Definitive Report - Report No 365, November 2012

Case No 2934 (Peru) - Complaint date: 14-FEB-12 - Closed

Allegations: The complainant organization objects to a ministerial decision requiring the parties involved in voluntary arbitration in collective bargaining with the public sector to use State appointed and trained arbitrators; it also objects to the requirement for arbitrators to adhere to the weighting criteria relating to the public budget

1. 1228. The Peruvian Federation of Workers of “Luz y Fuerza” (FTLFP) presented a complaint in a communication dated 14 February 2012.
2. 1229. The Government of Peru sent its reply in a communication dated 4 May 2011.
3. 1230. Peru has ratified the Freedom of Association and Protection of the Right to Organise Convention, 1948 (No. 87), the Right to Organise and Collective Bargaining Convention, 1949 (No. 98), and the Labour Relations (Public Service) Convention, 1978 (No. 151).

A. The complainant’s allegations

1. 1231. In its communication dated 14 February 2012, the FTLFP states that it is a national organization with branches nationwide, representing workers from electricity-generating companies in Peru, i.e. the workers of companies considered to be essential services, but subject to private sector labour laws.
2. 1232. The complainant states that, on 17 September 2011, Supreme Decree No. 014-2011-TR, inserting the so-called “article 61-A” into the text of the Regulations of the Labour Relations Act approved by Supreme Decree No. 011-92-TR, was published in the Official Standards Bulletin. Supreme Decree No. 014-2011-TR provided for, inter alia, the inclusion of the notion of voluntary arbitration. This means that, in the absence of a collective bargaining agreement, either party may, through the legal institution for labour affairs and pursuant to national labour law standards, subject the other party to arbitration proceedings in which a third party will settle the financial dispute. In accordance with article 2 of Supreme Decree No. 014-2011-TR, Peru established the so-called “National Register of Arbitrators”, an institution which, according to the standard itself, will be coordinated by the Ministry of Labour and Employment Promotion, and will also be composed of professionals with recognized experience. The last part of article 2 states that, “when the rules on collective labour relations stipulate that the administrative labour authority must appoint an arbitrator, or when requested by one or both parties, it is understood that this power shall be conferred on the General Labour Directorate”.
3. 1233. The complainant states that the Peruvian State, after incorporating voluntary arbitration into domestic legislation, established a body responsible for training arbitrators to intervene in a dispute, should any of the parties so request, and not because of any requirement of the Peruvian State itself.
4. 1234. The complainant notes that, on 24 September 2011, the Minister of Labour and Employment Promotion published Ministerial Decision No. 284-2011-TR in the Official Standards Bulletin. This is a lower ranking standard relating to the Collective Labour Relations Act, Supreme Decree No. 011-92-TR (Regulations of the Collective Labour Relations Act) and Supreme Decree No. 014-2011-TR itself. This decision introduces the requirement that, in order to arbitrate in collective bargaining in state institutions and companies subject to private sector labour laws, which includes the companies where the FTLFP members are employed, arbitrators should be listed on the National Register of Collective Bargaining Arbitrators (RENANC) and also to have completed the training course on collective bargaining in the public sector organized by the Ministry of Labour and Employment Promotion.
5. 1235. According to the complainant, over-regulating with a lower ranking standard such as a ministerial decision on the act and a supreme decree not only violates the universal principle of the hierarchy of standards, but also requires the parties, in this case from state institutions and companies, to use an arbitrator (an individual), or arbitrators (court) appointed, trained and predetermined by the State itself, without allowing either party to choose their arbitrator freely, undermining the principle of impartiality and independence. In fact, before the amendments to the Collective Labour Relations Act No. 25593 (now included in the Consolidated Text approved by Supreme Decree No. 003-2010-TR), participation by the labour authority in collective bargaining in state companies subject to private sector labour laws used to be an exception, i.e. when no consensus had been reached on the choice of arbitrator, or when the arbitrators were appointed by the party and no agreement had been reached on the choice of chair of the Arbitration Tribunal – as provided in article 64. This situation has now been changed by the legislation under dispute.
