Report in which the committee requests to be kept informed of development - Report No 357, June 2010

Case No 2675 (Peru) - Complaint date: 16-OCT-08 - Closed

Allegations: Prejudicial consequences of shortterm contracts on trade union rights in industrial companies subject to the nontraditional exports scheme

1. 836. The complaint is contained in a communication of the General Confederation of Workers of Peru (CGTP) dated 16 October 2008.
2. 837. The Government sent its observations in communications dated 12 February and 25 May 2010.
3. 838. Peru has ratified the Freedom of Association and Protection of the Right to Organise Convention, 1948 (No. 87), and the Right to Organise and Collective Bargaining Convention, 1949 (No. 98).

A. Allegations of the complainant

1. 839. In its communication of 16 October 2008, the CGTP explains that industrial companies subject to the non-traditional exports scheme (which export 40 per cent of their domestic output actually sold) are authorized by article 32 of Decree Law No. 22342 to conclude casual contracts with workers whenever necessary. These are chiefly textiles and dressmaking factories which keep their workers on fixed-term contracts averaging three months (sometimes 15 days), which in practice restricts the right to organize, collective bargaining and strike because workers are afraid that their contracts will not be renewed. Some workers have been employed in the same company on these contracts for 25 years. According to the complainant, this anachronistic contractual system allows wages, working hours and conditions of safety and health which are extremely inadequate.
2. 840. The CGTP refers to several examples of dismissals without notice of trade union officials and members who have been employed for as much as 15 years on short-term contracts, in a way which is an abuse of the legal framework for workers in such companies, since it keeps them indefinitely in the position of casual workers.
3. 841. The complainant organization states that on 30 November 2007, the ICADIE Company announced without warning that it was not going to renew the contracts of some 1,200 workers. Trade union officials whose contracts were expiring on that date were offered a two-week contract on the basis that the company had not received sufficient orders, although that was never proved, nor was it discussed with the trade union. The trade union leaders initially refused to sign, as they wished to press for more stable contracts.
4. 842. In total, over 1,200 workers were dismissed on that day, including 500 trade union members and seven officials of the union. Those who remained employed in the company were offered two-week contracts. One of the company’s chief international customers intervened calling the company’s attention to the fact that respect for freedom of association was a contractual requirement. The management recognized the need to provide special protection to certain groups of workers, including pregnant women and trade union leaders, and offered to reinstate them, but with two-week contracts. This time, the trade union leaders accepted this but, despite repeated meetings and conversations over the following weeks, the company never honoured its offer to renew the trade union officials’ contracts, claiming that there were no vacancies.
5. 843. Finally, on 24 January 2008, the company and trade union signed a letter in the Ministry of Labour whereby the workers, whose contracts had not been renewed, including the seven trade union officials, would have priority of employment when new vacancies occurred.
6. 844. However, on 30 January 2008, the trade union received a letter from the company in which it said that the trade union officials had opted not to renew their contracts and, consequently, were no longer members of the executive committee of the union and were not in a position to reach any kind of agreement with the company. The trade union wrote to the company expressing its surprise at the content of the notarized letter, noting that the intention of the letter seemed to be to invalidate an agreement signed on 24 January 2008. If that were the case, it was obviously an act of bad faith.
7. 845. It should be pointed out that a little before 24 January 2008, a report of the Labour Inspectorate indicated that ICADIE was not listed in the national register of non-traditional exporters and, consequently, it was not permitted to use casual contracts, and should therefore inform its workers that they had been employed on permanent contracts since their date of entry. The report also identified infringements in the payment of family allowances, length of service and family benefits. On identifying these infringements, the inspectors imposed a fine and carried out an inspection to ensure compliance with the legislation, but the company did not comply.
8. 846. As regards the textile companies of the Topy Top SA Group, in June 2007, the CGTP indicates that the International Textile, Garment and Leather Workers’ Federation (ITGLWF) facilitated an agreement designed to put an end to a major dispute in the factory. The agreement provided for the reinstatement of 93 workers whose contracts had been terminated by the company because of their participation in trade union activities, as well as the introduction of industrial relations management systems to accompany recognition of the trade union. The situation later deteriorated:
   • – In Topy Top SA, the management sent a letter to the trade union on 11 January 2007 in which it indicated that one of its chief customers had considerably reduced its orders during the last few months and the company was going to have to “downsize”, which would mean that many of the contracts would not be renewed from 31 January 2007. The trade union tried to request a meeting with the company, in accordance with an agreement signed in June 2007 with the ITGLWF, which includes mechanisms for regular communication, dialogue and bargaining, but the management refused to meet with the union, saying that the decision to reduce the workforce had already been taken. This runs counter to good industrial relations, which require that any restructuring must be the subject of bargaining with the trade union before a final decision is taken. Just prior to the complaint to the Committee on Freedom of Association, 70 workers were dismissed from Topy Top SA on a selective basis. The majority of the dismissed workers were members of the trade union.
   • – In Star Print SA, 55 workers have been dismissed since the formation of the trade union in January 2008, all of them trade union members. The company argued that the workers were dismissed as a result of its “workforce reduction”. However, only trade union members were dismissed and many of them have since been replaced by new workers.
   • – In the Sur Color Star SA company, the recently formed trade union obtained legal recognition in December 2007, but 20 of its officials and members have since been dismissed. There have been many reports of unfair and arbitrary practices relating to conditions of work (wages, safety, etc.).
9. 847. In conclusion, the CGTP requests that article 32 of Decree Law No. 22342 should be amended or revoked.

