On 1 December 2023, a coalition of labour organisations in Indonesia filed for a judicial review seeking amendments to Law No. 6 of 2023 on Stipulation of Government Regulation in Lieu of Law No. 2 of 2022 on Job Creation (the Job Creation Law). Changes were requested to at least 70 articles of this law, which focuses on various aspects of employment.
On 31 October 2024, Indonesia’s Constitutional Court issued Decision No.168/PUU-XXI/2023 (the Constitutional Court Decision), which partially granted the petition for a judicial review of the Job Creation Law.
Overview of Constitutional Court Decision
The Constitutional Court Decision affects the interpretation of 21 articles of the Job Creation Law regarding employment arrangements. It also makes various clarifications essentially affirming provisions already contained in the implementing regulations of the Job Creation Law.
We set out below five key changes under the Constitutional Court Decision that employers need to consider.
Five-year limitation on all types of Fixed Term Contracts (FTCs)
The Job Creation Law recognises two types of FTCs: (i) FTCs based on a specified time period and (ii) FTCs based on completion of certain work.
Under Government Regulation No. 35 of 2021 on Fixed-term Employment, Outsourcing, Hours of Work and Termination of Employment (GR 35), while FTCs based on a time period already had a maximum duration of five years (including any extensions), FTCs based on the completion of work had no explicit time limit (being governed solely by the agreement between the parties in the employment contract on the completion of work). Now, following the Constitutional Court Decision, both types of FTCs now have a maximum duration of five years, including any extensions.
Obligation to pay wages throughout termination process
The Job Creation Law stipulated that both the company and the employee must fulfil their obligations until the termination process is completed through the industrial relations dispute resolution process. The Constitutional Court Decision now makes it clear that the parties should fulfil their respective obligations throughout the dispute resolution process, up until a final and binding decision is reached. Should there be an appeal, then a final and binding decision will only be reached after the issuance of a Supreme Court decision at the cassation level.
On initial reading, the Constitutional Court Decision reaffirms what is already in the Job Creation Law. However, the Constitutional Court Decision differs from Supreme Court Circular Letter No. 3/2015, which had limited the employer’s obligation to pay wages during an industrial dispute to a maximum period of six months.
Emphasising certainty in termination procedures
The Constitutional Court has clarified the process for resolving industrial disputes, emphasising that if bipartite negotiations fail, termination can only proceed after a legally binding court decision.
Labour Unions to negotiate wages with employer
The Constitutional Court has broadened the scope of wage negotiations, allowing labour unions within companies to negotiate agreements with employers on wages above the minimum wage. Under the Job Creation Law, this negotiation right was restricted to individual employees. While this change empowers labour unions to negotiate on behalf of their members, it is not clear how labour union involvement in these negotiations will take place in practice.
The Constitutional Court’s interpretation of this Job Creation Law provision essentially allows for wages above the minimum wage to be determined through an agreement between the employer and the relevant employee or labour union.
Narrowing down types of outsourced work
The Constitutional Court Decision has established a foundation for further regulations specifying the types of work that can be outsourced. However, additional follow-up action will need to be determined by Indonesia’s Ministry of Manpower. Once the Ministry issues these implementing regulations, there will be greater legal certainty on which outsourcing practices are permissible and which are not.
Reinstating key provisions for greater clarity and enforcement
In addition to the changes above, the Constitutional Court Decision has amended several provisions of the Job Creation Law to align with its implementing regulations and Law No. 13 of 2003 on Manpower (the Manpower Law). Notable provisions amended by the Constitutional Court Decision are set out in the accompanying table (with emphasis added).