6. 1236. The complainant adds that, on 9 December 2011, Act No. 29812 on the Public Sector Budget for 2012 was published in the Official Standards Bulletin, whose 54th supplementary and final provision created a “special council”, which will appoint the chair of the Arbitration Tribunal in the event the parties fail to agree on the appointment. The “special council” will be established by supreme decree. Lastly, Ministerial Decision No. 331-2011-TR sets out the requirements for entry on the National Register of Collective Bargaining Arbitrators, corroborating the requirement for the parties of state companies subject to private sector labour laws only to appoint as arbitrators experts included on the professional register and who have completed the course organized by the Ministry of Labour itself, which impinges on the freedom of the trade union to choose the expert to represent it in the arbitration process freely and undermines the principle of independence.
7. 1237. Thus, according to the complainant: (i) a register of arbitrators was established, compiled by the State, to settle financial disputes in which the State itself is a party, since it involves state companies subject to private sector labour laws; (ii) the parties in the dispute are required to use arbitrators from the Ministry of Labour and Employment Promotion’s register, with pro-State training and legal criteria, since their training is provided by the Ministry of Labour and Employment Promotion; (iii) a body was created (special council) which will directly appoint the chair of the Arbitration Tribunal in the event the arbitrators on the register fail to agree on the selection; and (iv) moreover, at the time of submitting the present complaint, there was only one register with 19 arbitrators working at national level, comprising lawyers from law firms sponsoring employers’ interests, i.e. the Peruvian State.
8. 1238. The complainant considers that, in the present case, requiring one of the parties to use an arbitrator from a register compiled by the State itself through its Ministry of Labour and Employment Promotion restricts the freedom of the FTLFP to make a free choice in selecting the expert to represent it in arbitration proceedings to settle disputes in the collective bargaining of which it is a party. This requirement is contained in article 2 of Supreme Decree No. 014-2011-TR.
9. 1239. In addition, the complainant states that, as provided in article 65 of the Collective Labour Relations Act, arbitrators decide on the collective bargaining of workers in state institutions and companies subject to private sector labour laws using the criteria of “fairness”. In other words, in settling the financial dispute they do not necessarily use the existing legal framework. Article 2 of Ministerial Decision No. 284-2011-TR, however, requires collective bargaining arbitrators within a state institution or company to use the so-called “weighting criteria”, which are none other than those contained in articles 77 and 78 of the State’s Political Constitution, relating to the public sector budget, and those contained in the Constitutional Court’s judgments upholding full adherence to the budget standards set by the National Fund for Financing the Business of State (FONAFE), a body that decides on the remuneration policy for workers in state companies. In conclusion, arbitrators settle the dispute following criteria pursuant to the Collective Labour Relations Act. However, Ministerial Decision No. 284-2011-TR, a lower ranking standard, requires an arbitration settlement following restrictive legal criteria on remuneration, which are none other than those specified by the FONAFE, a body that decides on the wage policy of state companies. This situation yet again demonstrates the serious interference of the Peruvian State in collective bargaining.
10. 1240. In conclusion, according to the complainant, the above legislative changes have merely served to conceal increasing State intervention in collective bargaining, which is regulated by the Collective Labour Relations Act, in order to restrict its effectiveness in solving the labour and wage problems of national trade unions formed within Peruvian state companies. These legal modifications violate the collective and external aspects of the principle of freedom of association.