B. The Government’s reply

1. 848. In its communications of 12 February and 25 May 2010, the Government states, with regard to the various complaints of anti-trade union and collective bargaining practices, various inspections were carried out in the Topy Top SA, Star Print SA, and Sur Color Star SA companies, in which serious infringements of trade union and labour rights were found, and the companies were fined. The Government also provides detailed information on the various inspections carried out and the fines imposed for contravention of trade union and labour legislation.
2. 849. With regard to Topy Top SA, the company was fined 103,500 nuevos soles (PEN) in 2007 for anti-trade union practices and, in 2008, for failure to provide copies of the contract of employment within the legal time limit (fine of PEN2,835) and failure to fulfil the formalities in non-traditional export contracts (fine of PEN1,435).
3. 850. With regard to Star Print SA, the company was fined PEN51,030 in 2008 for failure to provide payslips, non-compliance with provisions relating to fixed-term contracts and acts against freedom of association. In 2009 (under an inspection report 1971–2008) it was fined PEN17,010 for failure to pay and issue vouchers for payment of profit shares.
4. 851. With regard to Sur Color Star SA, the company was fined PEN685,300 in 2008 for failure to comply with the provisions on fixed-term contracts, the Act on the promotion of nontraditional exports, acts against freedom of association and obstruction of labour inspections, and a prosecution was instigated for anti-trade union acts and obstruction of labour inspections but that was subsequently annulled and the proposed fine was cancelled. In addition, in 2008, the company was fined PEN17,010 for interference with freedom of association, acts of hostility, failure to provide personal protective equipment and obstruction of labour inspections.
5. 852. With regard to Industria de Confecciones Artes Diseños y Estampados, ICADIE/Diseño y Color, that company was fined PEN66,745 in 2008 for failure to deposit and issue certificates of length of service, payment of family allowance, bonuses and obstruction of labour inspections (it did not comply with the requirement to rectify non-traditional export contracts).
6. 853. The Government adds that the National Directorate of Industrial Relations of the Ministry of Labour and Employment Promotion convened several extra-judicial meetings in 2008 and 2009 relating to the complaint before the Committee on Freedom of Association but, on some occasions due to the failure of both parties to attend, on other occasions due to the attendance of only one of the parties, and on others despite ample discussion, it was not possible to reach any agreement or find a formula to resolve the problem.
7. 854. The Government indicates that it requested information on judicial proceedings for cancellation of dismissals related to the companies in question, from the Coordinator of the Supreme Court of Justice in Lima with the Ministry of Labour and Employment Promotion, who is responsible for questions related to the judicial application of the Conventions of the International Labour Organization and matters concerning the right to organize.
8. 855. The Government also indicates that the position of Topy Top SA on the complaint is as follows; the company states that the complaint prepared by the trade union confederation refers to the month of October 2008, prior to the global financial crisis at the end of that year, which affected international trade between the developed and developing countries and thus the employment situation in the region throughout 2009. Exports in the sector fell by up to 30 per cent in the period 2008–09. It argues in this regard that what the trade union confederation called “mass dismissals” of workers were nothing more than the nonrenewal of contracts of employment concluded in the special labour scheme for nontraditional exports regulated by Decree Law No. 22342 of 21 November 1978. The company explains that this Act did not institute a perverse labour regime, as the trade union confederation argues tendentiously, but is simply a legal provision which formed part of the labour project to grant and promote rights which was promulgated at that time and continues in effect in the present. The defendant company also mentions, among other things, that in the case of Topy Top SA, trade union membership was known before the expiry of the contract of employment. Those contracts could not be renewed due to the company’s economic situation at the time.
