Discover insight through our challenging cases.

Dealing with an Employment Agreement Based on Omnibus Law

Promulgated earlier this year, the Omnibus Law has brought considerable changes in most areas of Indonesian law. One of the most significant changes made effective is the amendment of the Manpower Law. However, as of now, such amendment cannot be completely implemented, considering there have been multiple matters that have been left vague.

Following the promulgation of the Law No. 11 of 2020 on Job Creation (“Omnibus Law”), there have been mass amendments of laws in Indonesia. One of the most significant changes contained in such law is that regarding the Employment Law, amending the Law No. 13 of 2003 on Manpower (“Manpower Law”). From now on, this article will elaborate the changes concerning Employment Agreements that have been amended by the Omnibus Law and how they differ from the preceding provisions in the Manpower Law.

Validity Period of Fixed-term Work Agreement

Pursuant to the Manpower Law, an Employment Agreement may be entered into in the forms of:

  1. Fixed-term Work Agreement; and
  2. Permanent Work Agreement.

Previously, within the Manpower Law, a Fixed-term Work Agreement is only allowed to be made valid for the maximum period of 3 years. The initial agreement must only be valid for up to 2 years, and there can only be one extension for the maximum period of 1 year. This is considering how the Fixed-term Work Agreement can only be made for types of work which are temporary in nature.

Within the Omnibus Law, the provision concerning the limited validity period of the Fixed-term Work Agreement has been removed. While the types of work agreed in the Fixed-term Work Agreement remain unchanged, the Omnibus Law does not provide a strict limitation to the validity period of the Fixed-term Work Agreement.

Probation Period Stipulated by Fixed-term Work Agreement

Under the Manpower Law, a Fixed-term Work Agreement is prohibited from stipulating a probation period. In the event a Fixed-term Work Agreement stipulates a probation period, it must be considered null and void by law.

In the Omnibus Law, such provision remains to be made effective. However, while the probation period stipulated by a Fixed-term Work Agreement should still be considered null and void, the Omnibus Law states that such probation period must be accounted for the employment period of the relevant employee.

Compensation Fund upon Expiry of Fixed-term Work Agreement

In the Manpower Law, the enterprise is only under an obligation to provide compensation or pension fund to terminated employees who had been working under a Permanent Work Agreement. However, the Omnibus Law stipulates that for employees who have been terminated due to expiry of Fixed-term Work Agreement, the enterprise is under an obligation to provide a compensation fund. The calculation or detailed provision concerning such compensation fund has been stated to be stipulated by the implementing regulations of the Omnibus Law, which are the Government Regulations.

Termination, Resignation, and Severance Pay

Pursuant to the Manpower Law, termination of the employment relationship must be done based on a mutual agreement, which must be preceded by negotiation between the enterprise and the employee or the labor union. By contrast, the Omnibus Law stipulates that as of now,  termination of employment relationship shall be done based on a notice made by the enterprise to the employee. In the event, the employee refuses such termination, then a negotiation between the enterprise and the employee must take place.

Following said amendment concerning the procedure of termination, the notice as mentioned in the previous paragraph is not required in the event the relevant employee has resigned on his/her own will. The provisions concerning the resignation of an employee remain unchanged by the Omnibus Law, which must fulfill the following requirements:

  1. Submit a resignation letter no later than 30 days before  the effective date of resignation;
  2. Not being bound by a contract to serve the enterprise; and
  3. Continue to carry out his or her obligations until the effective date of resignation.

Within the Manpower Law, each reason for termination is elaborated within a respective article to contain the specific calculation of the severance payments. However, within the Omnibus Law, all of the reasons for termination are stipulated within one article, while the calculation of severance pay related to each reason for termination is removed from the provisions. It is stated that the specificity of severance pay shall be stipulated by the implementing regulations as well, which are the Government Regulations.

Still, within the area of termination of the employment relationship, the Omnibus Law adds a new provision that any incompliance regarding payment of severance pay shall be considered a criminal act, which is punishable by:

  1. imprisonment for at least 1 (one) year up to 4 (four) years; and/or
  2. criminal fine in the amount of at least IDR 100 million up to IDR 400 million.

Further Provisions to be Stipulated by Government Regulations

Upon perusal of the Omnibus Law text, there can be found multiple provisions under the Manpower Law which have been removed. However, this must not be understood that such provisions are completely waived.

Most of the amended provisions contained under the Omnibus Law stated with the provision that the relevant matter should be regulated further by the Government Regulation. Therefore, it must be regarded that some details of the provisions which have yet to be governed by the Omnibus Law may be relegated to the Government Regulations, which are assumed to be promulgated within the near future.

In relation to the topic at hand, it is assumed that the soon-to-be promulgated Government Regulations may stipulate the following matters:

  1. details and technical matters of Fixed-term Work Agreement;
  2. calculation of the compensation fund following the expiry of a Fixed-term Work Agreement; and
  3. details and calculation of the severance pay following a termination of the employment relationship.

Author: Yohana Veronica Tanjung

Gaffar & Co., Indonesian Boutique Law Firm which specializing and focus on commercial law areas include Employment Law. 

For further queries and information, please contact us:

+62- 21 2271 8638  | +62 – 811 877 216 | |

Share on linkedin