B. The Government’s reply

1. 1241. In its communication of 4 May 2012, the Government first states that the complaint is unfounded, for the following reasons:
   • – the requirements for entry on the RENANC are extremely flexible and in no way define a certain pro-employer or pro-State profile for the arbitrators registering on it. Consideration has also been given to prohibiting registration by persons directly involved with the State (public officials and public employees);
   • – in the interests of safeguarding the impartiality of arbitrators, a discretionary restriction has been imposed on the Regional Labour Directorate whereby when it is called upon to appoint an arbitrator, it will not choose lawyers, advisers, representatives or, in general, anyone who has a relationship with the parties or direct or indirect interest in the outcome;
   • – the purpose of the training course on collective bargaining in the public sector is not to train arbitrators using pro-State criteria. It is purely an eight-hour, non-assessed training course with the sole purpose of informing potential arbitrators about the special circumstances existing in state institutions due to budgetary constraints;
   • – the budget restrictions called for in collective bargaining cases in state institutions or companies subject to private sector labour laws have been validated by the highest authority interpreting the Spanish Constitution, the Constitutional Court itself;
   • – inhibiting the power of the Ministry of Labour and Employment Promotion to appoint the chair of the Arbitration Tribunal when the parties fail to agree, and granting this power to a special council, which will include a representative from civil society, far from undermining or violating the principle of independence, means just the opposite; the aim is for an independent body, rather than a state institution, to appoint the chair of the Arbitration Tribunal.
2. 1242. The Government adds that voluntary arbitration has been established as a mechanism for peaceful dispute settlement, actionable only in certain circumstances and not merely in the absence of an agreement. Thus, according to article 61-A of the Collective Labour Relations Act, which was inserted into the text by Supreme Decree No. 014-2011-TR, recourse to voluntary arbitration may be possible: (a) when no agreement has been reached on the level and contents in the first round of collective bargaining; and (b) when, during collective bargaining, malicious acts are observed which are aimed at delaying, hindering, or preventing any agreement being reached. According to the Government, it is thus promoting the peaceful settlement of disputes, respecting the negotiating autonomy of trade union and employers’ organizations.
3. 1243. It should be noted that the RENANC, implemented by the Ministry of Labour and Employment Promotion, is an open register containing highly flexible eligibility requirements. Indeed, article 1 of Ministerial Decision No. 331-2011-TR states that the only requirements for registration on the RENANC are: (i) to hold a professional qualification; (ii) to be listed on a professional register when membership of the relevant professional association is compulsory; (iii) to have at least five years’ experience in professional practice and/or university teaching; (iv) not to be disqualified from working for the State and/or from public service; and (v) not to have been disciplined because of their professional conduct by the judiciary, Constitutional Court, or the relevant professional association.
4. 1244. These requirements do not define a certain pro-corporate profile, as the complainant suggests, but merely ensure that the arbitrators selected by the parties possess professional skills. Article 2 of the ministerial decision has also taken care to prohibit the registration of public officials and public employees in order to safeguard their impartiality. Furthermore, article 3 of the aforementioned standard provides that, when the general labour inspectorate is called upon to appoint an arbitrator, on no account will they be lawyers, advisers, representatives or, in general, anyone who has a relationship with the parties or direct or indirect interest in the outcome, which provides evidence of the intention to ensure the impartiality of Ministry-appointed arbitrators.
5. 1245. With regard to the training course on collective bargaining in the public sector, the Government states that, since it is an eight-hour, non-assessed course, its purpose is not to train arbitrators using pro-State criteria, as the complainant claims. On the contrary, the purpose of the course is to inform arbitrators about the special circumstances existing in state institutions due to budgetary constraints. It should be noted that even the Committee on Freedom of Association and the Committee of Experts on the Application of Conventions and Recommendations have noted that it is entirely valid to establish special circumstances with regard to collective bargaining in central administration institutions. It is precisely these special circumstances that are referred to in Ministerial Decision No. 284-2011-TR. In fact, article 2 of the decision states that in collective bargaining in state institutions and companies subject to private sector labour laws the provisions of articles 77 and 78 of the Peruvian Political Constitution and those expanded upon by the Constitutional Court in the judgments handed down in Cases Nos 008-2005-PI/TC and 1035-2011-AC/TC must be taken into account.
