Interim Report - Report No 335, November 2004

Case No 2293 (Peru) - Complaint date: 06-AUG-03 - Closed

Allegations: The complainants allege that the National Fund for Financing State Enterprise Activity (FONAFE) has issued Executive Board Decision No. 008-2003/010 introducing salary freezing, which severely restricts collective bargaining

1. 1216. The complaint is contained in a communication from the Peruvian Petroleum Workers’ Federation (FETRAPEP), the Single Trade Union of Talar Petroleum Refinery of Peru S.A. (SUTREPPSA) and the National Trade Union of Health Social Security Workers (SINACUT ESSALUD) dated 6 August 2003. The SINACUT ESSALUD presented additional information in a communication dated 29 September 2003.
2. 1217. The Government sent its observations in a communication dated 4 December 2003.
3. 1218. SINACUT ESSALUD sent new allegations in a communication dated 2 August 2004.
4. 1219. Peru has ratified the Freedom of Association and Protection of the Right to Organise Convention, 1948 (No. 87), and the Right to Organise and Collective Bargaining Convention, 1949 (No. 98).

A. The complainants’ allegations

1. 1220. In their communications of 6 August and 29 September 2003, the Peruvian Petroleum Workers’ Federation (FETRAPEP), the Single Trade Union of Talar Petroleum Refinery of Peru S.A. (SUTREPPSA) and the National Trade Union of Health Social Security Workers (SINACUT ESSALUD) state that workers at state enterprises such as Petróleos del Perú (PETROPERU S.A.) and workers in the public sector such as those in Health Social Security (ESSALUD) have had their salaries frozen as a result of legal and administrative provisions. They add that the National Fund for Financing State Enterprise Activity (FONAFE) has issued Executive Board Decision No. 008-2003/010-FONAFE of 24 June 2003 introducing, in its main text and annexes, an operational reorganization of enterprises in order to implement a new organizational structure and to reduce running costs by 10 per cent and representation costs by 90 per cent, which makes it impossible to increase workers’ salaries and improve working conditions, and also limits the process of collective bargaining which has already begun.
2. 1221. The complainants state that, in order to reduce and limit public spending in the public administration sector, Act No. 28034 entitled “Act establishing complementary measures of austerity and rationality in public spending” was promulgated on 22 July 2003, and that this Act applies to government organizations and bodies, as well as to state enterprises which are subject to or controlled by FONAFE, amongst which are PETROPERU S.A. and ESSALUD. They add that section 3, paragraph 2, of the aforementioned Act prohibits adjusting and/or increasing remuneration, remuneration scales, bonuses, allowances and benefits of any kind, whatever their form, modality or source of financing, preventing workers at these enterprises from receiving any increase in remuneration and/or better salaries or working conditions of an economic nature. They also state that workers at PETROPERU S.A. have seen the process of collective bargaining almost paralysed, since the enterprise is unable to negotiate in the face of the restrictions imposed by the disputed Act, which they consider to be government interference in the free exercising of the right to collective bargaining. They add that the enterprise’s representation, in clear submission to government orders, is based on precisely these restrictions in order to avoid holding more meetings within the stage of direct negotiation and making any offers which would allow the process to move forward. It is restrictive and compulsive, obstructing and restricting the progress of collective bargaining. They state that leaving these legal provisions in force would represent a restriction of the right to freely engage in collective bargaining, affecting both current and future negotiations.
3. 1222. In summary, they consider that the loss of labour rights and, consequently, the violation of the right to freedom of association are confirmed and maintained by Executive Board Decision No. 008/2003/010-FONAFE and, mainly, by section 3 of Act No. 28034.
4. 1223. SINACUT ESSALUD sent new allegations in an extensive communication dated 2 August 2004. These allegations concern the failure to recognize the trade union organization because it does not represent 20 per cent of all workers entitled to unionize, which implies that this organization cannot enjoy trade union privileges and cannot resort to strikes.

