Omnibus Job Creation Law – Changes to Indonesian Employment Laws.

4 December 2020

 

(4 December 2020) Indonesia’s closely watched omnibus bill on job creation was ratified by Indonesian President Joko Widodo as the Job Creation Law on November 2, 2020 and came into force on that date. The stated aim of the Job Creation Law is to bolster investment and create jobs by streamlining regulations and simplifying the licensing process to improve the ease of doing business in Indonesia. 

 

The Job Creation Law revises various provisions in cross-sectoral laws, including Law No. 13 of 2003 on Labor (“Labor Law”), Law No. 40 of 2004 on the National Social Security System (“Social Security (BPJS) Law”), Law No. 24 of 2011 on the Social Security Administrating Body (BPJS) (“BPJS Administrating Body Law”) and Law No. 18 of 2017 on the Protection of Indonesian Migrant Workers (“Migrant Workers Law”). 

 

We highlight here some of the most significant changes to these employment-related laws.

 

Expatriate Employment

 

Continuing the Government’s reform of expatriate employment rules and procedures introduced in 2018, the Job Creation Law amends certain provisions of the Labor Law on the employment of expatriates, most notably the Expatriate Manpower Utilization Plan (Rencana Penggunaan Tenaga Kerja Asing or “RPTKA”), which together with the Notification issued under the RPTKA now serves as the work permit issued by the Central Government. An RPTKA is not required for directors or commissioners with “certain” share ownership {SSEK Note: to be clarified by regulation}, shareholders, diplomatic and consular staff at representative offices of foreign countries, or expatriate workers needed for production activities that have stopped due to an emergency, vocational activities, business visits, technological startups, or performing research for a set period of time.

 

A new Government Regulation should be issued by the end of February 2021 to update the positions open to foreign workers and the period of employment of foreign workers.

 

Termination of Permanent Employee Procedure

 

The most intriguing potential development relates to the procedure governing termination of employment. In all common law jurisdictions and throughout most of Asia, the employer can unilaterally terminate employment by written notice of termination. That terminates the employment relationship and takes the individual off the payroll although the employee has the right to object to the termination (e.g., as to the grounds or quantum of notice or pay in lieu of notice) and commence legal proceedings for wrongful dismissal.  

 

Under the Labor Law prior to the Job Creation Law, employers in Indonesia had no right to unilaterally terminate employment in any circumstance. Rather, unless the termination was settled and agreed through negotiations, the employer was required to obtain a Labor Court approval for each individual termination and the employee was entitled to up to six months’ salary during such legal proceedings. The business community has long considered this procedure to put unfair bargaining power in the hands of employees who have been able to successfully negotiate for termination settlement packages in excess of their generous statutory entitlements in order for the employer to avoid the costly, lengthy and disruptive formal legal proceedings.

 

The legislature did not clearly state in the Job Creation Law that the employer can unilaterally terminate employment upon written notice without a court order. But the new rules created by the Job Creation Law may be so interpreted. For the first time, the Job Creation Law creates the notice of termination concept by requiring the employer to provide written notice of termination with reasons. It also abolishes Article 152 of the Labor Law, which has been construed as the main provision requiring the employer to obtain a Labor Court approval of any proposed termination.  

 

Given the enormous implications of this possible change in the Indonesian employment law regime, these new rules merit a careful review in comparison with the old rules.

 

Old Law

 

Article 151
 

(1) Employer, employees, workers/labor union, and the government must make every effort to prevent employment terminations occurring.

 

(2) If every effort has been made but employment terminations cannot be avoided, then the proposed employment terminations must be negotiated by the employer with the workers/labor union, or with the employee if the employee concerned is not a member of a workers/labor union.

 

(3) If the negotiation referred to in paragraph (2) truly fails to achieve an agreement, the employer may only terminate the employment of the employee after obtaining approval from the industrial relations dispute settlement institution.

 

Article 152
 

(1) An application for employment termination approval shall be submitted in writing to the industrial relations dispute settlement institution accompanied by the reasons that form its basis.

 

(2) An application as referred to in paragraph (1) may be accepted by the industrial relations dispute settlement institution if the negotiations as referred to in Article 151 paragraph (2) have taken place.

 

(3) Approval for an employment termination application may only be given by the industrial relations dispute settlement institution if the reason for terminating employment has actually been negotiated, but the negotiations failed to reach an agreement.
 

Article 170
 

An employment termination that is not conducted in compliance with the provisions of Article 151 paragraph (3) and Article 168, excluding [sic] Article 158 paragraph (1), Article 160 paragraph (3), Article 162 and Article 169, shall be void by law and the employer shall be required to re-hire the employee and pay all salary and all entitlements which should be received.  

