Indonesia: Update on outsourcing

A recent regulation issued and enacted by the Minister of Manpower provides some clarification on when outsourcing activities may be implemented and requires outsourcing companies in certain circumstances to guarantee continuity of work for fixed term outsourced employees.

In November 2012 the Minister of Manpower issued and enacted a new regulation on outsourcing, Regulation Number 19 of 2012 on the Terms to Outsource Work to Another Company’ (Regulation 19).

Regulation 19 restricts the occupations in which outsourcing activities may be implemented. The regulation states that outsourcing activities may only be implemented in the following lines of work: 

• janitorial work (or cleaning services);
• catering;
• security guard services;
• supporting services in the mining and oil sectors; and
• transportation services.

Regulation 19 follows a decision of the Indonesian Constitutional Court (ICC) in January last year (Decision No. 27/PUU-IX/2011 (Decision 27), which also resulted in protections for outsourcing employees employed on a fixed term basis. Decision 27 prohibits outsourcing companies who are the subject of an outsourcing arrangement from hiring employees on a ‘fixed term basis’ unless certain contractual protections are in place which protect the outsourcing employees in the event that the relevant job provider under an  their outsourcing employer is replaced by an alternative outsourcing employer.

Under Regulation 19, the relationship between the outsourcing company and the outsourced employee may be made on a fixed term basis provided that the outsourcing company guarantees the continuity of the performance of work.

It is unclear how outsourcing companies should guarantee the performance of work if the outsourced employee is working on fixed term basis, but Regulation 19 grants outsourced employees the right to file a claim with the Industrial Relations Court if the right to have continued work performance is not granted.

Action for employers

Companies that use outsourcing arrangements should be aware of the new restrictions on outsourcing arrangements, as the lines of work that may be outsourced are now heavily restricted. Furthermore, companies should carefully consider how the commercial risk of the ‘continued work performance’ requirement will be allocated in the outsourcing agreement.

Article written by David Dawborn, Partner