9. 856. With regard to Star Print SA, the termination of the contracted workers, according to the employer, was due to the economic situation at the time. The termination took effect at a time when the employer was unaware of the formation of a trade union. There are management decisions taken at the time which confirm the employer’s position.
10. 857. As regards the case of Sur Color Star SA, the employer’s side explains that the employer’s decision to terminate employees on fixed-term contracts was also due to the same economic situation. The employer was forced to make use of the legal option agreed in the contract of employment to terminate the employment relationship before the end of the three-month probationary period. That decision was applied to both unionized and nonunion workers, as shown in the employment records of the Ministry of Labour. In addition, the employees of that company received different and better economic benefits than other companies in the sector.
11. 858. According to the employers’ side, since the events which gave rise to the complaint, each of the companies have continued to maintain relations with the trade unions. For example, the Topy Top trade union now has 260 members. With regard to the 2008 economic situation mentioned in the complaint, a significant number of former workers have received payment of their social benefits. The remainder are the subject of court action as decided by the former workers. The employers are represented in these proceedings in accordance with the rules of due process before the competent authorities, whose decisions are not yet final.
12. 859. According to the employers’ side, the employment policies of Topy Top SA and related companies have been recognized by representative institutions which ensure compliance with good industrial practices. The group of companies has been accepted as a member of the Good Employers’ Association (ABE) with the participation of the American Chamber of Commerce of Peru (AMCHAM). They are also constantly audited by the social compliance departments of its major customers, including GAP Inc., Abercrombie and Fitch, Inditex SA and Life is Good. The employers’ side annexes a chart which shows the start of the recession in 2008, the fall in exports in 2009 and the projections for 2010–11. In 2011, export levels will reach those of 2007.
13. 860. The Government reports that the Supreme Court has indicated the criteria that must be observed in the case of non-traditional export contracts, determining that contracts of employment under the export scheme for non-traditional products regulated by Decree Law No. 22340 [sic] are not fundamentally altered if they are extended for over ten years. The application was filed by workers of a textile company who had been working on fixed-term contracts for over ten years, subject to the non-traditional products export scheme, and whose contracts were not renewed. They indicated that, due to the time elapsed, their contracts had been fundamentally altered and had been converted into indefinite–term contracts and, therefore, they were claiming compensation for unfair or arbitrary dismissal. In that circumstance, the Supreme Court clarified that Decree Law No. 22342 does not limit employment contracts under the non-traditional export products scheme to a maximum period of time and, therefore, their termination, after a period exceeding ten years was not an act of arbitrary dismissal. It further indicated that, in analysing those cases, the following circumstances must be analysed to determine whether or not the form of contracting was valid: (1) the number of workers in the company employed under article 32 of Decree Law No. 22342; (2) the volume and percentage of its production destined for the export and domestic market; (3) the number of workers at the site subject to the ordinary private activity labour regime; and (4) changes in the contracts of the company’s workers subject to the provisions of Decree Law No. 22342.
14. 861. The Government also declares that, faced with the problem of the abuse of contracts by companies in the textile sector, the workers’ side, through the National Directorate of Labour Inspection, formulated Guideline No. 002-2008-MTPE/2/11.4 of 4 February 2008, on “Conduct of labour inspections in the textiles sector”. By means of these guidelines, it was sought to establish a degree of compliance with the requirements of social and labour legislation, as well as safety and health in companies in the textiles sector. Under this Guideline, criteria were laid down to be followed in validating non-traditional export contracts, i.e. verification in accordance with the provisions of article 32 of Decree Law No. 22342, the Act on promotion of non-traditional exports, and its regulations approved by Supreme Decree No. 001-79-ICTE-CO-CE, to the effect that employment contracts must include the work to be performed and the export contract which generates the employment, the purchase order or originating document, and evidence of registration in the national register of non-traditional industrial export companies.
