NO&T Asia Legal Review
On 1 December 2023, a group of petitioners which comprised various worker federations such as the Labour Party, the Federation of Indonesian Metal Workers (Federasi Serikat Pekerja Metal Indonesia or FSPMI), the Confederation of All Indonesian Workers’ Unions (Konfederasi Serikat Pekerja Seluruh Indonesia or KSPSI), the Confederation of Indonesia United Workers (Konfederasi Persatuan Buruh Indonesia or KPBI), the Confederation of Indonesian Trade Unions (Konfederasi Serikat Pekerja Indonesia or KSPI), an employee of PT Lawe Adya Prima and an employee of PT Indonesia Polymer Compound (together the “Petitioners”) submitted a petition to the Indonesia’s Constitutional Court (Mahkamah Konstitusi or “MK”) for seeking more robust protections for workers.
The purpose of this petition was to request MK to review several provisions under Law No. 13 of 2023 on Manpower as amended by Law No. 6 of 2023 on the Stipulation of Government Regulation in Lieu of Law No. 2 of 2022 on Job Creation into Law (“Manpower Law”) which were in direct contradiction with the worker’s rights as stipulated under Article 27 paragraph (2) and Article 28D paragraphs (1) and (2) of the 1945 Constitution of the Republic of Indonesia. The Petitioners argued that the challenged provisions created legal uncertainty and negatively affected employees’ rights.
After hearing and considering the issues pleaded by the Petitioners in the proceedings, on 31 October 2024, MK finally rendered its decision in Case No. 168/PUU-XXI/2023 (“MK Decision No. 168/2023”), in which they partially granted the judicial review petition requested by the Petitioners. Overall, out of a total of 69 requests, 21 points were granted and reinterpreted by MK, while the other 48 requests were rejected. These rulings amend and rectify certain provisions of the Manpower Law.
Below is the summary of significant changes made to the Manpower Law based on MK Decision No. 168/2023:
| Relevant Article of Manpower Law | Summary of MK Decision No. 168/2023 |
|---|---|
| 42 paragraph (1) | MK Decision No. 168/2023 clarifies that the Foreign Worker Utilization Plan (Rencana Penggunaan Tenaga Kerja Asing or RPTKA) which is a mandatory document that employers must obtain before employing foreign workers in Indonesia must be legalized by the Minister of Manpower. |
| 42 paragraph (4) | Furthermore, MK Decision No. 168/2023 emphasizes that while the employment of foreign workers is generally allowed, priority must be given to Indonesian workers, especially for roles that do not require special skill or expertise. In essence, the employment of foreign workers must be based on clear and measurable needs and must ensure decent opportunities for Indonesian workers. |
| Relevant Article of Manpower Law | Summary of MK Decision No. 168/2023 |
|---|---|
| 56 paragraph (3) | Manpower Law provides that there are 2 (two) types of Fixed-Term Employment Agreement (Perjanjian Kerja Waktu Tertentu or “PKWT”), namely a PKWT based on a certain period of work and a PKWT based on the completion of particular work. While a PKWT based on a certain period of work is limited to a maximum of 5 (five) years including any extension, the period of PKWT based on the completion of particular work is determined under the PKWT agreed between the employer and the employee. Now, MK Decision No. 168/2023 specifies that a PKWT based on the completion of particular work shall also be for a maximum of 5 (five) years, including any extension. By requiring this explicitly at the level of law, any implementing regulations of the Manpower Law must adhere to such provision. |
| 57 paragraph (1) | MK Decision No. 168/2023 emphasizes that a PKWT “must be made in writing” using the Indonesian language and Latin script. These requirements are essential to ensure clarity and transparency in employment terms, safeguarding both employers’ and employees’ rights. |
| Relevant Article of Manpower Law | Summary of MK Decision No. 168/2023 |
|---|---|
| 64 paragraph (2) | MK Decision No. 168/2023 adds that the scope of work for outsourcing employees must be in accordance with the type and field of outsourcing work agreed in the written outsourcing agreement. It puts a clear standard in place regarding the types of work that can be outsourced, while outsourced workers will only work on the outsourced works as agreed under a written outsourcing agreement. Furthermore, the role of the Minister of Manpower in determining what jobs can be outsourced is also clarified. This will provide greater clarity on what is and is not allowed in outsourcing practices. |
| Relevant Article of Manpower Law | Summary of MK Decision No. 168/2023 |
|---|---|
|
79 paragraph (2) letter b |
MK Decision No. 168/2023 now clearly requires a minimum of one day off per week for six-day workweeks and two days off for five-day workweeks. |
| 79 paragraph (5) | MK Decision No. 168/2023 also indicates that certain companies are required to provide long breaks or extended leave as stipulated in the employment agreement, company regulations or collective labor agreement. |
| Relevant Article of Manpower Law | Summary of MK Decision No. 168/2023 |
|---|---|
| 88 paragraph (1) | In terms of wages, MK Decision No. 168/2023 further explains indicators of wage eligibility, which includes essential needs such as food and beverages, clothing, housing, education, health, recreation, and old-age security. |
| 88 paragraph (2) | To determine wage policies, the central government now must include the regional government through the regional wage councils in formulating wage-related policies. |
|
88 paragraph (3) letter b |
MK Decision No. 168/2023 clarifies the formula for calculating minimum wages, considering the interests of both employers and employees, and the principle of proportionality to ensure the decent livelihood of the employees. |
