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INDONESIAN EMPLOYMENT TERMINATION PROCEDURE
Termination of employment in Indonesia can be very difficult (and expensive) and the process is quite different to other jurisdictions. There are numerous requirements that must be fulfilled and issues that can arise.
For businesses operating in Indonesia, a comprehensive understanding of these requirements is important. This awareness ensures that employers can make informed decisions while safeguarding their organizational interests.
For employees, understanding the framework is crucial in order to be aware of their rights and entitlements during a termination, ensuring they receive fair and due treatment.
The implications of not adhering to the procedures include, for businesses, the risk of legal disputes, financial penalties, and potential harm to their reputation. On the other hand, the employees may miss out on the severance or compensations they are rightfully entitled to or may be unjustly terminated without the chance to seek proper recourse. Both parties, therefore, have much at stake in ensuring compliance with the law.
In this article, therefore, we will discuss about:
What are the basis of employment relationships in Indonesia?
Employment relationships in Indonesia can essentially be based on two types of agreements, each with its unique purpose and set of rules:
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Definite Period Employment Contract (PKWT or Perjanjian Kerja Waktu Tertentu):
This is essentially a short-term employment agreement. The parties have determined the start date and the condition when it will end. The are two conditions in which the PKWT can be established:
1st - Contract Period, which includes the tasks that are expected to be short-lived, seasonal work that doesn't last all year, jobs tied to a new product, a fresh activity, or an additional product that's still being tested or in its experimental phase.
2nd - Completion of Work, which includes the tasks that conclude once they're done, work that's not ongoing but is rather a one-off or non-permanent job.
For instance, if there's a seasonal harvest, or a company is trying out a new product line, they might offer a PKWT. It's precise, fitting the needs of the moment.
2. Indefinite Period Employment Contract (PKWTT or Perjanjian Kerja Waktu Tidak Tertentu):
Employees under PKWTT are also known as permanent employees. The contract begins on a certain date with no designated end. It's the common contract type for many employees and continues until there is a reason for the termination of the employment.
What are the reasons for employment termination in Indonesia?
According to Article 61 of Law No. 13 of 2003 on Labor as amended with Chapter IV of Law No. 6 of 2023 on Job Creation (“Labor Law”), the reasons to terminate an employment relationship in Indonesia include:
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the employee’s death;
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the work has been completed (only if the employment is based on PKWT);
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the contract has expired (also if the employment is based on PKWT);
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there is a favorable decision from the industrial relations court/pengadilan hubungan industrial (“PHI”); or
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there is a force majeur event as stipulated in the employment contract.
In light of the above, unilateral termination of employment is not permissible, unless there is a favorable decision from the PHI.
Can Indonesian employers terminate an employee based on other reasons than as regulated in Article 61 of Labor Law?
Yes, they can. However such employment termination shall undergo the formal process of employment termination (i.e. notice of termination, bipartite negotiation, mediation, and court proceeding) and, most importantly, obtain the favourable decision from the PHI.
What are other legal reasons for employment termination in Indonesia that could be deemed favorable by the court?
In general, there are 2 (two) main categories of reasons that underly termination of employment, it can be either initiated by the employees or by the employer.
From the employees’ side:
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Voluntary Resignation.
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Absence during 5 consecutive working days.
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Employee is in continuous illness or disabled due to a work accident and unable to work for more than 12 months.
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Employee is retiring.
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Violation of employment contract/company regulations.
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Company is acquiring another company whose employee does not want to continue their employment.
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Merger, consolidation, or separation of the company, and the employee does not want to continue the employment.
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Employee files for termination, yet cannot prove the Company's misconduct.
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Employee is unable to carry out his/her work due to being detained for more than 6 months from being charged for causing losses to the company.
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Employee is unable to carry out his/her work due to being detained for more than 6 months.
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Employee is found guilty of committing criminal action within 6 months period.
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Employee is found guilty of committing criminal action which causes loss to the company within 6 months period.