15. 862. Another initiative of the Ministry of Labour to regulate non-traditional export contracts was the submission to the 87th regular plenary session of the National Council of Labour and Employment Promotion, on 29 May 2008, of the draft bill to establish a temporary contract scheme for the promotion of non-traditional exports. The object of the bill was to amend the contractual regime applicable to non-traditional export activities. The Technical Labour Commission (CTT) was charged with the analysis, debate and revision of the bill. The Commission held meetings to discuss the subject, but consensus between the parties was not achieved, as the workers’ position was simply to abolish the employment regime under Decree Law No. 22342, the Act on promotion of non-traditional exports, while the employers’ side, contrary to the workers’ approach, maintained that its abolition would damage the current framework of export promotion and would affect domestic and foreign investment. The employers’ organization held that it was not possible to eliminate from current legislation a system of temporary contracts which, in its opinion, had generated decent work. Nor, in its view, could a framework of export promotion which had had, and would continue to have, a positive effect on the country’s economic growth, be cast aside. They also maintained that it was not possible to demand stability of employment in the promotion of non-traditional exports when there was volatility in the market, a factor which had a negative impact on the permanence and continuity of the exporting companies. The employers’ side asserted, finally, that the only difference between that system of contracting and the general regime was its “temporary” nature because the enjoyment and assertion of all individual rights was similar to the regime established by the general legislation.
16. 863. Two bills concerning the problem in the present case had been debated in the National Congress. Through these two bills, national congressmen Freddy Serna of the parliamentary group “Union for Peru” and Victor Mayorga of the Nationalist Party, respectively, raised the repeal of Decree Law No. 22342, the Act on promotion of nontraditional exports.
17. 864. Both bills were approved in the Labour Committee for the legislative period 2007–08, establishing the repeal of articles 32, 33 and 34 (Chapter IX of the Labour Regime) of Decree Law No. 22342, and the repeal of article 80 of Legislative Decree No. 728, approved by Supreme Decree No. 003-98-TR, which provided that any company covered by the non-traditional export scheme could contract employees under that scheme. However, the Foreign Trade and Tourism Committee issued a negative opinion on 14 October 2008, indicating that it was not appropriate to repeal the contested articles of Decree Law No. 22342 (Act on the promotion of non-traditional exports), because it was not a problem of the law itself, but its unsatisfactory application, therefore it would be desirable to consider mechanisms to improve its application. The need was also pointed out to bear in mind the importance of this form of fixed-term contract in the growth of exports, the development of productive activities and, ultimately, employment promotion. In conclusion, there is still no consensus among the members of the National Congress on taking steps to repeal and/or amend the Act on promotion of non-traditional exports, and the matter is still pending.
18. 865. The Government goes on to describe its position. The non-traditional export scheme has been in effect since 1978 under Decree Law No. 22342, Act on promotion of nontraditional exports, which came into force on 23 November 1978. The Act was passed with the aim of promoting investment and economic growth (by reducing business risk) in a business sector which, at the end of the 1970s, was beginning to become more export-oriented, limited access to the markets of developed countries and small and unstable foreign demand.
19. 866. These characteristics changed significantly, as nowadays demand for national textile, agricultural and livestock products globally have increased considerably. Exports of these products rose, respectively, by an average of 12 per cent and 16 per cent annually from 1997 to 2007. Destination markets expanded so that over 50 per cent of non-traditional exports are concentrated in these sectors, assisted by the fact that this process was greatly facilitated by the exceptional waiver of duty granted unilaterally by the United States of America to the Andean countries, and then extended or improved with the signing of the free trade agreement with Peru.
