April 13, 2022in Employment Law, Classic

The Procedures for Terminations of Employment under the Omnibus Law

The Indonesian government enacted Law Number 11 of 2020 on Job Creation (“Omnibus Law”) with the main objective of encouraging investments, accelerating economic transformation, synchronizing policies between the central and regional governments, making doing business easier, and remedying overlapping regulations.  The Omnibus Law has amended several articles of Law Number 13 of 2003 on Manpower (“Law 13/2003”). 

To follow up on the Omnibus Law, the government issued Government Regulation Number 35 of 2021 on Fixed-Term Employment Agreements, Outsourcing, Work and Rest Times and Terminations of Employment (“GR35/2021”).  

One of the amendments made by the Omnibus Law is to the procedure for terminating employment.  Under Law 13/2003 as amended by the Omnibus Law, the employer and the employee must try to avoid the termination of their employment relationship and it should only be conducted if termination has become unavoidable.

The Omnibus Law expressly introduces a new requirement for terminations of employment.  Under amended Law 13/2003, if a termination of employment is no longer avoidable, the employer can initiate the procedure by serving the employee a notice of termination providing the purpose of and reason for his/her termination.  The reason must be one of those acceptable under Law 13/2003 and GR35/2021.  The notice must be delivered in writing to the employee at least 14 working days before the date of his/her termination.

Given the above, the procedure for terminating employment is now the following:

  1. The employer serves the employee a notice of termination stating the purpose of and reason for the termination at least 14 working days before the date of termination (or at least seven working days before if the employee is still on probation).
  2. If upon receiving the notice, if the employee accepts his/her termination, the employer must submit a report to the Ministry of Manpower or the local provincial/regency/municipal government office in charge of government affairs regarding manpower;
  3. However, if the employee refuses to accept the termination of his/her employment, the employee must deliver a rejection letter to the employer stating the reason, within seven working days of receiving the notice of termination.
  4. Thereupon, the employer and the employee must try to settle the dispute over the termination of employment through bipartite negotiations.  The bipartite negotiations should be concluded within 30 working days of the commencement of the negotiations.
  5. If the employer and the employee reach a consensus during the bipartite negotiations, they must draw up a mutual termination agreement (MTA) that must be registered with the Industrial Relations Court (IRC).  However, no consensus can be reached during the bipartite negotiations, the dispute over the termination of employment must be settled through the following procedure for the settlement of the industrial relations disputes under the prevailing regulations.
  6. a. If the employer and the employee cannot reach a consensus, they should register the dispute with the local government office in charge of manpower affairs (Manpower Office).  Having received the application for the registration of the dispute, the Manpower Office will ask the parties if they would prefer to settle the dispute through arbitration or conciliation.  In practice, the Manpower Office usually offers mediation, and the parties usually opt for mediation.  If the parties do not inform the Manpower Office of their decision within seven working days, the Manpower Office will assign the dispute to a mediator.

    b. The mediator must review the case and initiate the mediation within seven working days of the dispute being assigned to him/her.

    c. If no consensus is reached through mediation, the mediator must issue a written recommendation within 10 working days of the first mediation session to the parties and the parties must submit a written answer within 10 working days of receipt of the written recommendation, stating whether they accept or reject the recommendation.  If either party does not submit its answer, it will be deemed to have rejected the written recommendation.

    d. If the parties accept the written recommendation, within three working days of the recommendation being accepted, the mediator must help the parties to draw up an MTA, which must be registered with the IRC.

    e. The mediator must complete his/her duties within 30 working days of the dispute being assigned to him/her.

    f. Conciliation is similar to mediation.  The difference is that a mediator is an employees of the local Manpower Office, while a conciliator is chosen by the parties from the list of conciliators at the local Manpower Office.
  7. If either party rejects the mediator’s written recommendation, it may submit the dispute to the IRC in the District Court with jurisdiction over the employee’s domicile.  The IRC is the court of first instance with jurisdiction over disputes over terminations of employment, and the applicable procedural law is the civil procedural law applicable in the general courts, unless stated otherwise in Law No.2 of 2004 on Industrial Relations Dispute Settlement.  The panel of judges in the IRC must issue its ruling within 50 working days of the first hearing and the ruling must be provided to the parties.
  8. If either party does not accept the IRC’s ruling, it can submit an appeal to the Supreme Court.  An IRC ruling becomes final and binding if no appeal is submitted within 14 working days after the ruling is read out by the panel of judges to those present in the hearing or after the date on which the ruling is received by a party who was absent in the hearing.