6. 1246. The Government adds that the Constitutional Court, in its judgment on Case No. 008 2005-PI/TC, ruled that:
   • …
   • Therefore, to ensure a proper interpretation of the exercise of the right to collective bargaining by public servants, according to the fourth final and transitional provision of the Constitution, we must pay heed to the ILO Convention concerning Protection of the Right to Organise and Procedures for Determining Conditions of Employment in the Public Service, 1978 (No. 151).
   • Article 7 of the Convention provides that measures appropriate to national conditions should be taken, where necessary, to encourage and promote the full development and utilization of machinery for negotiation of terms and conditions of employment between the public authorities concerned and public employees’ organizations, or of such other methods as will allow representatives of public employees to participate in the determination of these matters.
   • In the case of Peru, the exercise of the right to collective bargaining by public servants, through their unions, like any other right, is not absolute and is subject to limits.
   • In fact, within the national conditions referred to in Convention No. 151, the Constitution lays down certain rules relating to the public budget. Indeed, under articles 77 and 78 of the supreme law, the budget allocates public resources fairly, and its programme must be effectively balanced.
   • Consequently, if the employer of public servants is the State through its various agencies, budgetary constraints arising from the Constitution must be adhered to in all areas of the State.
   • Collective bargaining involving public servants should, therefore, be carried out taking into consideration the constitutional constraint imposed by a fair and balanced budget, which is approved by Congress, as the terms and conditions of employment in the public service are funded from resources contributed by taxpayers and the State.
   • Furthermore, collective bargaining in the workplace involves balancing positions, negotiating and reaching a genuine agreement that both parties can fulfil. In this regard, if the law fails to stipulate that any action relating to public employment that has budgetary implications must be properly authorized and budgeted, it would infringe the right to collective bargaining and freedom of association.
   • Indeed, immediately after agreements reached through collective bargaining, in accordance with existing legislation for public servants, any actions that have financial implications may be authorized and included in the budget programme.
   • The Constitutional Court therefore considers that article IV, paragraph 10, of Title 1 of Act No. 28175 does not violate the right to collective bargaining of public servants, as this standard is compatible with the constitutional budgetary constraints provided for under the Constitution.
7. 1247. The Government states that the only condition that the Constitutional Court imposes on the collective bargaining exercise is adherence to the budgetary constraints arising from the Peruvian Political Constitution. It is clear that the Constitutional Court does not deny state employees the enjoyment of the right to collective bargaining, but it does subject them to budgetary rules, pointing out that any financial agreements reached should be budgeted.
8. 1248. With regard to Case No. 1035-2011-AC/TC, the Constitutional Court recognizes certain special budgetary circumstances existing in local government relative to central government given that, although the former is financed from the public budget, it also has its own funding source. This leads to the recognition of a special autonomy in budget matters, which in turn validates the application of special rules for establishing specific conditions for the granting of wage increases through collective bargaining. This is recognized in successive budget rules, which stated that local government measures to increase remuneration should be funded exclusively from its own resources.
9. 1249. Furthermore, the Government adds that it should be pointed out that the complainant organization is composed of state company employee trade unions, whose income comes almost entirely from funds raised directly. Budgetary constraints on state institutions (which have also been validated at both national and international level) therefore have little impact on them.
10. 1250. With regard to the extreme nature of the complaint filed against the 54th supplementary and final provision of the Act on the Public Sector Budget for 2012, the Government states that, far from amounting to State interference and a violation of the principle of independence, the aim is to reduce the extent of State intervention. In fact, the provision states that when the parties fail to agree on the appointment of the chair of the Arbitration Tribunal, a special council, which will include a representative from civil society, will appoint the chair of the Arbitration Tribunal, rather than the selection being made by the Ministry of Labour and Employment Promotion. It is clear, therefore, that the purpose of the provision referred to, far from undermining the independence of the Arbitration Tribunal and freedom of association, is to safeguard both rights.
11. 1251. According to the Government, there has been no violation of the right to freedom of association, as the complainant claims; indeed, the State has managed to safeguard this right through its regulations, since protection has been afforded by its ratification of supranational instruments and the enactment of domestic legislation.

