Amid the COVID-19 Pandemic, we have been receiving queries from our clients with regard toemployment contract issues. One of the most frequently asked questions is about the definite period employment agreements. In businesses, such as drilling services, construction , or any other companies having businesses based on projects , the definite period employment contracts are the most preferable. Following Article 59 par. 3 of Law No. 13 of 2003 concerning Manpower Law (“Labor Law”), the definite period employment agreement shall not be made for employees who have worked for the company for more than 3 years. This means if the 3 years of employment period has been passed, the companyeither has to appoint the employee to work as a permanent employee or not extend the employment.
Before the pandemic, many employers offered to extend the definite period employment agreement even though an employee has been working for over 3 years. The employer usually stopped the employment for some period of time, revoking the social insurances, and later rehired the employees. During the pandemic, many employees feared that any economic downfall may induce the companies to downsize and may cause the risk of not extending the contracts and no compensation paid whatsoever. Hence, the employees have demanded the company to amend their contract from definite period employment agreement to an indefinite period employment agreement.
On 2 February, the Indonesian government enacted a number of implementing regulations of Law No. 11 of 2020 on Job Creation (“Omnibus Law”). One of the enacted implementing regulations is Government Regulation No. 35 of 2021 on Definite Period Employment Agreements, Outsourcing, Working and Resting Hours, and Termination of Employment (“GR/35”). Under Article 8 of GR/35, a definite period employment agreement can be made for a maximum of 5 years and the extension is possible till the work is completed. In casethe work is not completed, the definite employment agreement can be made for a period of time mutually agreed by the employer and the employee with a condition that the extension shall not exceed 5 years.
Following Article 8 of GR/35, anemployer can offer anemployee who has been working for the company for over 3 years under definite period employment contract to continue working for the company for the next 2 years and also,seek an extension until the work/project has been completed. However, please note that according to Article 5 of GR/35, the definite period employment agreement can only be made for work that is estimated to be completed in a shorttime, seasonal work, work related to new products, new activities, or additional products that are still in trial or experimental phase. Further, if the definite period employment agreement does not comply with the Job Creation Law and GR/35, there is an open possibility for the employee to seek legal counsel by filing a lawsuit with the Industrial Relation Court in order to amend their employment from a definite period employment agreement to an indefinite period employment agreement.
How can Schinder help
Since the outbreak of COVID-19, Schinder Law Firm has been advising several foreigninvestment and local companies with regard to employment contract disputes and has often resulted in favourable outcomes for the employers. We have represented our clients before the Indonesian Industrial Relations Court and resulted in favourable outcomes in several cases.
For the employers, there is a huge benefit in seeking the help of a law firm to assist them with the negotiation process. Employees often understand the severity of the situation when they meet their employer’s lawyers as opposed to someone from their company. Normally, it is difficult for the employees to fairly negotiate with their supervisors and results in resentments at both ends. If you would like to learn more on what actions to take to negotiate with your employee regarding employment contract issues, feel free to write to us for assistance/advise at email@example.com.