On 31 October 2024, the Constitutional Court issued Decision No. 168/PUU-XXI/2023 (“Constitutional Court Decision”), a 678-page decision that adjudicates a petition made by several labor-related stakeholders on manpower articles under Law No. 6 of 2023 on the stipulation of Government Regulation in lieu of law No. 2 of 2022 on Job Creation into law (“Job Creation Law”).
There are 21 articles under the Job Creation Law which the Constitutional Court deems unconstitutional. Additionally, the Constitutional Court also views that because of this Constitutional Court Decision, there may be overlapping provisions on manpower under Law No. 13 of 2003 on Manpower (“Manpower Law”) and the Job Creation Law. As such, it mandates the government to create a new manpower law which incorporates relevant regulations on manpower within 2 years after the Constitutional Court Decision.
The Constitutional Court Decision clearly affects the manpower legal landscapes and will paint a new manpower law regime in the future. We break down below the salient changes effected by the Constitutional Court Decision.
Worker’s General Right
Rest days and sabbatical leaves
(Article 79(2) letter b and Article 79(5) of Job Creation Law)
The Constitutional Court Decision mandates a minimum of one day off work per week for six-day workweeks and two days for five-day workweeks. Additionally, the word “may” under Article 79(5) of the Job Creation Law was deleted and indicates that companies are required to provide sabbatical leave days as regulated under the employment agreement, company regulations, or collective labor agreement.
Wage related rights
(Article 88(1), (2), (3) letter b, Article 88C, 88D, 88F, Article 90A, Article 92(1), and Article 98(1) of Job Creation Law)
The Constitutional Court Decision further elaborates on decent livelihood to determine the minimum wage for workers which is sufficient earning to meet reasonable living needs of the employee and their family. The wage structure and scale must be determined proportionally.
It was also stipulated that the central government must include regional government in determining minimum wage and governors must set sectoral minimum wages at the provincial, regency, or city level.
Priority payment to workers in the event of bankruptcy or liquidation
(Article 95(3) of Job Creation Law)
Under the Constitutional Court Decision, the payment of wages upon bankruptcy or liquidation shall be prioritized over all creditors including secured creditors. However, we should note that the Constitutional Court Decision also stipulates that payment of other rights shall be prioritized over all creditors except for secured creditors.
Fixed Term Employment and Outsourcing
Fixed Term Employment
(Article 56(3) and Article 57(1) of Job Creation Law)
The Manpower Law regimes acknowledge two types of Fixed Term Employment (Perjanjian Kerja Waktu Tertentu/PKWT), i.e.
(i) PKWT based on a certain period of work which is strictly limited to a work period of 5 years including any extension and
(ii) PKWT based on completion of certain work which previously must be determined under the PKWT (hence there are arguments it could be made indefinitely), now the work period is limited to 5 years including any extension.
Outsourcing
(Article 64(2) of Job Creation Law)
The Constitutional Court stipulates that the determination of the type of works that can be outsourced must be in accordance with the type and field of the works specified in the written outsourcing agreement.
Utilization for Foreign Worker
Priority to Indonesian Worker and Approval for the Foreign Worker Utilization Plan
(Article 42(1) and Article 42(4) of Job Creation Law)
The Constitutional Court clarifies that the Foreign Worker Utilization Plan (Rencana Penggunaan Tenaga Kerja Asing/RPTKA) must be legalized by the minister in the field of manpower matter, namely the Minister of Manpower.
Further it was emphasized that priority must be given to Indonesian Workers on the relevant position available for the foreign worker.
Employment Termination
Bipartite Negotiation, Final and Binding Industrial Court Decision, and Termination Package
(Article 151(3), (4), Article 156(2), Article 157A(3))
Bipartite negotiation must be settled in deliberative manner to reach a mutual agreement between the company and the worker/labour union.
If a mutual agreement was not reached, the termination of employment may only occur after obtaining a final and binding industrial relations court decision. Before a final and binding decision is obtained, the worker and the company are still under employment relationship.
The Constitutional Court Decision added the word “at least” on payment of termination benefit under the applicable law. This means that the termination package based on the formula under Article 156(2) of the Job Creation Law are the minimum amounts accordingly employer may provide more but not less termination package.
Concluding Remarks
In addition to the requirement to enact a new law, which is a significant impact to the Job Creation Law considering how substantial the manpower issues are in the Job Creation Law, another significant impact on paper is the process for employment termination. Strict reading of the Constitutional Court Decision suggests that, if the worker disagree, an employment can only be terminated with a final and binding Industrial Relations Court Decision and throughout the process, the worker must still be considered as employee of the company. Whether this means that the company still needs to pay the worker’s salary throughout the employment termination process or whether a “no work no pay” can be applied, we will need to see how this decision will be implemented in practice.
Please contact Rahdityanto Regowo (rregowo@rexadvisor.com), Rexy Hutabarat (rhutabarat@rexadvisor.com), or Rizki Imral Rakhim (rimral@rexadvisor.com) for further information.
Disclaimer:
The information provided is of general nature and should not be treated as legal advice, and/or be relied upon by any party for any circumstance. Specific legal advice should be sought.
