Unfair dismissal in Peru: statutory severance and reinstatement risk

For a board or a CFO sizing a termination in Peru, the question is rarely “can we do it?” but “what will it cost, and can it be undone?” The answer depends on how the dismissal is classified. Peruvian law and constitutional case law distinguish several categories of improper dismissal, and each carries a different remedy: a capped statutory severance payment in some cases, and reinstatement with back pay in others.

This article explains those categories, how statutory severance is calculated, when reinstatement becomes a realistic risk, and why a global restructuring decision taken abroad does not translate neatly into a lawful dismissal in Peru. The broader system is covered in our guide to termination of employment in Peru.

The starting point: no dismissal without cause

Unlike at-will jurisdictions, Peru requires a just cause for dismissing any employee who works four or more hours a day and has completed the probationary period. Article 22 of the Productivity and Competitiveness Law (the consolidated text of Legislative Decree 728, or LPCL) limits valid causes to those related to capacity or conduct, which must be duly proven. There is no general “business reasons” ground for individual dismissals. Terminations for economic, technological, structural or similar reasons are possible only as a collective termination (cese colectivo) covering at least 10% of the workforce, under a procedure before the Ministry of Labor and Employment Promotion (MTPE), which includes informing and negotiating with worker representatives.

How Peruvian law classifies improper dismissals

The statutory model: severance as the sole remedy

Article 34 of the LPCL provides that, when a dismissal is arbitrary because no cause was stated or the cause could not be proven in court, the employee is entitled to severance “as the only compensation for the harm suffered”. Article 38 sets the amount:

• 1.5 ordinary monthly salaries per full year of service;
• capped at 12 ordinary monthly salaries;
• fractions of a year paid in twelfths and thirtieths;
• the probationary period is not counted.

For fixed-term contracts terminated early without cause, article 76 sets a different formula: 1.5 ordinary monthly salaries for each month remaining until the contract’s end date, also capped at 12.

The constitutional overlay: reinstatement

In Exp. 1124-2001-AA/TC (2002), a case brought by the union of workers of a major telecommunications company, the Constitutional Court held that treating severance as the only remedy for a dismissal without any stated cause emptied the constitutional right to work of content, and ordered reinstatement. In Exp. 976-2001-AA/TC (Llanos Huasco, 2003), the Court systematized three categories where reinstatement is available: null, incausado and fraudulent dismissals. Exp. 0206-2005-PA/TC (Baylón Flores, 2005), a binding precedent, set out when these claims can be brought through a constitutional amparo action and when they belong in ordinary labor courts. Exp. 02383-2013-PA/TC (Elgo Ríos Núñez, 2015), another precedent, established criteria for deciding whether an ordinary route is “equally satisfactory”. In practice, reinstatement claims are now commonly brought in the expedited process of the New Labor Procedure Law (Law 29497).

Null dismissals

Article 29 of the LPCL makes a dismissal null when it is motivated by union membership or activity, standing as a worker representative, filing a complaint against the employer (unless serious misconduct is established), discrimination, or pregnancy, birth and breastfeeding (with a presumption if the dismissal occurs during pregnancy or within 90 days after birth and no just cause is proven). Special laws add HIV/AIDS and disability. Law 32431 (2025) added dismissals motivated by a cancer diagnosis, its treatment or effects, extending protection to part-time employees, employees on probation and trust staff; Supreme Decree 008-2026-TR adds a presumption where the employee had disclosed the diagnosis and the employer cannot prove an unrelated just cause.

Senior managers and trust positions

Foreign groups often assume that senior local managers can be removed more freely. The picture is mixed. Peruvian law recognizes management (dirección) and trust (confianza) positions under article 43 of the LPCL, and the Constitutional Court has accepted that withdrawal of confidence can end the relationship of someone who was hired directly into a trust position. However, an employee who was promoted into that role from an ordinary position is generally treated differently: withdrawal of confidence alone is not accepted as a ground to terminate that employee’s employment. Whether a position was properly classified as trust or management also depends on the actual functions, not only on the label in payroll records. Before relying on this route, confirm the employee’s hiring history and the formal classification of the role.

Illustrative scenario and severance calculation

Legally, there is no just cause. If the subsidiary simply terminates, the statutory severance would be calculated as follows:

• Full years: 4 × 1.5 × S/ 12,000 = S/ 72,000
• Fraction: 6/12 × 1.5 × S/ 12,000 = S/ 9,000
• Total: S/ 81,000, below the cap of 12 salaries (S/ 144,000)

That figure is the floor of the exposure, not the ceiling. The controller could instead seek reinstatement as a dismissal without cause. If the controller is also, for example, pregnant or a union officer, the case shifts toward nullity. The final settlement (accrued vacation, proportional bonus, CTS) is owed in any case; see final settlement on termination in Peru.

The more predictable route is to negotiate a mutual termination agreement, usually with an exit payment, as explained in resignation, mutual termination and dismissal in Peru.

Deadlines that shape the risk

Under article 36 of the LPCL, the employee has 30 calendar days from the dismissal to file for nullity, unfair dismissal or hostile treatment; days when the courts are not operating are excluded under the implementing regulations. Once that period has expired, the risk of a dismissal challenge falls sharply, though claims for unpaid benefits follow different rules.

Common mistakes that turn a manageable exit into litigation

• Communicating a global restructuring decision to the employee before the Peruvian exit strategy is defined.
• Dressing up a position elimination as a performance or conduct issue, which invites a fraudulent-dismissal claim.
• Paying severance without clear documentation, leaving ambiguity about the employee’s election.
• Overlooking protected status (pregnancy, union role, recent complaint, serious illness).
• Treating severance and the final settlement as the same payment.

Procedural errors that convert a justified dismissal into an unfair one are discussed in mistakes that undermine a dismissal in Peru, and the requirements of a sound cause-based dismissal in dismissal for serious misconduct.

Preventive recommendations

• Before approving any Peruvian headcount decision abroad, obtain a local classification of each case: just cause available, collective procedure applicable, or negotiated exit required.
• Budget statutory severance as the minimum cost of an exit without cause, and assess reinstatement risk separately.
• Screen each affected employee for protected categories before any communication.
• Prepare a Spanish-language exit agreement and settlement file in parallel with the business decision.
• Keep the Peruvian payroll provider (for example, Lynch Payroll where it runs the monthly payroll) informed early so the final settlement is calculated and paid on time.

Bottom line

Unfair dismissal in Peru is priced by statute but not capped by it. Severance under article 38 is predictable; reinstatement under constitutional case law is not. Companies that recognize this, and approach position eliminations as negotiations rather than notifications, control both cost and outcome. Our terminations and exits practice helps international employers classify each case, size the exposure and structure exits that close the matter.