C. The Committee’s conclusions

1. 1252. The Committee observes that in the present case the FTLFP objects to Ministerial Decision No. 284-2011-TR, which introduces the requirement that, in order to act as an arbitrator in collective bargaining in state institutions and companies subject to private sector labour laws, arbitrators should be listed on the RENANC and also have completed the training course on collective bargaining in the public sector organized by the Ministry of Labour and Employment Promotion. The complainant alleges that: (1) the principle of impartiality and independence is being undermined by this decision, which requires the parties to use arbitrators appointed, trained and predetermined by the State itself without allowing them to make that choice (according to the complainant, to date only 19 arbitrators working at national level have been registered, who are lawyers from law firms sponsoring employers’ interests); (2) it was decided through the Act on the Public Sector Budget for the 2012 tax year to create a special council, to be established by supreme decree, to appoint the chair of the Arbitration Tribunal in the event the parties fail to agree on the appointment; and (3) article 2 of the decision in question requires collective bargaining arbitrators within a state institution or company to use the so-called weighting criteria relating to the public sector budget contained in articles 77 and 78 of the State’s Political Constitution and those contained in the Constitutional Court’s judgments upholding full adherence to the budget standards set by the FONAFE (a body that decides on the remuneration policy for workers in state companies).
2. 1253. With regard to the allegations that within the framework of voluntary arbitration the parties are required in collective bargaining in state institutions and companies subject to private sector labour laws to use arbitrators appointed, trained and predetermined by the State itself without allowing them to make that choice, the Committee notes that the Government states as follows: (1) the requirements for entry on the RENANC are extremely flexible and in no way define a certain pro-employer or pro-State profile for the arbitrators registering on it. Consideration has also been given to prohibiting registration by persons directly involved with the State (public officials and public employees); (2) in the interests of safeguarding the impartiality of arbitrators, a discretionary restriction has been imposed on the regional labour directorate whereby when it is called upon to appoint an arbitrator, it will not choose lawyers, advisers, representatives or, in general, anyone who has a relationship with the parties or direct or indirect interest in the outcome; (3) the purpose of the training course on collective bargaining in the public sector is not to train arbitrators using pro-State criteria. It is purely an eight-hour, non-assessed training course with the sole purpose of informing potential arbitrators about the special circumstances existing in state institutions due to budgetary constraints; (4) it is an open register containing highly flexible eligibility requirements: (i) to hold a professional qualification; (ii) to be listed on a professional register when membership of the relevant professional association is compulsory; (iii) to have at least five years’ experience in professional practice and/or university teaching; (iv) not to be disqualified from working for the State and/or from public service; and (v) not to have been disciplined because of their professional conduct by the judiciary, Constitutional Court, or the relevant professional association; (5) these requirements do not define a certain pro-corporate profile, as the complainant suggests, but merely ensure that the arbitrators selected by the parties possess professional skills (care has been taken to prohibit the registration of public officials and public employees in order to safeguard their impartiality and, furthermore, article 3 of the aforementioned standard provides that, when the general labour inspectorate is called upon to appoint an arbitrator, on no account will they be lawyers, advisers, representatives or, in general, anyone who has a relationship with the parties or direct or indirect interest in the outcome, which provides evidence of the intention to ensure the impartiality of Ministry-appointed arbitrators); and (6) with respect to the training course, its purpose is to inform arbitrators about the special budget circumstances existing in the public sector, since even at international level it has been noted that it is entirely valid to establish special circumstances with regard to collective bargaining in central administration institutions.
3. 1254. In this respect, the Committee observes that, according to article 1 of Supreme Decree No. 014-2011-TR, in the case of voluntary arbitration “the parties must appoint their arbitrators within a period of no more than five working days” and that under article 2 of the decree the RENANC was established, on which arbitrators must be registered to be able to take part in collective bargaining. The Committee considers that these provisions, which, as indicated by the Government, set out conditions to ensure the independence and impartiality of the arbitrators, do not violate the principles of freedom of association. Furthermore, the Committee observes that the requirements for entry on the RENANC are reasonable. In these circumstances, the Committee will not proceed with the examination of these allegations.
4. 1255. With regard to the disputed decision to create a special council, to be established by supreme decree, to appoint the chair of the Arbitration Tribunal in the event the parties fail to agree on the appointment, which was handed down through the Act on the Public Sector Budget for the 2012 tax year, the Committee notes that the Government states that inhibiting the power of the Ministry of Labour and Employment Promotion to appoint the chair of the Arbitration Tribunal when the parties fail to agree, and granting this power to a special council, which will include a representative from civil society, far from undermining or violating the principle of independence, means just the opposite; the aim is for an independent body, rather than a state institution, to appoint the chair. In this respect, observing that the Budget Act does not specify who the members of the special council will be and that it merely states that it will include a representative from civil society, the Committee requests the Government to take the necessary steps to ensure that the members of the special council who appoint the chair of the Arbitration Tribunal in the event the parties fail to reach an agreement are appointed in consultation with the social partners.