20. 867. Almost 30 years having passed since the entry into force of Decree Law No. 22342, the policy of promoting temporary employment has almost become permanent, but without any monitoring of the effects of the law questioned by the complainant organization on the labour market. This has still not allowed the introduction of changes in this legislation to remedy in some way the counterproductive effects mentioned by the complainants.
21. 868. In the Government’s opinion, the temporary needs of the textile exporting companies at the present time, irrespective of the temporary contracting scheme under Decree Law No. 22342, could be satisfied by flexible contracts, such as the so-called market needs contract, which is a type of fixed-term contract which can mitigate the risk arising from unforeseen variations in market demand. In this regard, it should be mentioned that the Ministry of Labour has expressed its position in report No. 111-2008-MTPE/5 of 13 October 2008, issued by the Office of the High-Level Technical Adviser, a position which was ratified by the Office of the Legal Adviser in report No. 232-2009-MTPE/9.110 of 21 April 2009, in which it stated the following:
    • – The promotion of temporary employment, which by its nature introduces an exception to the effect of the principle of causality (which indicates that business needs of a permanent character must be covered by indefinite-term contracts, while needs of a temporary character must be covered by fixed-term contracts), must be justified by the satisfaction of interests of an equal or higher importance than the interests affected through its implementation in the labour market, without causing serious or greater harm than the benefits which may be generated. In this regard, in the light of the detailed statistical data set out in report No. 111-2008-MTPE/5, it is apparent that temporary contracts have been used repeatedly as a means of discouraging trade union membership and have had prejudicial effects, such as the low average remuneration in the textiles–dressmaking sector, even though, in the last 14 years, exports in the sector have increased five-fold, while labour turnover has led to a lower average duration of employment and poor skill levels.
    • – As a consequence of the excessive use of temporary contracts, negative effects arise on the level of social protection of workers, given that with short periods of employment, contributions to pension and health insurance schemes cannot achieve the desired continuity and thus prejudice their future quality of life. The result is that over time, this promotion policy has fundamentally changed, as, in almost 30 years since Decree Law 22342 came into force, there has been no proper study of the negative effects of the law on the labour market. We believe this to be an overriding necessity, since it will allow us to promote or propose changes to restore the necessary balances and offset the harmful effects on the exercise of labour rights generated by the differential treatment which workers in the textiles export sector could be suffering as a result.
22. 869. It should be added that the policy of promoting traditional exports must lead to the promotion of investment in physical capital, innovation, technology, human capital and an improvement in the organization of work, so as to generate increased added value and sustained growth in productivity which lead to long-term economic growth. The goal is to promote greater competitiveness and not merely reduce labour costs, which only helps to increase the inequality of income distribution in the country. The Government indicates that it hopes to issue, in due course, the recommendations and measures to ensure the correct application of the exceptional contracting scheme mentioned above.
23. 870. With respect to the alleged anti-trade union acts, mass dismissals of trade union officials and other practices in 2008, the Government reiterates that, having attempted several extra-judicial measures without reaching concrete solutions or agreements, it is currently taking legal proceedings against the companies Topy Top SA, Star Print SA, Sur Color Star SA and ICADIE/Diseño y Color. As regards the economic situation in 2008 mentioned in the complaint, a significant number of former workers have received payment of social benefits, while many cases were the subject of court action as decided by the former workers, therefore the employers are represented in these proceedings in accordance with the rules of due process before the competent authorities, whose decisions are not yet final.

