Author: Yohana Veronica Tanjung
“While a merger may benefit companies from the business perspective, a merger is legally acknowledged as a reason for termination of employment, which may entail an obligation to preserve the financial entitlements of the employees.”
According to Law No. 40 of 2007 concerning Limited Liability Company as lastly amended by Law No. 6 of 2023 concerning the Enactment of Government Regulation in Lieu of Law No. 2 of 2022 on Job Creation to Become Law (“Company Law”), the merger is defined as a corporate action taken by one or more companies to merge into another existing company, which then becomes the only surviving company. It results in a transfer of assets and liabilities of the merging company to the surviving company, causing the merging company to dissolve.
From the business point of view, companies usually commenced the merger to expand their joint market share. Furthermore, the merger can also serve as a means of diversification, therefore reaching a more comprehensive range or more customer segments. This diversification can be realized in the event the merging company and the surviving company have carried out their respective businesses in different fields.
While the big picture of a merger seems entirely desirable, the impacts of a merger upon closer inspection must not be overlooked. This article shall discuss the legal implications of a merger on the industrial relations between the companies and their employees.
Impacts of Merger on the Employees of the Merging Company
As mentioned previously, a merger entails the transfer of assets and liabilities from the merging company to the surviving company. The surviving company shall continue to exist while the merging company ceases to exist. Considering how the surviving company essentially absorbs the merging company as a whole, it means that the employees of the merging company shall also be transferred to the surviving company. It will inevitably increase the number of employees employed by the surviving company at once.
Under Law No. 13 of 2003 concerning Manpower, as lastly amended by Law No. 6 of 2023 concerning Determination of Government Regulation in Lieu of Law Number 2 of 2022 concerning Job Creation into Law (collectively referred to as the “Manpower Law”), the surviving company may terminate its employees in the event of a merger.
Written in Article 154A of the Manpower Law, a layoff may be conducted in the merger, and the company is unwilling to accept the employees to work therein.
On the other hand, the employees are also entitled to the same provision to refuse to continue their employment at the company in a merger. Therefore, a merger may result in the terminations of industrial relations between the companies and their employees.
Financial Entitlements of Employees upon Termination in the Event of Merger
Before the most recent amendment of the Manpower Law, entitlements of employees terminated in the event of a merger is divided into 2 (two) methods of calculation, depending on which party initiates the termination of employment. Considering how the Manpower Law aims to secure the rights of the employees, the entitlements of the employees laid off by the company are more significant than the entitlements of the employees unwilling to continue their employment.
Previously, the methods of calculation for the entitlements were regulated as follow:
- Suppose the company lays off the employees. In that case, the employees are entitled to severance pay 2 (two) times the stipulated amount, reward pay for period of employment 1 (one) time the stipulated amount, and compensation pay for entitlements that have not been used according to the stipulated provision.
- Suppose the employees are not willing to continue their employment. In that case, the employees are entitled to severance pay 1 (one) time the stipulated amount, reward pay for period of employment 1 (one) time the stipulated amount, and compensation pay for entitlements that have not been used according to the stipulated provision.
However, following the most recent amendment of the Manpower Law, the calculation methods for the entitlements of terminated employees are no longer specified within the law itself.
The specific calculation of entitlements of terminated employees are relegated into one of the implementing regulations of the Manpower Law, which is Government Regulation No. 35 of 2021 concerning Fixed-term Work Agreement, Outsourcing, Working Hours and Rest Periods, and Termination of Employment (“GR 35/2021”).
Unlike the Manpower Law before the amendment, GR 35/2021 does not differentiate the methods of calculation for the entitlements of terminated employees based on which party initiates the termination. Instead, it regulates that in case of termination of employees in the event of a merger, regardless of whether the company or the employees initiate the termination, the employees are entitled to:
- severance pay 1 (one) time the stipulated amount;
- reward for period of employment 1 (one) time the stipulated amount; and
- compensation pay for entitlements that have not been used according to the stipulated provisions.
Read More: By Omnibus Law, Indonesia Open Foreign Investment in Various Attractive Sectors
Author: Yohana Veronica Tanjung
