Reclassification of fixed-term contracts is one of the quietest liabilities in a Peruvian workforce. Nothing happens while the employee keeps working and the renewals keep coming. The problem surfaces at a specific moment: when the company decides not to renew, when an inspector reviews the contract files, or when a buyer’s lawyers open the data room. At that point, an employee the company thought of as temporary may turn out to have had an indefinite contract, with the protection against dismissal that goes with it.
The Peruvian term is desnaturalización: the fixed-term contract loses its nature and is treated as indefinite. This article explains when that happens, how it is usually detected, what it costs and how to reduce the risk. It builds on our overview of fixed-term employment contracts in Peru and forms part of the guide to employment contracts in Peru.
Why the starting point matters
Peruvian law presumes that any relationship involving personal, paid and subordinated work is an employment contract of indefinite duration. A fixed-term contract (contrato sujeto a modalidad) is a permitted exception, available only in the statutory types and only for an objective cause that makes the need temporary. Because it is an exception, the employer carries the burden of showing that it fits. When it does not, the law does not “fix” the contract by adjusting its term; it simply applies the default rule.
For readers used to jurisdictions where fixed-term and permanent employment are interchangeable commercial choices, this is the key conceptual shift. In Peru, a fixed term is a legal status that must be earned and maintained throughout the relationship.
The statutory triggers
Article 77 of the Labor Productivity and Competitiveness Law (LPCL) lists the cases in which a fixed-term contract is deemed indefinite.
Working beyond the term or the legal maximum
If the employee continues working after the agreed end date or the last renewal, or after the maximum duration allowed for that contract type, the contract becomes indefinite. There is no statutory grace period. The same applies when successive fixed-term contracts with the same employee exceed the overall five-year cap.
Continuing after a project ends
In a contract for a specific work or service, if the employee continues to work after the project has been completed without a proper renewal, the relationship becomes indefinite.
Continuing after a replacement ends
In a replacement contract, if the permanent employee returns and the replacement continues working, the replacement becomes indefinite.
Simulation or fraud
The broadest trigger is proof of simulation or fraud against the law. This is where most disputes arise, because it does not depend on dates but on substance. Typical indicators include:
- An objective cause written in generic terms (“to meet business needs”) that could apply to any job.
- A cause that does not match the employee’s actual duties, such as a “new activity” contract for someone performing an established core function.
- A “temporary” role that has been filled continuously for years by the same person or by a succession of fixed-term employees.
- Rotating the employee through different contract types to extend the fixed-term period.
- An increase in activity that was never documented, or that ended long before the contract did.
SUNAFIL, Peru’s national labor inspection authority, and the labor courts apply the primacy-of-reality principle: they look at what the employee does and why the position exists, not at the label in the contract.
Key point
Dates-based triggers are easy to control with a calendar. Simulation is not. It is prevented only by choosing the correct contract type at the outset and by writing an objective cause that is concrete, true and supported by evidence.
What does not, by itself, convert a contract
Failing to file the contract with the labor authority within 15 calendar days is an administrative infringement. The prevailing view is that it does not, on its own, turn the contract into an indefinite one, although there are nuances in case law. The practical point is that an unfiled contract tends to invite a closer look at everything else.
Consequences
The effects of reclassification depend on when it is discovered.
| When it surfaces | Typical consequence | Exposure |
|---|---|---|
| During employment | Employee is treated as indefinite from the relevant date | Loss of flexibility; no change to accrued benefits, which are equal anyway |
| At non-renewal | The “expiry” may be treated as a dismissal without cause | Statutory compensation or a reinstatement claim |
| In a SUNAFIL inspection | Inspector may require recognition of indefinite status | Fines for infringements found; broader review of files |
| In a transaction | Buyer identifies a population of de facto indefinite employees | Price adjustments, specific indemnities or pre-closing remediation |
Dismissal exposure
The most significant consequence arises when the employer lets a reclassified contract “expire”. If the employee was in fact indefinite, the end of the relationship is not an expiry but a termination, and there was no just cause or dismissal procedure. The employee may then claim the statutory compensation for despido arbitrario (unfair dismissal), set at 1.5 monthly salaries per full year of service with a cap of 12 monthly salaries. Constitutional Court case law also allows claims for reinstatement where the dismissal had no stated cause. We cover both routes in unfair dismissal in Peru. Claims must be brought within 30 days of the dismissal, excluding days on which the courts are closed.
Accounting and transaction exposure
For groups that report to foreign parents or investors, reclassification risk is also a measurement issue. A company with dozens of long-running fixed-term employees may be carrying a liability that does not appear anywhere in its accounts. Our article on identifying and sizing employment liabilities explains how to estimate and provision it.
Illustrative scenario
Illustrative scenario: a multinational’s regional shared-services center in Lima was set up four years ago. To keep headcount “flexible”, the center hired analysts on contracts for increase of activity, renewed every six months with the same objective cause. A strategic buyer now reviews the center as part of a carve-out. The buyer’s advisers note that the center has operated at a stable size for three years, that the “increase” is not documented after the first year and that some analysts are close to the three-year maximum for that contract type. They classify the analysts as likely indefinite employees, request a specific indemnity and ask that indefinite contracts be offered before closing. The seller’s position would have been far stronger had the center moved to indefinite contracts once operations stabilized.
Common mistakes
- Treating renewals as a routine HR task, signed after the expiry date when the employee has already continued working.
- Using the contract for new or increased activity years after the activity stopped being new.
- Keeping a single objective cause across every renewal without updating the facts.
- Switching contract types to reset the clock.
- Asking an employee whose contract is already indefinite to sign a new fixed-term contract.
- Ending a long-running fixed-term relationship without first assessing whether it is still fixed-term.
Audit checklist
- List every fixed-term employee with contract type, start date, each renewal and the cumulative period.
- Check each against the maximum for its type and the five-year aggregate cap.
- Confirm that every renewal was signed before the preceding term expired.
- Read each objective cause and test it against the employee’s real duties and the supporting evidence.
- Confirm filings with the labor authority.
- Identify roles that have been filled continuously by fixed-term staff for long periods.
- Flag employees for whom non-renewal is planned and review them before any decision is communicated.
Preventive recommendations
In our practice we recommend a short review before every non-renewal decision and a full review of fixed-term contracts at least once a year. Where the review shows that a role has become permanent, the most defensible course is usually to offer an indefinite contract going forward rather than continuing to renew. Where a fixed term remains justified, update the objective cause and keep the evidence on file. For groups planning a transaction, remediation before the data room opens is almost always cheaper than negotiating an indemnity afterwards.
Our employment contract drafting work includes these reviews, together with redrafting templates so that the same issues do not recur.
Bottom line
Reclassification is not a technicality. It changes the legal status of the employee and turns what the company planned as an expiry into a dismissal. The dates can be controlled with basic discipline; the harder part is the substance of the objective cause. Companies that use fixed terms only for genuinely temporary needs, and move to indefinite contracts when a need becomes permanent, remove most of this risk before it becomes a claim.