It should be noted that disputes over terminations of employment must still be settled according to Law Number 2 of 2004 on the Settlement of Industrial Relations Disputes as it has not been amended by the Omnibus Law.

***

This article is intended as a brief and general description of the procedure for terminating employment in Indonesia under the prevailing regulations and may not be used as a legal advice or to replace a legal advice on a specific case.  The regulations referred to in this article may no longer be current.  We will be pleased to assist by providing legal advice on matters related to this article, including by providing legal services and assistance for other legal issues. For more information, please contact us at yusfa@perdanalaw.com.

April 2022

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April 13, 2022in Classic, Employment Law

Foreign Investment in Distribution under the Omnibus Law

The Indonesian government enacted Law Number 11 of 2020 on Job Creation (“Omnibus Law”) with the main objective of encouraging investments, accelerating economic transformation, synchronizing policies between the central and regional governments, making doing business easier and resolving overlapping regulations.  One of the implementing regulations of the Omnibus Law is Presidential Regulation Number 10 of 2021 on Investment Business Activities (“PR10/2021”) which has been amended by Presidential Regulation Number 49 of 2021 on Amendments to Presidential Regulation Number 10 of 2021 (“PR49/2021”).  These presidential regulations list the types of business activities that are open for investment.  The Omnibus Law and PR10/2021 are intended to ease restrictions on foreign investments in Indonesia. 

Restrictions on Foreign Investments in Distribution

One of the activities that plays a significant role in the economy is the distribution of goods.  Before the introduction of PR10/2021 and PR49/2021, restrictions on investments in various business activities were imposed under Presidential Regulation Number 44 of 2016 on the List of Business Activities Closed for Investment and Business Activities that are Open with Requirements (“PR44/2016”).  PR44/2016 referred to the descriptions of various business activities in the Indonesian Standard Industrial Classifications (Klasifikasi Baku Lapangan Usaha Indonesia – “KBLI”) issued in 2015, while PR10/2021 and PR49/2021 refer to 2020 edition of the KBLI.

In PR44/2016, foreign investment in the distribution of goods which was not affiliated with production (KBLI 00000) was limited to 67%. Now there is no limit under PR10/2021 or PR49/2021 and therefore, foreign investment in distribution can be up to 100%.

With the introduction of PR10/2021 and PR49/2021, large-scale trading (which includes distribution, importing and exporting) is open to 100% foreign investment, subject of course to the requirements that apply to large-scale trading in several types of goods under PR10/2021 and PR49/2021.

Further, under Government Regulation Number 5 of 2021 on Risk-Based Business Licensing (“GR5/2021”) and Regulation of the Investment Coordinating Board Number 4 of 2021 on the Guidelines and Procedure for Risk-Based Licensing and Investment facilities (“BKPM Regulation 4/2021”), any investment in large-scale trade activities must be more than 10 billion Rupiah (not including the value of any land and buildings) for each 4 initial digits of the KBLI code.

The Requirements for Distribution Activities

In addition to the minimum capital requirements above, distribution activities must also comply with the requirements under Government Regulation Number 29 of 2021 on Trading Operations (GR29/2021).  GR29/2021, which is also an implementing regulation of the Omnibus Law, requires distributors to comply with the following requirements:

  1. to obtain a business license as a distributor;
  2. to possess or control business premises with a correct, permanent and clear address;
  3. to possess or control a warehouse that has been registered with the correct, permanent and clear address; and
  4. to have agreements with manufacturers or suppliers or importers on the goods to be distributed.