 

Job Creation Law Changes to the Labor Law

 

Replacement for Article 151 
 

(1) Employer, employees, workers union/labor union and the Government shall make efforts so that there is no termination of employment relationship. {SSEK Note: The official elucidation indicates that “make efforts” means positive activities that may ultimately prevent the termination of the employment relationship, such as re-arrangement of working hours, savings (penghematan), improving work methods and providing coaching for employees.}

 

(2) In the event that the termination of the employment relationship is unavoidable, the objectives and reasons for the termination of the employment relationship shall be notified by the employer to employees and/or workers union/labor union.

 

(3) In the event that employees have been notified and reject the termination of the 
 

employment relationship, settlement of the termination of the employment relationship must be conducted through bipartite negotiation between the employer and employees and/or workers union/labor union.

 

(4) In the event that the bipartite negotiation as referred to in paragraph (3) fails to reach an agreement, the termination of the employment relationship shall be conducted through the next stage in accordance with the mechanism of industrial relationship dispute settlement.

 

New Article 151A
 

The notification as referred to in Article 151 paragraph (2) does not have to be given by the employer in the event that:
 

a. employees resign based on their own will {SSEK Note: i.e., voluntary resignation};

 

b. employees and employer terminate the employment relationship in accordance with a fixed-term employment agreement; 

 

c. employees reach pension age in accordance with the employment agreement, company regulation or collective employment agreement; or

 

d. employees pass away.  

 

Articles 152 and 170 have been repealed

 

Although not entirely clear, these changes to the Labor Law may well be construed as permitting the employer to effectively terminate employment by written notice of termination with reasons while ensuring that the employee has the right to object, negotiate and commence legal proceedings for wrongful dismissal in the Labor Court. This may be clarified by the anticipated Government Regulation and/or by termination cases in the coming months.

 

Termination of Permanent Employee Entitlements 

 

Among the most notable changes to the Labor Law is the revocation of Articles 161-172, which provide the different termination benefit packages applicable for the various grounds for termination. That also effectively abolishes one of the heads of termination benefits formerly known as the housing and medical allowance payment equal to 15% of the sum of severance and/or service pay. For example, Article 161 previously clarified the entitlements for a poor performance termination with three written warning letters. Article 162 previously clarified the entitlements for a voluntary resignation. And the balance of these articles clarified the termination benefits payable for change of status of the employer, closing of the employer (with or without proven economic losses), bankruptcy, retirement age, absence without leave for five work days despite two written warning letters, and long-term disability.  

 

The Job Creation Law still recognizes the familiar grounds for termination as well as the list of severance and service pay components depending upon the length of employment. However, the Job Creation Law does not provide any formula for calculating these precise termination benefits for each different ground for termination. Further provisions regarding the quantum of termination benefits are to be provided in the anticipated Government Regulation.

 

The Job Creation Law may have liberalized the employer’s procedural right to terminate employment by notice of termination as discussed above, but the legislature has added a countermeasure to guard employees against employer abuse by making it a criminal offence for the employer to fail to pay statutory termination entitlements.  For perspective, the majority of Indonesian legislation contains criminal sanctions for key violations but such sanctions are seldom enforced by the government in practice given a regulatory practice of issuing official warning letters to the relevant company to rectify its conduct.

 

Term and Termination of Fixed-Term Employment  

 

Another very significant change to the Labor Law is the revocation of the maximum statutory period of a fixed-term employment agreement, which was previously subject to the “2-1-2 rule” (i.e., maximum two-year first term, extendable once for a maximum of one year, and which can be renewed for a maximum of two years after a “clean break” period of 30 days). The Job Creation Law provides that fixed-term employment agreements can be based on a fixed period of time or on completion of a specified project as expressly set forth in the relevant employment agreement. 

 

Although completion of the time period of a fixed-term contract, and now completion of the project, is a legitimate basis to terminate a fixed-term employee, the Job Creation Law provides that such fixed-term employees are now entitled to some termination benefits at the end of the term or project, which is a very significant and controversial development. A new Government Regulation will be issued to further clarify the rules on fixed-term employment agreements.

 

Termination of Expatriate Employees

 

The Job Creation Law does not provide a specific provision on termination of expatriate employees. However, on 19 December 2017, the Supreme Court issued SEMA No. 1 on Implementation of 2017 Supreme Court Meeting Result as a Guideline for the Role of Indonesian Courts (“SEMA No.1”). It set out new policies on criminal, civil, religious and military legal proceedings to be applied by all courts in Indonesia. In the section on Labor Court proceedings, SEMA No.1 set out the following new policies: 

 

1. Expatriate employees can be employed in Indonesia only for a certain position and a certain period under a fixed-term employment agreement (Perjanjian Kerja Waktu Tertentu or “PKWT”).