| 88 C | The existing provision remains the same, but MK Decision No. 168/2023 further adds that the Governor is obliged to determine the sectoral minimum wage in the provincial area and can do so for regencies/cities. |
| 88 D | Under the Manpower Law, the minimum wage calculation formula shall consider variables of economic growth, inflation, and certain index. MK Decision No. 168/2023 further clarifies that a certain index is a variable that represents the contribution of labor to the economic growth of the province or regency/city by taking into account the interests of companies and workers/laborers as well as the principle of proportionality to meet the decent living needs (KHL) of workers/laborers. |
| 88 F | The phrase “in certain circumstances” is now further defined by MK Decision No. 168/2023. What is meant by “in certain circumstances” includes, among others, natural or non-natural disasters, including extraordinary conditions of the global and/or national economy as determined by the President in accordance with the prevailing laws and regulations. |
| 90 A | Trade unions/labor unions can now be involved in the process of determining wage above the minimum wage. It is important to maintain the balance of the bargaining positions between employers and employees. |
| 92 paragraph (1) | When determining wage structures and scales, the employers shall consider factors such as the company’s ability and productivity as well as the employee’s position, job category, length of service, education, and competency. |
| 98 paragraph (1) | MK Decision No. 168/2023 further requires that wage councils that actively participate should be formed to determine wage-related policies and develop wage systems. |
| Relevant Article of Manpower Law | Summary of MK Decision No. 168/2023 |
|---|---|
| 95 paragraph (3) |
MK Decision No. 168/2023 significantly affects the employment termination process, particularly in cases of bankruptcy and liquidation of the employers. MK mandates that the employee’s claims for payment must be prioritized over most other creditors, including secured creditors. On the other hand, payment of other rights upon employees shall be prioritized over all creditors (including other preferred creditors), except for secured creditors. Secured creditors are creditors that have collateral rights over certain assets of an employer (e.g., mortgage, pledge, fiduciary security). Other rights in this case include severance pay, service pay, religious festive benefits, and compensation for leave right, provided that it is stipulated under the employment agreement or company regulation. In essence, in cases of bankruptcy and liquidation, the priority ranking for payment shall be as follows: (i) employees’ wages, (ii) secured creditors, (iii) other rights of employee, (iv) other preferred creditors, and lastly (v) other creditors (i.e., unsecured creditors). |
| 151 paragraph (3) | MK Decision No. 168/2023 emphasizes that layoff is a last resort in terms of employment termination. MK mandates that disputes between employers and employees must be settled through bipartite negotiations in a deliberative manner for consensus. If the negotiations fail, the termination process shall go through all stages of the industrial relations dispute resolution procedures. |
| 151 paragraph (4) | Employment termination can only occur after obtaining a final and binding decision from the relevant industrial resolution institution. In other words, MK requires that until a final and legally binding decision is reached by the industrial relation court, the employee is still legally under the employment relationship with the employer. With this ruling, now an employer may not simply terminate the employment by only delivering a notice of termination to the relevant employee. |
| 157 A paragraph (3) | MK Decision No. 168/2023 clarifies in this provision that before obtaining a final and binding decision from the relevant industrial resolution institution that approves the employment termination, an employee and employer are still legally under the employment relationship with the employer. Accordingly, the rights and obligations of the employer and the employee remain applicable until the employment termination is effective. |
| Relevant Article of Manpower Law | Summary of MK Decision No. 168/2023 |
|---|---|
| 156 paragraph (2) | Previously, Manpower Law only stipulated that severance pay was calculated based on the stipulated provision of Article 156 paragraph (2). In other words, the termination payment amount was fixed based on the formula under such provision. MK Decision No. 168/2023 now adds the phrase “at least” which allows the employer to provide more (but not less) termination payment than the required amount according to the formula given under the Manpower Law. With this ruling, the employees are now entitled to receive their severance pay at a higher rate and standard than those determined beforehand to meet their living needs. |
MK was of the view that there might be inconsistencies and overlapping provisions under the Manpower Law and Job Creation Law which has resulted in confusion and difficulties for the public in understanding its provisions. Thus, under MK Decision No. 168/2023, MK mandates the legislators to promptly draft a new manpower law in 2 (two) years. MK believes that any issues, conflicts, and inconsistencies of substance in the Manpower Law should be reorganized and corrected immediately. All judiciary and government levels are also requested to align their rulings and legal provisions accordingly.
As outlined in the summary above, it is clear that MK Decision No. 168/2023 significantly affects employers in several ways. It is important for employers to understand, adapt, and proactively address the potential implications moving forward. In the meantime, employers are advised to pay close attention to these amendments while managing and handling their employee-related matters.
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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