C. The Committee’s conclusions

1. 871. The Committee observes that in the present complaint, the complainant organization objects to article 32 of Act No. 22342, applicable to industrial companies subject to the non-traditional export scheme, which authorizes them to conclude very short-term casual contracts which are renewed indefinitely for years and which have prejudicial effects on the exercise of trade union rights (because workers are afraid that their contracts will not be renewed) and on conditions of work. The complainant organization gives four companies as an example: in the first, there were mass dismissals of workers in 2007, among them many trade union members and some officials; in the second company, 93 workers were dismissed in 2007 for participating in trade union activities, the majority of them trade union members, and 70 workers were dismissed for reasons of downsizing; in the third company, 50 workers were dismissed, all trade union members, allegedly on the grounds of workforce reduction (according to the complainant, many of the dismissed workers were replaced by other workers); in the fourth company, 20 workers who were trade union officials or members were dismissed in 2008. The Committee notes the statements of the employers’ side concerning those dismissals, denying the anti-trade union characters of the dismissals, emphasizing the financial crisis and its repercussions with the decline in exports of up to 30 per cent, and indicating that they were not dismissals but “non-renewal” of contracts. According to the employers, the specific employment system in nontraditional exports is not perverse as indicated in the complaint but is appropriate to the economic situation of the sector and the non-renewals were the result of economic circumstances. The employers’ side further indicates that the non-renewals affected both unionized and non-union workers, and that in any case, in one of the companies where the complaint alleges anti-trade union dismissals, the company was unaware of the formation of a trade union.
2. 872. The Committee observes that the Government took steps, which were unsuccessful, to get the parties to reach an agreement and that, from the statements of the Government and the employers’ side, it emerges that the dismissed workers, or workers whose contract was not renewed in the companies concerned, had either accepted payment of their statutory social benefits or had decided to initiate legal proceedings which had not yet been the subject of a final decision. The Committee understands that the complainant organization seeks to focus the complaint not on the examples relating to the aforementioned companies (which are at the judicial stage or have lapsed because the workers have accepted payment of the statutory benefits) but on the amendment or repeal of article 32 of Act No. 22342, as it considers that casual contracts which are renewed indefinitely in the non-traditional exports sector have harmful effects on the exercise of trade union rights.
3. 873. In this respect, the Committee wishes to point out that its powers are confined to verifying that national law and practice respect the exercise of the trade union rights enshrined in the Conventions on freedom of association and do not include examination of the regime and duration of employment contracts or the level of conditions of work. Therefore, it can only concern itself with the problem raised by the complainant organization from a very restricted standpoint: the impact in practice of these short-term contracts which are renewed indefinitely on the exercise of trade union rights. The Committee cannot help but observe in this regard that in practice, as the Government points out, the labour inspections carried out in some of the companies mentioned by the complainant led to fines for anti-trade union practices. The Government also states in general, in the sector in question that “temporary contracts have been used repeatedly as a means of discouraging trade union membership” and that it had generated “negative effects on the level of social protection”. The Committee observes that the problem raised in this complaint is a matter of concern in the country, since the Government informs that various bills were submitted to the National Congress to amend or repeal article 32 of Act No. 22342 which failed for lack of consensus, and that the Supreme Court of Justice had established certain criteria on the problem. Lastly, the Committee notes the Government’s position, according to which: (1) it takes into account the temporary and fluctuating needs of non-traditional textile export companies, namely that these needs could be satisfied by forms of fixed-term contracts such as the “market needs contract”, which would mitigate the risk of unforeseen variations in market demand; and (2) it hopes to issue, in due course, the recommendations and measures to ensure the correct application of the exceptional contracting scheme mentioned above.
4. 874. Bearing in mind these statements, the Committee invites the Government to examine with the most representative workers’ and employers’ organizations, a way of ensuring that the systematic use of short-term temporary contracts in the non-traditional export sector does not become in practice an obstacle to the exercise of trade union rights. The Committee requests the Government to keep it informed in that respect.

The Committee's recommendations

1. 875. In the light of its foregoing conclusions, the Committee invites the Governing Body to approve the following recommendation:
   • The Committee invites the Government to examine, with the most representative workers’ and employers’ organizations, a way of ensuring that the systematic use of short-term temporary contracts in the non-traditional export sector does not become in practice an obstacle to the exercise of trade union rights. The Committee requests the Government to keep it informed in that respect.