates, employers may hire employees for lower salaries. However, as market conditions improve in subsequent years, employers may offer higher salaries for the same position. In such cases, employees receiving lower wages might seek salary matching.

Given the prevailing reality within Peru’s judicial system, where employee protection is prioritized, employers’ defense against salary matching lawsuits largely rests on presenting compelling evidence. The defense strategy should focus on proving the objective reasons behind salary disparities, such as exceptional contributions to the company, higher qualifications, leadership abilities, the capacity to motivate coworkers, and the achievement of the company’s targets and objectives. To build a strong defense, companies must establish robust manpower management processes that require transparent procedures for documenting and justifying salary increases. These records should be meticulously maintained in employees’ personal files, especially when salary adjustments are made for specific individuals and not for the entire workforce.

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By ensuring the availability of supporting evidence, companies can effectively defend against salary matching claims, enabling their legal representatives to substantiate the existence of objective criteria for varying wages.

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