21 December 2020
(18 December 2020) Media reports indicate that it is likely a new Government Regulation (“GR”) on the calculation of termination pay in Indonesia will be issued as early as February 2021. An official draft of the GR has been circulated by the Coordinating Minister for Economic Affairs.
Similar to Article 151 of the recently enacted Omnibus Law on Job Creation (Law No.11 2020), Article 33 of the draft GR states that if termination of employment is unavoidable, the employer shall notify the affected employee and/or labor union of the objectives and reasons for the termination.
However, Article 33 (3) of the draft GR adds a provision that the notification letter must be submitted “legally and properly” to employees no later than 30 calendar days before termination. If the employee in question is still on probation the notification letter must be delivered no later than seven calendar days before termination.
We note that Article 34 of the draft GR add a new provision which states that if the employee receives the notification and does not object to the termination, the employer is obliged to report the termination to the local manpower office. This is new and it remains to be seen how this mechanism will be applied in practice.
It is also important to note that an employee who receives a notification letter and disputes the termination must provide a letter of rejection to the employer accompanied by the reasons for such rejection no later than seven calendar days after receiving the notification.
Neither the Omnibus Law on Job Creation nor the draft GR impose strict sanctions if the above mechanisms are not carried out. Should the employee and the employer fail to reach an amicable settlement for any reason or fail to follow the timeline as required by the draft GR, the Omnibus Law stipulates such dispute must be resolved through the mechanisms for industrial relations disputes under Law No. 2 2004.
Permanent Employment
The draft GR stipulates several differences in termination entitlements compared to the benefits under the Manpower Law (Law No.13 2003) before its amendment by the Omnibus Law on Job Creation. Generally speaking, the termination entitlements provided under the draft GR are lower than those under the Manpower Law.
For example, if a company terminates the employment relationship with an employee due to an acquisition, the employee is now only entitled to one-time severance pay, one-time service pay and compensation pay. The same calculation applies if a company introduces terminations for the sake of efficiency to avoid losses; if a company closes not due to the company experiencing losses; if a company is in the suspension of debt payment process but not due to the company experiencing losses; and if the company is in the process of a merger, consolidation or spin-off, and the employees or the company are not willing to continue the employment relationship.
Interestingly, employees are now entitled only to 1/2 x severance pay, one-time service pay and compensation pay if a company conducts an acquisition and the employees are not willing to continue the employment relationship. The same calculation applies if a company introduces terminations for efficiency reasons due to experiencing losses, closes due to experiencing losses for two consecutive years or experiencing losses not consecutively for two years, closes due to force majeure, is in the suspension of debt payment process due to experiencing losses, or if the company is declared bankrupt.
If an employee violates provisions that are regulated in the employment agreement, company regulation or collective employment agreement (“CLA”), and previously has been given the first, second, and third warnings, with each warning valid for a maximum of six months unless stipulated otherwise in the employment agreement, company regulation or CLA, that employee is entitled to 1/2 x severance pay, one-time service pay and compensation pay.
The draft GR also stipulates certain grounds for employment termination where the employee is still entitled to two-times severance pay, one-time service pay and compensation if the employee reaches pension age, passes away, or experiences a prolonged illness or disability due to an occupational accident and is unable to work after 12 months.
There are other termination entitlement calculations stipulated in the draft GR based on other grounds for termination.
The draft GR also provides that micro and small companies must only pay at least 50% of the calculated severance payments in the draft GR.
Fixed-Term Employment
Similar to the termination entitlements previously governed by the Manpower Law before being amended by the Omnibus Law on Job Creation, the draft GR provides that if the employer terminates the employment relationship before the end of the term as set forth in the fixed-term employment agreement, or if the termination of the employment relationship is not due to the provisions in the employment agreement, the employer is obliged to pay compensation to the employee in the amount of the employee’s salary up until the expiration date of the employment agreement.
In addition, a fixed-term employee who completes their fixed-term employment agreement or whose agreement is terminated early by the employer is entitled to compensation based on the period of employment.
The compensation pay for the termination of a fixed-term employment agreement is not applicable to foreign employees.
For more information, please contact:
Syahdan Z. Aziz, Partner
Indrawan Dwi Yuriutomo, Associate