 

2. The legal protection of expatriate employees only applies if such foreign employees have obtained a work permit (Izin Mempekerjakan Tenaga Kerja Asing or “IMTA”). {SSEK Note: The IMTA has been replaced by the above-noted RPTKA and the related Notification under the current rules.) 

 

3. If the expatriate’s work permit has expired but the period of his/her fixed-term employment agreement is still valid, the remaining period of their fixed-term employment agreement will not be protected by law. 

 

The Supreme Court guidelines are not part of the Indonesian hierarchy of laws and regulations since the Supreme Court is a court and does not write legislation. However, SEMA No.1 certainly indicates the opinion of the Supreme Court that expatriate employees must be characterized as fixed-term contract workers and it is likely this interpretation will be followed by the Indonesian Labor Court. We note that the Indonesian court system does not adopt the stare decisis principle and therefore the courts can decide differently on cases with similar merits. 

 

Outsourcing 

 

We are pleased to see that the Job Creation Law revokes the various articles on the “outsourcing of services” in the Labor Law and now only focuses on the “outsourcing of workers”. Officials of the Ministry of Manpower have unofficially acknowledged in the past that the “outsourcing of services” really refers to the entire services sector of the Indonesian economy whose employees do not need special protection. Instead, the new rules properly focus on the protection of workers who are essentially supplied by outsourcing companies to other companies. 

 

Previously, the Labor Law provided that labor suppliers can be used only for supporting services or activities not directly related to the core activities of the user company. The Job Creation Law has abolished this restriction. Labor supplier companies must obtain a special license from the Central Government, and a new Government Regulation will be issued to regulate the licensing of labor suppliers and the protection of employees of labor supplier companies.

 

Social Security Benefits Due to Loss of Jobs and BPJS

 

In a very ambitious development, the Job Creation Law introduces a new type of social security benefit under the Social Security (BPJS) Law expressly described as “loss of job security” benefit. This would be commonly known in many jurisdictions as “unemployment insurance”. The new unemployment social security benefit will be administered by the Employment Social Security Administrator (BPJS Ketenagakerjaan) and the Central Government. The benefit will be in the form of (a) cash money capped at the equivalent of six months’ wages, (b) access to information on opportunities in the labor market and (c) job training. A Government Regulation will be issued to regulate this new social security benefit. 

 

The Job Creation Law also amends several provisions in the BPJS Administrating Body Law and adds the above-mentioned new loss of job security benefit to the relevant articles.

 

The Job Creation Law provides that six billion rupiah in state funds will be used as the initial capital to administer the loss of job security program. 

 

Protection of Indonesian Migrant Workers

 

The Job Creation Law moves the licensing authority for Indonesian migrant worker placement companies in the Migrant Workers Law from the Minister of Manpower to the Central Government. It also provides that all branches of migrant worker placement companies must obtain a license issued by the relevant provincial government.

 

Minimum Wage Procedure for Indonesia Including DKI Jakarta Provincial Minimum Wage

 

The Indonesian Minister of Manpower issued Circular Letter No. M/11/HK.04/X/2020 dated October 26, 2020, addressed to Governors throughout Indonesia, which instructs them to stipulate the 2021 Provincial Minimum Wages by October 31, 2020, while making it possible for Governors to apply the 2020 minimum wage for 2021. In response to that, the DKI Jakarta Governor issued Governor Regulation No. 103 of 2020 regarding the Provincial Minimum Wage for 2021, which provides that the 2021 minimum wage is Rp.4,416,186.548 valid as of January 1, 2021. 

 

This regulation also provides that employers/entrepreneurs economically affected by COVID-19 may apply for the imposition of the 2020 provincial minimum wage in 2021 subject to fulfilling requirements which were subsequently set forth in Head of Manpower Service Office of DKI Jakarta Decree (“Head of Service Office”) No. 3100 of 2020. This Decree provides that applications for this special treatment must be submitted to the Head of Service Office no later than December 18, 2020. Only certain business sectors listed in the Decree are eligible, while other sectors can still apply with additional supporting documents such as loss/profit report for January 2020 until October 2020 and January 2019 until December 2019, as well as a Debtor Information Document from the Financial Services Authority (Otoritas Jasa Keuangan or “OJK”) for the period of October 2020 if available. For the listed business sectors, the application letter must enclose a statement letter, copy of NIB which states the relevant KBLI number and data of number of employees and their work periods.