B. The Government’s reply

1. 1224. In its communication of 4 December 2003, the Government states that Petróleos del Perú (PETROPERU S.A.) is a state-owned enterprise which falls within the purview of the National Fund for Financing State Enterprise Activity (FONAFE), in accordance with Act No. 27170, the National Fund for Financing State Enterprise Activity Act, which regulates the management and budgetary processes of state enterprises, as well as dictating remuneration policy. In this respect, it adds that collective bargaining took place in previous years and has been concluded by direct negotiation or arbitration. It adds that the policy dictated by FONAFE establishes the need for supply which every state enterprise must have but which does not affect free negotiation or the freedom of trade unions to make proposals. With regard to the process of collective bargaining, it reports that, in CODIPP letter No. 028-2003 of 14 November 2003, the national convention of trade unions of PETROPERU S.A. stated that the stage of direct negotiation had been exhausted, and that on 17 November 2003 FONAFE issued circular letter No. 038 2003/
   • DE FONAFE, containing policies on the basis of which negotiations with trade unions have been reopened.
2. 1225. With regard to the Peruvian labour system, the Government states that there are two labour systems within the public sector: the system of private workers and the system of public workers or administrators.
3. 1226. The first system has its constitutional basis in article 28 and the applicable regulations are contained in Supreme Decree No. 010-2003-TR, a single text based on the collective labour relations Act and regulations, which contains provisions expressly protecting freedom of association, collective bargaining and the right to strike, reflecting an adequate level of protection and involving the Ministry of Labour and Employment Promotion as the competent authority.
4. 1227. With regard to the second system, suffice to say that article 42 of the Constitution recognizes public servants’ right to freedom of association and the right to strike. The Government states that, with the dissolution of the Institute of Public Administration (INAP), the body previously responsible for conducting the various processes contained in Legislative Decree No. 276, the main act governing administrators and remuneration in the public sector, its functions have been transferred to the Presidency of the Council of Ministers, which has at its disposal the Directorate General of Public Management, currently in charge of dealing with problems connected with trade union membership, collective bargaining and strikes in the public sector. The Ministry of Labour and Employment Promotion is responsible only for the provisions of Act No. 27556, which provides for the registration of trade unions of public servants in the primary, secondary and tertiary levels of the sector. In this regard, there is currently a competent body responsible for resolving problems which may arise concerning freedom of association, collective bargaining and strikes in relation to trade unions representing workers in the public sector or administration. These organizations are also able to approach the heads of their sectors and discuss their concerns.
5. 1228. With regard to the complainants’ allegations concerning Act No. 28034, the Government states that the public sector budget Act for the 2003 tax year, Act No. 27879, contains measures of austerity, rationality and transparency in public spending, comprising general administrative provisions allowing public spending to be rationalized. These must be observed without exception in budget submissions from central Government and decentralized bodies, in order to develop a disciplined budget management system which makes rational, efficient and effective use of scarce public resources, abiding strictly by the principle of balancing the budget contained in article 78 of the Constitution.
6. 1229. In this regard, Act No. 28034, the “Act establishing complementary measures of austerity and rationality in public spending”, was promulgated to complement Act No. 27879, with the aim of releasing funds which could be channelled into, among other things, financing the costs incurred in implementing the budget according to the priority needs expressed by the public sector entities; and, furthermore, in order to be able to balance the budget for 2003, for reasons of public interest and better state management, it was necessary to pass this Act so as to avoid the risk of a deficit produced by increased levels of spending without the necessary funds available.
7. 1230. The Government states that, if the complainants consider that Act No. 28034 violates any constitutional regulation, legal channels are open to them to bring a constitutional rights action before the judicial authority or constitutional court, in order to examine whether or not the regulation or its effects are unconstitutional, in accordance with article 200 of Peru’s Constitution, because no legal requirement may be incompatible with the Constitution, which has primacy over all other regulations. Irrespective of this, it should be pointed out that Act No. 28034 expired on 31 December 2003, since it was only applicable to the 2003 tax and budget year.
8. 1231. The Government adds that, according to the enterprise, negotiations are continuing with the unions to reach a settlement which could be embodied in a collective agreement, so it would be wise to wait for the parties’ decision in concluding the negotiations.
9. 1232. Lastly, it states that the Constitution lays down that one of the principal labour rights is the right to collective bargaining (article 28.2 of the Constitution), which the State shall promote, giving full effect to agreements reached and the provisions thereof, which must be complied with by the parties involved.

