Terminations and exits in Peru

For a foreign-owned company, the most common surprise in Peru is that there is no general right to terminate employment at will. Once an employee working four or more hours a day has passed the probationary period, dismissal requires a just cause set out in the law and proven by the employer. A decision that would be routine at headquarters can, in Peru, lead to a reinstatement order.

The business problem

Peruvian law gives employees protection against arbitrary dismissal. If a dismissal lacks a valid cause, or the cause cannot be proven, the employee is entitled to a severance indemnity of one and a half monthly salaries per full year of service, capped at twelve monthly salaries. Beyond that, case law of the Constitutional Court allows employees to seek reinstatement where the dismissal was made without any stated cause or on fabricated grounds. Some dismissals are void, for example those motivated by pregnancy, union activity, discrimination or a cancer diagnosis, and lead to reinstatement with back pay. Employees have 30 calendar days to challenge a dismissal in court.

This is why the route chosen for an exit matters as much as the decision itself. Our guide to termination of employment in Peru explains the system; our notes on unfair dismissal and on the difference between resignation, mutual termination and dismissal cover the options in more detail.

How we approach it

We start by understanding why the company wants the exit and on what timeline. We then set out the available routes and their consequences: a resignation, which must be genuinely voluntary; a mutual termination, known as mutuo disenso, which must be in writing and is usually accompanied by a negotiated payment; a dismissal for cause, which requires a procedure and evidence; or a dismissal without cause, with its indemnity and litigation risk.

Before any decision we check whether the employee falls within a protected category, whether any contract clause or collective agreement adds obligations, and how the exit will be perceived by the remaining team. We then prepare the documents, plan the conversation and, where the route is negotiated, support the negotiation. For dismissals for cause, the procedure is run with our disciplinary procedures team.

What the engagement includes, and its limits

The service covers individual exits, groups of exits linked to a reorganization, senior manager separations, document drafting, negotiation support and review of the final settlement. Collective dismissals for economic or structural reasons follow a separate procedure before the labor authority and are scoped as a distinct matter.

We do not guarantee that an exit will not be challenged. A signed agreement reduces the risk significantly but does not remove it where consent is later shown to be defective. Court proceedings, if they arise, are handled as a separate engagement.

Coordination with the parent company, finance and payroll

The final settlement includes accrued CTS (a severance fund the employer deposits twice a year into a bank account in the employee’s name), unused and proportional vacation, the proportional gratificación (one of two statutory bonuses paid in July and December), and any agreed exit payment. When the company’s payroll is run by Lynch Payroll, we coordinate the settlement calculation directly with them; otherwise we review the figures with whoever runs payroll. The regional office and finance receive a single bilingual summary of the route chosen, its cost and any residual risk.

Getting started

Before speaking with the employee, contact us with the person’s role, length of service, contract type and the reason for the exit. That is enough to outline the options and their likely cost.