Unlike distributors with domestic capital, distributors under with foreign investments are required to appoint a domestic company as a distributor, sole-distributor, agent or sole-agent under Regulation of the Minister of Trade Number 24 of 2021 on Agreements on the Distribution of Goods by Distributors or Agents (“Regulation 24/2021”).  Regulation 24/2021 is an implementing regulation of GR29/2021.  Under Regulation 24/2021, a distributor established as a foreign investment company may not distribute goods to retailers, like domestic distributors normally do.

Distributing different types of goods falls under their own specific KBLI codes, which have their own requirements and specifics under their KBLI codes.  The additional licenses or requirements for distributing certain goods are described in the Online Single Submission (“OSS”) system as part of obtaining a business license through the OSS system.

***

This article is intended as a brief and general description of distribution activities with foreign investments in Indonesia under the prevailing regulations and may not be used as a legal advice or to replace a legal advice on a specific case.  The regulations referred to in this article may no longer be current.  We will be pleased to provide legal advice on matters related to this article, and provide our legal services and assistance regarding other legal issues.  For more information, please contact us at yusfa@perdanalaw.com.

April 2022

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April 11, 2022in Classic, Employment Law

Reasons for Terminating Employment under the Manpower Law as Amended by the Omnibus Law

Reasons for Terminating Employment under the Manpower Law as Amended by the Omnibus Law

The Indonesian government enacted Law Number 11 of 2020 on Job Creation (“Omnibus Law”) with the main objective of encouraging investments, accelerating economic transformation, synchronizing policies between the central and regional governments, making doing business easier and resolving overlapping regulations.  The Omnibus Law has amended several articles of Law Number 13 of 2003 on Manpower (“Law 13/2003”).

To follow up on the Omnibus Law, the government also issued Government Regulation Number 35 of 2021 on Fixed-Time Employment Agreements, Outsourcing, Work and Rest Times and Terminations of Employment (“GR35/2021”).

Some of the aspects of Law 13/2003 amended under the Omnibus Law and further regulated under GR35/2021 are the reasons for terminating employment and the calculation of the severance package employees are entitled to under the specific conditions that allow termination of employment.

I.       The Reasons for Terminating Employment 

The reasons for which employment may be terminated under Article 154A of Law 13/2003 and Article 36 of GR35/2021 are the following:

  1. the company is conducting a merger, amalgamation, acquisition or spin-off and the employee is not willing to continue his/her employment or the new employer is not willing to accept the employee;
  2. the company is taking efficiency measures to be followed the closing down of the company or not to be followed by the closing down of the company because the company has been suffering losses;
  3. the company is being closed down because it has suffered losses continuously for two years;
  4. the company is closing down due to force majeure;
  5. the company is undergoing a delay of debt payments;
  6. the company has been declared bankrupt;
  7. the employee has submitted a petition to terminate his/her employment by the employer has:
    • oppressed, rudely offended or threatened the employee;
    • persuaded or instructed the employer to engage in an activity which violates the law;
    • not paid the employee’s wage at the determined time for three or more consecutive months, although the employer has paid the wage on time thereafter;
    • not fulfilled its obligations as greed with the employee;
    • instructed the employee to perform work outside that agreed to; or
    • made the employee perform work that threatens the life, safety, health and decency of the employee and is not covered by the employment agreement;
  8. under a ruling of an industrial dispute settlement institution (the Industrial Relations Court) the employer has not committed the offence described in 7 above in the petition submitted by the employee to terminate his/her employment;
  9. the employee voluntarily resigns subject to the following requirements:
    • the employee submits a written resignation application at least 30 days before the resignation date;
    • the employee is not under a commitment to work (ikatan dinas); and
    • the employee continues to perform his/her obligations until the resignation date;
  10. the employee is absent for five or more consecutive working days without providing any written information or valid evidence of the cause and has been duly summoned twice by the employer in writing;
  11. the employee has violated the employment agreement, Company Regulations or Collective Labor Agreement and has been served a first, second and third warning in succession, each valid for up to six months, unless stated otherwise in the employment agreement, Company Regulations or Collective Labor Agreement;
  12. the employee has not performed any work for six months because he/she has been detained by the authorities for allegedly committing a crime;
  13. the employee is suffering from a prolonged illness or has become disabled due to an occupational accident and cannot perform work after more than 12 months;
  14. the employee has reached retirement age; or
  15. the employee has died.