C. The Committee’s conclusions

1. 1233. The Committee observes that the complainants object to Executive Board Decision No. 008-2003/010 issued on 24 June 2003 by the National Fund for Financing State Enterprise Activity (FONAFE) and Act No. 28034 of 22 July 2003, entitled “Act establishing complementary measures of austerity and rationality in public spending”, which make provision for a reorganization of public enterprises to reduce running costs (10 per cent) and representation costs (90 per cent), involving the freezing of salaries, which creates significant obstacles to collective bargaining in the public sector. Section 3 of Act No. 28034 does indeed prohibit adjusting and/or increasing remuneration, remuneration scales, bonuses, allowances and benefits of any kind, whatever their form, modality or source of financing. The Committee notes that, according to the complainants, Petróleos del Perú (PETROPERU S.A.) is using these provisions as a basis for refusing to hold meetings within the stage of direct negotiation.
2. 1234. The Committee further notes the Government’s statements that Act No. 27879 on the public sector budget for the 2003 tax year contains measures of austerity, rationality and transparency in public spending and that, to complement this, Executive Board Decision No. 008-2003/010 and Act No. 28034 were subsequently issued, with the aim of releasing funds to be channelled into financing the costs incurred in implementing the budget and to balance the budget for 2003, avoiding the risk of a deficit.
3. 1235. In this regard, the Committee recalls that on previous occasions it has stated that if, as part of its stabilization policy, a government considers that wage rates cannot be settled freely through collective bargaining, such a restriction should be imposed as an exceptional measure and only to the extent that is necessary, without exceeding a reasonable period, and it should be accompanied by adequate safeguards to protect workers’ living standards [see Digest of decisions and principles of the Freedom of Association Committee, 4th edition, 1996, para. 882].
4. 1236. The Committee observes that, according to the Government’s statements, Act No. 28034 expired on 31 December 2003 since it was only applicable to the 2003 tax and budget year and that, according to PETROPERU S.A, negotiations are still being conducted with the unions to reach a collective agreement.
5. 1237. The Committee recalls that any limitation on collective bargaining on the part of the authorities should be preceded by consultations with the employers’ and workers’ organizations in an effort to obtain their agreement [see Digest, op. cit., para. 884] and hopes that in future the public authorities will be able to guarantee fully the right to collective bargaining in the public sector.
6. 1238. The Committee notes the new allegations presented by SINACUT ESSALUD concerning the non-recognition of that organization as it does not represent 20 per cent of workers entitled to unionize. The Committee requests the Government to provide its observations in this respect.

The Committee's recommendations

1. 1239. In the light of its foregoing interim conclusions, the Committee invites the Governing Body to approve the following recommendations:
   • (a) As concerns the freezing of salaries pursuant to Act No. 28034, to which the complainants object, the Committee notes that, according to the Government’s statements, this Act expired on 31 December 2003 since it was only applicable to the 2003 tax and budget year and that, according to PETROPERU S.A., negotiations are still being conducted with the unions to reach a collective agreement. The Committee recalls that if, as part of its stabilization policy, a government considers that wage rates cannot be settled freely through collective bargaining, such a restriction should be imposed as an exceptional measure and only to the extent that is necessary, without exceeding a reasonable period, and it should be accompanied by adequate safeguards to protect workers’ living standards.
   • (b) The Committee recalls that any limitation on collective bargaining on the part of the authorities should be preceded by consultations with the employers’ and workers’ organizations in an effort to obtain their agreement and hopes that in future the public authorities will be able to guarantee fully the right to collective bargaining in the public sector.
   • (c) As regards the new allegations presented by SINACUT ESSALUD concerning the non-recognition of that organization because it does not represent 20 per cent of all workers entitled to unionize, the Committee requests the Government to send its observations in this respect.