Indonesia’s employment law landscape has recently undergone significant changes due to the Constitutional Court’s latest ruling, Number 168/PUU-XXI/2023, on the Omnibus Job Creation Law, issued on October 15, 2024 (“Constitutional Court”). Originally enacted on November 2, 2020, the Job Creation Law was designed to simplify Indonesia’s regulatory environment, stimulate economic growth, and attract foreign investment. However, the law has seen multiple revisions, most recently in Law No. 6 of 2023, which formalized Government Regulation in Lieu of Law Number 2 of 2022 on Job Creation (“Job Creation Law”). This version has now been revised again following the latest Constitutional Court ruling, which also impacts Indonesia’s workforce. This article provides a concise overview of the important points of the Constitutional Court’s latest decision that implicates important things for Indonesia’s labor landscape.

A dismissal mechanism must be taken after there’s a legally binding Industrial Relations Court Verdict

The dismissal mechanism in labor is regulated by Law No. 13 of 2003 concerning Manpower (“Manpower Law”), which serves as the primary regulation for labor and employment in Indonesia. In brief, employers, employees and/or labor unions, and the government should make efforts to prevent dismissals. However, if dismissal cannot be avoided, employers must inform the employee of the reason for the dismissal, as outlined in Article 154A of the Manpower Law. Furthermore, if the employee rejects the dismissal after being informed, the settlement of the dismissal must be addressed through the bipartite mechanism to reach an agreement. If no agreement is reached, the dismissal should be settled through the industrial relations dispute mechanism as regulated by Law No. 2 of 2004 on the Settlement of Industrial Relations Disputes (“Law No. 2/2004”).

In regards to the dismissal mechanism above under the Job Creation Law, the Constitutional Court emphasizes protecting employees’ rights in the dismissal process, as outlined in point twenty (20) of the Constitutional Court’s verdict. It regulates that if the dismissal, after going through a bipartite settlement, does not reach an agreement, it can only be carried out after a stipulation from industrial relations institutions, which must have legal force (berkekuatan hukum tetap).

This means that a termination of employment can only be carried out if it has been agreed upon or resolved by the employer and employee as outlined in a Collective Labor Agreement, which has been agreed upon during the mediation or conciliation stages, or in a peace agreement in cases where an industrial relations dispute has been reconciled before the commencement of arbitration proceedings or an arbitration award. Additionally, this applies if the employer and employee agree to resolve the dispute through arbitration, and if the decision from the industrial relations court is not appealed within 14 (fourteen) working days, as well as when a decision has been obtained at the final judicial level, namely a cassation decision from the Supreme Court.

Reinstatement of the Sectoral Minimum Wage

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Previously, Article 89 paragraph (1) of the Manpower Law specified that the minimum wage could be set either based on the province or regency/city or according to the sector within a given region. The sector-based minimum wage, as outlined in Article 89 paragraph (1) letter b, refers to the minimum wage determined for specific business sectors, grouped according to the Indonesian Business Field Classification (“KBLI”) at the regency/city, provincial, or national level. It could not be lower than the regional minimum wage of the respective area (“Sectoral Minimum Wage“). However, the Job Creation Law has abolished the Sectoral Minimum Wage.

In this regard, Point 12 of the Constitutional Court’s decision reinstates the Sectoral Minimum Wage, which must be set by the governor at the provincial level. Therefore, we believe that employers, workers, and relevant stakeholders need to pay attention to the developments regarding the regulation/governor’s decision on setting the Sectoral Minimum Wage following the Constitutional Court’s decision to reinstate the Sectoral Minimum Wage in the case of the business sector (based on the KBLI), it must follow the sectoral minimum wage set by the governor.

Projection to stipulate a new Manpower Law that will replace Law No. 13 of 2003 concerning Manpower and its amendments through Job Creation Law and Constitutional Court

The Constitutional Court provided a consideration as outlined in legal consideration number 3.16, paragraph 4, stating that lawmakers (in this case, the Indonesian House of Representatives (“DPR RI”) and the Government) should promptly create a new labor law and separate or exclude labor provisions from the current Manpower Law and Job Creation Law. The Supreme Court opined that with the enactment of a new labor law, the threats of disharmony and inconsistency in the substance of labor laws spread across the current Manpower Law, Job Creation Law, and government regulations could be unraveled and reorganized. In light of this legal consideration, the Minister of Law and the Deputy Speaker of DPR RI have made statements expressing optimism and a projection to update the labor law as mandated by the Constitutional Court in its legal considerations.

Therefore, we believe that employers, workers, and relevant stakeholders need to pay attention to developments regarding the potential new labor law, as it will have implications for the employment relationships that have been established to date.

If you, a prospective client, have further inquiries about the topic discussed above, Schinder Law Firm is one of many corporate law firms in Indonesia that has handled numerous similar matters, with many experienced and professional corporate and civil lawyers in its arsenal, making it one of the top consulting firms in Indonesia. Feel free to contact us at info@schinderlawfirm.com for further consultation.

Author:
Budhi Satya Makmur