In addition, the employment agreement, Company Regulations or Collective Labor Agreement may provide other reasons for terminating employment.  Under Article 52 (2) of GR35/2021, an employee can be terminated for committing an offence which is defined as an urgent reason under the employment agreement, Company Regulations or Collective Labor Agreement.

According to the elucidation of Article 52 (2), urgent reasons include, for example, the employee having:

  1. committed fraud, stolen or the company’s goods or embezzled the company’s funds;
  2. provided false or forged information that has caused the company to suffer a loss;
  3. been drunk, caught drinking intoxicating beverages, using or distributing narcotics, psychotropic substances or other addictive substances in the work place;
  4. behaved indecently or gambled in the work place;
  5. assaulted, abused, threatened or intimidated co-workers or the employer in the work place;
  6. persuaded co-workers or the employer to engage in activities which violate the law;
  7. neglectfully or intentionally destroyed or allowed the company’s property to be placed in danger which has caused the company to suffer a loss;
  8. neglectfully or intentionally allowed a co-worker or placed the employee in danger in the work place;
  9. disseminated or disclosed company secrets which are supposed to be kept confidential except for the official state purposes; or
  10. committed any other offence in the company premises for which the sentence is five or more years in prison.

II.      The Calculation of the Severance Package

The Omnibus law does not change the articles of Law 13/2003 on severance pay and term of service recognition payments.  However, an element of the compensation (uang penggantian hak) due has been removed under the Omnibus Law, that is the compensation for housing, medicines and medical care valued at 15% of the severance pay and term of service recognition payment for those who are eligible.

Severance Pay

The amount of severance pay that the employer must pay under Article 156 (2) of Law 13/2003 and Article 40 (2) of GR35/2021 is the following:

Term of Service Severance Pay
Less than 1 year 1 month’s wage
1 year or more but less than 2 years 2 months’ wages
2 years or more but less than 3 years 3 months’ wages
3 years or more but less than 4 years 4 months’ wages
4 years or more but less than 5 years 5 months’ wages
5 years or more but less than 6 years 6 months’ wages
6 years or more but less than 7 years 7 months’ wages
7 years or more but less than 8 years 8 months’ wages
8 years or more 9 months’ wages

The Term of Service Recognition Payment

The amount of the term of service recognition payment that the employer must pay under Article 156 (3) of Law 13/2003 and Article 40 (3) GR35/2021 is the following:

Term of Service Payment
3 years or more but less than 6 years 2 month’s wages
6 years or more but less than 9 years 3 months’ wages
9 years or more but less than 12 years 4 months’ wages
12 years or more but less than 15 years 5 months’ wages
15 years or more but less than 18 years 6 months’ wages
18 years or more but less than 21 years 7 month’s’ wages
21 years or more but less than 24 years 8 months’ wages
24 years or more 10 months’ wages

Compensation

The amount of compensation (uang penggantian hak) to be paid under Article 156 (4) of Law 13/2003 and Article 40 (4) of GR35/2021 comprises compensation for:

  • untaken and annual leave not forfeited;

  • the cost of returning the employee and his/her immediate family to the where he/she was hired (if applicable);

  • other items specified in the employment agreement, Company Regulations or Collective Labor Agreement.

The amount of the salary on which the severance pay and term of service recognition payment are based is the basic salary plus fixed allowances provided to the employee and his/her immediate family.  

III.     The Calculation of the Severance Package upon the Termination of Employment

Unlike Law 13/2003 when enacted, GR35/2021, which is an implementing regulation of the Omnibus Law and Law 13/2003, provides several calculations of the severance pay, term of service recognition payment, and compensation.  

