“By Omnibus Law in 2020 and its implementing regulations, the procedure and reasons for termination of employees and calculations of the severance package have been considerably modified. Further, any violation concerning the severance package is now punishable by criminal sanctions.”
From mid-2020 to early 2021, matters regarding employee termination have been made uncertain by the promulgation of Law No. 11 of 2020 concerning Job Creation (“Omnibus Law”).
While the Omnibus Law has made considerable changes to Law No. 13 of 2003 concerning Manpower (“Manpower Law”), multiple provisions contained therein are insufficient to clarify the implementation.
In February 2021, this issue has been resolved by the promulgation of Government Regulation No. 35 of 2021 concerning Fixed-term Work Agreement, Outsourcing, Working Hours and Rest Periods, and Termination of Employment Relationship (“PP 35/2021”). From now on, this article shall discuss the legal issues concerning the termination of employees.
Procedure of Termination of Employees
Before the promulgation of the Omnibus Law, the Manpower Law stipulates that if termination of employees is inevitable, the termination must be negotiated between the employer and the relevant employee. Therefore, by the Manpower Law, termination of employees must only be implemented upon an expressed agreement between the employer and the employee.
Under the Omnibus Law, the procedure of termination of employees has been modified. Employee termination is now allowed to be conducted by issuance of the termination notice by the employer. Only in the event, the employee objects to such termination notice that the termination process must resume to negotiation between the employer and the relevant employee.
However, in the event the employee does not raise any objection to such termination office, the termination process shall immediately conclude. Therefore, the Omnibus Law stipulates that an implied consent of the employee shall be deemed sufficient to constitute an agreement.
Clarification of Compensation Pay for Employees’ Rights
The Omnibus Law and PP 35/2021 have clarified the component of the severance package under the name of ‘Compensation Pay for Employees’ Rights’ (uang penggantian hak). Previously, the Manpower Law regulated that such a component includes compensation for housing, medical, and health care allowance.
Further, the Manpower Law stated that such aspect is determined to be 15% (fifteen per cent) of the severance pay and/or reward for years of service pay. In practice, the wording of this provision has long been an issue of interpretation, because it contains the phrase ‘and/or’. Therefore, there can be multiple interpretations of this provision and thus created uncertainty in calculating of the employees’ entitlements.
According to the Omnibus Law and PP 35/2021, the Compensation Pay for Employees’ Rights no longer regards the aspect of compensation for housing, medical, and health care allowance, therefore revoking any issue of interpretation of the calculation.
Reduction of Severance Pay for Various Reasons of Termination
Previously, the Manpower Law has determined the specific calculations for each reason of termination. However, the Omnibus Law has revoked all detailed calculations as mentioned and relegated such calculations to PP 35/2021.
Upon perusal of PP 35/2021, it can be concluded that the specific calculations for most reasons of termination have been reduced from the previous calculations under the Manpower Law.
Generally, for most reasons of termination, what used to include 2 (two) times the amount of severance pay is reduced to 1 (one) time the amount of severance pay, while what used to include 1 (one) time the amount of severance pay is reduced to 0.5 (zero point five) time the amount of severance pay.
Expansion of Various Reasons for Termination
With the promulgation of PP 35/2021, various reasons for termination have been expanded and made more general. The said expansions shall be explained as follow:
a. Rationalization (Efficiency)
Previously, the Manpower Law stipulated that rationalization may only be used as a reason for termination if the enterprise has to be closed down. However, PP 35/2021 states that rationalization may be used as a reason for termination even if it is not followed by closing down of the enterprise. Further, it is stated that rationalization is not limited to a decision driven by loss, but it can be conducted to prevent any loss in the future.
b. Closing Down of Enterprise
Previously, the Manpower Law stipulated that closing down an enterprise may only be used as a reason for termination due to continual loss for 2 (two) years, force majeure, or rationalization. However, PP 35/2021 states that closing down an enterprise may be used as a reason for termination without specifying its causes.
c. Force Majeure
Previously, the Manpower Law stipulated that force majeure may only be used as a reason for termination if it is followed by a closing down of the enterprise. However, PP 35/2021 states that termination may be conducted due to force majeure with or without the closing down of the enterprise.
Importance of Agreement on Detachment Money
Previously, in the Manpower Law, the detachment money (uang pisah) is only regulated to be a component of the severance package for the following reasons of termination:
- Resignation of employees whose duties and functions do not directly represent the interest of the employer; and
- Absence from work for 5 (five) working days or more consecutively without submitting a written explanation to the employer.
However, under PP 35/2021, it is stated that the detachment money constitutes a component of the severance package for the following reasons of termination:
- There has been a court decision declaring the employer not guilty of charges filed by the employee;
- Resignation of employees without any specific criteria of duties and functions;
- Absence from work for 5 (five) working days or more consecutively without submission of a written explanation to the employer;
- Violation of provisions specified under a work agreement, company regulations, or the collective labor agreement;
- Inability to work for 6 (six) months due to detainment for allegations of criminal conduct which does not cause the employer to suffer a loss; and
- There has been a court decision within 6 (six) months of court proceeding declaring the employee guilty of criminal conduct, which does not cause the employer to suffer a loss.
It must be regarded that detachment money is determined under a work agreement, company regulations, or collective labor agreement. The regulation does not provide any guidance of calculation for the detachment money. Therefore, considering how PP 35/2021 has considerably increased the number of reasons for termination.
The severance package includes the detachment money. It has increased the urgency for employers and employees to agree on the amount of detachment money.
Criminal Sanctions for Violation of Severance Package
Within the Omnibus Law, in the event an employer conducts any violation of provisions concerning the severance package, including the specific calculations thereof, the employer is punishable by incarceration for the minimum of 1 (one) year and the maximum of 4 (four) years and/or a fine in the minimum of IDR 100,000,000 (one hundred million Indonesian Rupiah) and the maximum of IDR 400,000,000 (four hundred million Indonesian Rupiah).
Author: Yohana Veronica Tanjung
Related article: The Rights and Obligations of Employers for Employees Post Omnibus Law – Part I
