Introduction Principles of facultative arbitration Facultative arbitration process Comment

Introduction

Arbitration in labour matters has increased in popularity in Peru since 2011, when Supreme Decree 014-2011-TR, which modified the Collective Labour Relations Law, entered into force. Subsequently, union claims have risen and fewer collective bargaining agreements have been concluded in recent years. Conversely, there were 77 registered (and presumably more unregistered) arbitration decisions between 2012 and 2015.

At present, the arbitration processes available in Peru are voluntary arbitration and facultative arbitration. Voluntary arbitration occurs when both parties agree to engage in arbitration. The process is free and essentially voluntary, and parties can agree to start the process at any stage during negotiations. Facultative arbitration is based on the principle that one party's willingness is sufficient to commence the process. Thus, if direct negotiation between parties fails, either party can force the other to engage in arbitration (unless the workers instead choose to strike).

The increasing tendency to use arbitration during the collective bargaining process has markedly changed parties' negotiation strategies.

Principles of facultative arbitration

In facultative arbitration, disputes are resolved by a third party (ie, an arbitration board). It is applicable to any level of negotiation (eg, at the company or union level) and is available:

  • during the initial collective bargaining negotiations if no agreement can be obtained; and
  • if a party acted in bad faith during the negotiations.

Despite the above criteria, a section of the doctrine and some arbitrators consider that arbitration can proceed without cause, when a party so requires, based on a criterion of the Constitutional Court and the Supreme Court of Justice that is still subject to interpretation.

Facultative arbitration is not available during an industrial action.

Facultative arbitration process

Facultative arbitration is a short-term process; by law, it can last a maximum of 30 consecutive days from the appointment of the arbitration board, although – in practice – it usually lasts between two and three months.

The arbitration board will comprise three members: two members must be appointed by the parties and will then choose a third member to act as president.

After the appointment of the arbitration board, the parties will be given a deadline for submitting their final collective bargaining agreement proposal. Each party will be notified of the other's final proposal and will have an opportunity to file observations. A hearing will then be scheduled in which each party will orally defend its final proposal before the board.

The arbitration board must adopt one party's entire proposal; it cannot combine the proposals, although it can attenuate its chosen proposal. In practice, this option enables the board to mitigate or increase the amounts offered by the party whose proposal is chosen. The board is not required to provide the grounds for its decision. Some arbitrators consider that acting in bad faith during the negotiations should have an impact on the economic outcome of the decision.

Statistically, unions have obtained better results through arbitration than voluntary negotiation. However, there has been a decline in this trend since 2016 and the chances of the board choosing either party's proposal are now more or less equal.

Arbitration does not prevent parties from entering into an agreement before the arbitration board issues its decision. Further, after the decision has been issued, parties can negotiate a collective bargaining agreement which includes the economic aspects of the board's decision.

Parties can appeal an arbitration decision. However, the grounds for doing so are limited to procedural concerns; substantive issues cannot be challenged.

Comment

In light of the above, negotiation strategies at present are designed around the possibility of engaging in arbitration or being forced to do so.

For further information on this topic please contact Jorge Toyama Miyagusuku or Flavia Zarins Wilding at Miranda & Amado Abogados by telephone (+51 1 610 4747) or email (jtoyama@mafirma.com.pe or fzarins@mafirma.com.pe). The Miranda & Amado Abogados website can be accessed at www.mafirma.pe.

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