| Constitutional Court Decision | Implementing regulations of Job Creation Law and the Manpower Law | Job Creation Law |
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Assertion of Weekly Break Period |
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Point 7 of Constitutional Court Decision “Employers are obliged to allow their employees a weekly rest period of one day after six workdays in a week or two days after five workdays in a week.” |
Article 22 of GR 35 Employers are obliged to allow their employees a weekly rest period of one day after six workdays in a week or two days after five workdays in a week. |
Article 79(2) of Employment Section of Job Creation Law Employers are obliged to allow their employees a weekly rest period of one day for six workdays in a week. |
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Point 8 of Constitutional Court Decision “Certain companies provide long breaks.” |
Article 35 of GR 35 Certain companies may provide long breaks. |
Article 79(5) of Employment Section of Job Creation Law Certain companies may provide long breaks which are regulated under the employment agreement, company regulation or collective labour agreement. |
| Domestic Worker Prioritisation | ||
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Point 3 of Constitutional Court Decision “Foreign workers may be employed in Indonesia only under an employment relationship for specific positions and for a limited duration, provided they possess the requisite competencies for the designated positions, while prioritising the employment of Indonesian workers.” |
Article 2 of Government Regulation No. 34 of 2021 on Foreign Manpower (GR 34)
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Article 42(4) of Employment Section of Job Creation Law Foreign workers in Indonesia may only be employed “for specific roles and specific periods, with required competencies aligned to their roles.” |
| Severance Pay | ||
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Point 22 of Constitutional Court Decision “Severance pay shall be provided with the following provisions at the minimum:
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Article 40(2) of GR 35 and Article 156(2) of Employment Section of Job Creation Law Severance pay shall be provided with the following provisions:
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| Standard of income | ||
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Point 9 of Constitutional Court Decision “Every worker/labourer has the right to receive an income that can fulfil a decent standard of living, including an income that supports their livelihood, which is the total earnings or income a worker receives from their job sufficient to cover their and their family’s reasonable needs, such as food, clothing, housing, education, healthcare, recreation, and retirement benefits.” |
Article 88(1) of Manpower Law Every worker/labourer has the right to receive an income that can fulfil a decent standard of living. Explanation of Article 88(1) of Manpower Law What is meant by “income that can fulfil a decent standard of living” is the amount of money a worker earns from their job, sufficient to cover their and their family’s reasonable needs, including food, clothing, housing, education, healthcare, recreation, and retirement security. |
Article 88(1) of Employment Section of Job Creation Law Every worker/labourer has the right to receive income that can fulfil a decent standard of living. |
| Determination of Wage Structure and Scale | ||
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Point 16 of Constitutional Court Decision “Employers are required to establish a wage structure and scale within the company, taking into account the company’s capacity and productivity, as well as the employee’s grade, position, length of service, education, and competence.” |
Article 92(1) of Manpower Law Employers establish a wage structure and scale by taking into account the employee's grade, position, length of service, education, and competence. |
Article 92(1) of Employment Section of Job Creation Law Employers are required to establish a wage structure and scale within the company, taking into account the company’s capacity and productivity. |
| Domestic Worker Prioritisation | ||
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Point 3 of Constitutional Court Decision “Foreign Workers may be employed in Indonesia only in Employment Relationships for certain positions and periods, and only when they have competence in line with the position that needs to be filled, taking into account prioritisation on the use of Indonesian labour.” |
Not specified |
Article 42(4) of Employment Section of Job Creation Law Foreign Workers can be employed in Indonesia only in Employment Relationships for certain positions and periods, and only when they have competence in line with the position that needs to be filled. |
Implementation of Constitutional Court Decision
The Constitutional Court recognises that the substantial changes made to the Manpower Law and the Job Creation Law could lead to interpretive challenges, which may potentially disadvantage both employers and employees. To address this, the Court has instructed lawmakers to enact a new, standalone manpower law, separating the Manpower Law from the Job Creation Law, within two years from the date of its decision. Until this new manpower law is enacted, the Job Creation Law remains in effect, subject to the revisions set out in the Constitutional Court Decision.
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The articles published on this website, current at the dates of publication set out above, are for reference purposes only. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action.