5. 1256. Concerning the allegation that article 2 of Ministerial Decision No. 284-2011-TR requires collective bargaining arbitrators within a state institution or company to use the so-called weighting criteria relating to the public sector budget contained in articles 77 and 78 of the State’s Political Constitution and those contained in the Constitutional Court’s judgments upholding full adherence to the budget standards set by the FONAFE (a body that decides on the remuneration policy for workers in state companies), the Committee notes that the Government states that: (1) the budget restrictions called for in collective bargaining cases in state institutions or companies subject to private sector labour laws have been validated by the Constitutional Court, which is the highest authority interpreting the Spanish Constitution; (2) the purpose of the training course on collective bargaining in the public sector is to inform arbitrators about the special budget circumstances existing in the public sector; (3) the Committee on Freedom of Association and the Committee of Experts on the Application of Conventions and Recommendations have noted that it is entirely valid to establish special circumstances with regard to collective bargaining in central administration institutions and it is precisely these special circumstances that are referred to in Ministerial Decision No. 284-2011-TR; (4) article 2 of the decision states that in collective bargaining in state institutions and companies subject to private sector labour laws, the provisions of articles 77 and 78 of the Peruvian Political Constitution and those expanded upon by the Constitutional Court in the judgments handed down in Cases Nos 008-2005-PI/TC and 1035-2011-AC/TC must be taken into account; (5) the only condition that the Constitutional Court imposes on the collective bargaining exercise is adherence to the budgetary constraints arising from the Peruvian Political Constitution and it is clear that the Constitutional Court does not deny state employees the enjoyment of the right to collective bargaining, but it does subject them to budgetary rules, pointing out that any financial agreements reached should be budgeted; and (6) the complainant organization is composed of state company employee trade unions, whose income comes almost entirely from funds raised directly; budgetary constraints on state institutions (which have also been validated at both national and international level) therefore have little impact on them.
6. 1257. In this regard, the Committee recalls that it shared the viewpoint of the Committee of Experts in its 1994 General Survey, when it stated that: “While the principle of autonomy of the parties to collective bargaining is valid as regards public servants covered by Convention No. 151, the special characteristics of the public service described above require some flexibility in its application.” Thus, in the view of the Committee, legislative provisions which allow Parliament or the competent budgetary authority to set upper and lower limits for wage negotiations or to establish an overall “budgetary package” within which the parties may negotiate monetary or standard-setting clauses (for example: reduction of working hours or other arrangements, varying wage increases according to levels of remuneration, fixing a timetable for readjustment provisions) or those which give the financial authorities the right to participate in collective bargaining alongside the direct employer are compatible with the Convention, provided they leave a significant role to collective bargaining. It is essential, however, that workers and their organizations be able to participate fully and meaningfully in designing this overall bargaining framework, which implies in particular that they must have access to all the financial, budgetary and other data enabling them to assess the situation on the basis of the facts. This is not the case of legislative provisions which, on the grounds of the economic situation of a country, impose unilaterally, for example, a specific percentage increase and rule out any possibility of bargaining, in particular by prohibiting the exercise of means of pressure subject to the application of severe sanctions. The Committee is aware that collective bargaining in the public sector “calls for verification of the available resources in the various public bodies or undertakings, that such resources are dependent on state budgets and that the period of duration of collective agreements in the public sector does not always coincide with the duration of budgetary laws – a situation which can give rise to difficulties”. The Committee therefore takes full account of the serious financial and budgetary difficulties facing governments, particularly during periods of prolonged and widespread economic stagnation. However, it considers that the authorities should give preference as far as possible to collective bargaining in determining the conditions of employment of public servants; where the circumstances rule this out, measures of this kind should be limited in time and protect the standard of living of the workers who are the most affected. In other words, a fair and reasonable compromise should be sought between the need to preserve as far as possible the autonomy of the parties to bargaining, on the one hand, and measures which must be taken by governments to overcome their budgetary difficulties, on the other [see Digest of decisions and principles of the Freedom of Association Committee, fifth (revised) edition, 2006, para. 1038]. Hence, while it considers that the requirement itself for arbitrators to take into account available resources in the public budget is not contrary to the principles of freedom of association and collective bargaining, the Committee requests the Government to ensure respect for those principles.

The Committee’s recommendation

1. 1258. In light of its foregoing conclusions, the Committee invites the Governing Body to approve the following recommendation:
2. With regard to the disputed decision to create a special council, to be established by supreme decree, to appoint the chair of the Arbitration Tribunal in the event the parties fail to agree on the appointment, which was handed down through the Act on the Public Sector Budget for the 2012 tax year, the Committee requests the Government to take the necessary steps to ensure that the members of the special council in question are appointed in consultation with the social partners.