NO&T Asia Legal Review
On 25 November 2021, the Indonesian Constitutional Court issued Decision No. 91/PUU-XVIII/2020 (“CC Decision”) which ruled that the Omnibus Law was deemed conditionally unconstitutional since its formation did not follow the mandatory procedures and consequently mandated the government to amend several parts of the Omnibus Law within a period of two years from the pronouncement of the CC Decision.
In response to CC Decision, the government of Indonesia officially issued a Regulation in Lieu of Law (Peraturan Pemerintah Pengganti Undang-Undang or “Perppu”) No. 2 of 2022 on Job Creation (“Perppu 2/2022”) to revoke and replace the Omnibus Law, which is effective as of 30 December 2022. All implementing regulations of the Omnibus Law, however, remain in effect, valid and legally binding to the extent that they are not contrary with the provisions of Perppu 2/2022.
The issuance of Perppu 2/2022 is said to be in line with the urgent need to deal with the global economic conditions and recession as well as the need to avoid the impact of increased inflation and the threat of stagflation in 2023.
While maintaining most of the provisions under the Omnibus Law (including those pertaining to the application of risk-based business licensing), Perppu 2/2022 introduces some substantial changes. We briefly elaborate below some of the differences relating to the simplification of basic requirements for business licensing (particularly relating to environmental related approvals and building approvals) and the employment sector:
Perppu 2/2022 stipulates changes regarding the environmental approvals as stated under Law No. 32 of 2009 on Environmental Management and Protection (“Environmental Law”), as follows:
| Issue | Omnibus Law | Perppu 2/2022 |
|---|---|---|
| Imposition of administrative sanction for failure in obtaining required business licensing or approvals for B3 waste management | Added Article 82A, 82B, and 82C to the Environmental Law (which include reference to, among others, Article 59 paragraph (1)*) and in essence, stipulated that any person who carries out business and/or activity who has business licensing or approval as referred to in Article 59 paragraph (1) not in accordance with the obligation in the business licensing or the approvals and/or violates the provision of laws and regulations in the field of environmental protection and management, shall be subject to administrative sanction. | Removes a reference to Article 59 paragraph (1) in Articles 82A, 82B and 82C of Environmental Law. |
| Amended Article 109 of Environmental Law to include the absence of business licensing or approval as referred to in, among others, Article 59 paragraph (1), to be subject to imprisonment and fines. | Removes the reference to Article 59 paragraph (1). | |
| *Article 59 paragraph (1) of the Environmental Law stipulates that any person who produces B3 waste is required to carry out B3 waste management. | ||
Due to the removal of reference to Article 59 paragraph (1) under the abovementioned relevant articles of Environmental Law, it is currently perceived that no administrative sanction is imposed in case of non-compliance in securing business licensing or approvals for B3 waste management or that the administrative sanction is not applicable even if B3 waste is not managed as referred to in Article 59 paragraph (1) of the Environmental Law.
To provide more clarity, Perppu 2/2022 adds one new definition in Law No.28 of 2002 on Buildings (“Building Law”), as follows:
| Issue | Omnibus Law | Perppu 2/2022 |
|---|---|---|
| Definition of Building Approvals | Did not provide any definition |
Adds a definition of Building Approvals under Article 1 number 19 of the Building Law, which reads: Replaces the term “approval” under Article 6 paragraph (3) of the Building Law with “Building Approval”, to be read as follows: |
Perppu 2/2022 introduces several new provisions that differ from the amendments made to Law No. 13 of 2003 on Manpower (“Manpower Law”) under the Omnibus Law, as follows:
| Issue | Omnibus Law | Perppu 2/2022 |
|---|---|---|
| Outsourcing | Removed Article 64 of Manpower Law which allows a company to subcontract part of its work to another company under a written outsourcing agreement |
Reinstates Article 64 of Manpower Law with addition of paragraphs (2) and (3):
|
| Variable used for minimum wage calculation formula | Added Article 88D in which paragraph (2) provides that the minimum wage calculation formula should contain variables that relate to economic growth or inflation | In addition to two existing variables, certain indexes are now introduced as a third new variable for the minimum wage calculation formula |
| Government authority to stipulate minimum wage calculation formula | Did not address this issue | Adds new Article 88F which allows the government under certain circumstances to stipulate a minimum wage calculation formula that differs from the minimum wage calculation formula as referred to in Article 88D paragraph (2) of the Manpower Law |
In relation to the above, businesses are still in “wait and see” mode on how the government will further regulate the outsourcing arrangements and minimum wages in 2023 through implementing regulations.
Although Perppu 2/2022 has been issued and applicable since its issuance date, it should be noted that Perppu 2/2022 still has to be approved by the House of Representatives of Indonesia (DPR) to become law. If it is rejected, then Perppu 2/2022 shall be revoked and a law on the revocation will need to be issued.
The DPR is expected to approve or reject Perppu 2/2022 during the Trial Period III of 2022/2023. While waiting for such approval, it remains to be seen in practice whether Perppu 2/2022 can finally accommodate the demand from the workers and civil society who went against the Omnibus Law. In the meantime, business actors are advised to take note of the above changes and further review of the implementing regulations may be required to fully understand the impact of Perppu 2/2022 on their businesses.
This newsletter is given as general information for reference purposes only and therefore does not constitute our firm’s legal advice. Any opinion stated in this newsletter is a personal view of the author(s) and not our firm’s official view. For any specific matter or legal issue, please do not rely on this newsletter but make sure to consult a legal adviser. We would be delighted to answer your questions, if any.
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