The amount of severance pay, the term of service recognition payment, compensation or separation pay due depending on the reason for terminating employment is provided in the table below.

The Reason for the Termination of Employment Sever-ance Pay Term of Service Payment Compen-sation Separa-tion Pay
The company is conducting a merger, amalgamation, acquisition or spin-off and the employee is not willing to continue the employment or the new employer is not willing to accept the employee  1X 1X √ –
The company is being acquired           1X 1X √ –
The acquisition of the company causes changes to the employment terms and conditions and the employee is not willing to continue his/her employment   0.5X 1X √ –
The company is taking efficiency measures due to losses  0.5X 1X √ –
The company is taking efficiency measures to prevent losses  1X 1X √ –
The company is being closed down because it has suffered losses for two years continuously or not continuously  0.5X 1X √ –
The company is being closed down not because of suffering losses  1X 1X √ –
The company is being closed down due to force majeure  0.5X 1X √ –
A force majeure event has occurred that has not caused the company to close down  0.75X 1X √ –
The company is undergoing a delay of debt payment due to losses it has suffered  0.5X 1X √ –
The company is undergoing a delay of debt payment not because of it has been suffering losses  1X 1X √ –
The company has been declared bankrupt   0.5X 1X √ –
The employee has submitted a petition to terminate his/her employment because the employer has committed the offences described in Article 36 g. of GR35/2021[1]  1X 1X √ –
An industrial dispute settlement institution (IRC) has ruled that the employer has not committed the alleged offence under Article 36 g. of GR35/2021[2]  – – √ √
The employee voluntarily resigns according to the requirements  – – √ √
The employee is absent for five or more consecutive working days without providing any written information or valid evidence and has been duly summoned twice by the employer in writing  – – √ √
The employee has violated the employment agreement, Company Regulations or Collective Labor Agreement and has been served a first, second and third warning in succession  0.5X 1X √ –
The urgent reasons specified in the employment agreement, Company Regulations or Collective Labor Agreement have occurred (termination without notice is allowed)  – – √ √
The employee has not performed any work for six months because he/she has been detained for allegedly committing a crime under Article 36 l. of GR35/2021[3] The employee has been found guilty before the above 6-month period expires  –       – –       – √       √ √       √
The employee has not performed any work for six months because he/she has been detained for allegedly committing a crime under Article 36 l. of GR35/2021[4] which has not caused the company to suffer a loss The employee has been found guilty before the above 6-month period expires  –      – 1X      1X √      √ –      –
The employee is suffering from a  prolonged illness or has become disabled due to an occupational accident and cannot work after more than 12 months  2X 1X √ –
The employee asks to be terminated because he/she is suffering from a prolonged illness and cannot work after a period of more than 12 months  2X 1X √ –
The employee has reached retirement age  1.75X 1X √ –
The employee has died (paid to the employee’s heirs) 2X 1X √ –
[1] Please see Section I, item number 7.
[2] Ibid.
[3] Please see Section I, item number 12.
[4] Ibid.
[5] Ibid.

If the employee is detained by the authorities for allegedly committing a crime[1], the employer is not required to pay his/her wages, but must provide assistance to his/her dependents, for up to six months as of the first day of his/her detention by the authorities.  The minimum amount of assistance is the following:

Number of Dependent The Amount of Assistance
1 person 25% of the wage
2 persons 35% of the wage
3 persons 45% of the wage
4 persons or more 50% of the wage

As explained in a separate article, the procedure for terminating employment required under the regulations must be followed as well as the procedures for the settlement of industrial relations disputes.

***

This article is intended as a brief and general description of the reasons for terminating employment and the calculation of the severance package due in Indonesia under the prevailing regulations and may not be used as a legal advice or to replace a legal advice on a specific case.  The regulations referred to in this article may have become no longer current.  We will be pleased to provide legal advice on matters related to this article, and to provide our legal services and assistance regarding other legal issues.  For more information, please contact us at yusfa@perdanalaw.com.

April 2022

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