From the employer’s side:
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Company is being acquired.
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Merger, consolidation or separation of the company, and the company does not want to continue the employment.
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Company is closed due to continuous loss in 2 consecutive or inconsecutive years.
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Company is closed due to force majeur.
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Company is in force majeur but not causing the company to be closed.
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Company is closed not due to losses.
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Company is conducting efficiency due to suffering from losses or in order to prevent the losses.
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Company is bankrupt.
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Employee files for termination due to an evident Company's misconduct.
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Company is in suspension of payment either because or not because of suffering from losses.
In addition to the above, there is also another reason for employment termination, which is based on the urgent reasons (alasan mendesak). The employer in essence can determine any reasons as an “urgent reasons” under its company regulations, so long as it follows the guidelines of determining the “urgent reasons” as set out by the Minister of Manpower.
Can Indonesian employers terminate an employee without cause?
In Indonesia, termination of employment without a valid cause is not permissible. Every act of employment termination must be backed by a clear, legally recognized reason, to ensure the process is fair and transparent.
If an employer dismiss an employee without such cause, it could be considered as a wrongful termination of employment, and it can open the door to potential legal challenges to the employer from the employees.
Employees who believe they've been wrongfully terminated, depending on the situation, can challenge the process by following the legal termination of employment procedure, and if the termination is indeed found unjust by the court, the employer might be compelled to provide compensation or even asked to reinstate the employee.
Can an employer terminate an employee who is in a probationary period?
Under the current Labor Law, an employer does have the authority to terminate an employee during their probationary period.
However, this provision has sparked debates among legal scholars and practitioners, particularly regarding the procedural requirements of such terminations. Under the current Labor Law, even during the probationary period, terminations may need to comply with the formal legal procedures, including giving notices, engaging in bipartite discussions, undergoing mediation, and possibly even seeking court decisions.
Some argued that such formulation appears to contradict the fundamental essence of probationary periods, which traditionally allow employers to assess an employee's suitability without being entangled in comprehensive legal processes.
What are the rights of an Indonesian employee upon termination?
Depending on the type of contract and the reasons for the termination, the rights of an employee upon termination of employment can be different.
For PKWTT (permanent) employees:
Depending on the reasons for the termination, the employee might be entitled to severance pay, long service pay, and compensation rights.
Contact us today to learn about the grounds of termination with the entitled of severance pay, long service pay, and compensation rights and how to calculate them.
For PKWT (contract) employees:
If PKWT is terminated by the company before the expiration of the contract, and if such termination is due to reasons not as stipulated under Article 61 of Labor Law, the company shall pay:
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indemnity in the amount of the total salary of the remaining period of the PKWT; and
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Compensation Pay
If PKWT is terminated by the employee before the expiration of the contract and if such termination is due to reasons not as stipulated under Article 61 of Labor Law, then:
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Employee shall pay indemnity in the amount of the total salary of the remaining period of the PKWT; and
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Company shall pay Compensation Pay.
Compensation Pay is calculated based on the following formula = (employment period)/12 x 1 (one) month salary.
Please note that 1 (one) month's salary in this case is the basic salary (upah pokok) as prevailed in the company. However, if the company applies salary components that consist of basic salary (upah pokok) and fixed allowance (tunjangan tetap), then the 1 (one) month salary, in this case, is the basic salary and the fixed allowance.
What are the general legal procedures for Employment Termination in Indonesia?
According to Article 151 of the Labor Law and Law No. 2 of 2004 on the Settlement of Industrial Relations Disputes (“IR Disputes Law”), the general procedure for employment termination in Indonesia is as follows:
1st - Send a written notification of employment termination to the employee:
This notice is served at the latest 14 working days before the effective date of the termination. If the employees do not agree with the termination, they have the right to respond within 7 working days.
Exception to the “Notification of Employment Termination” is in the event the termination is due to: voluntary resignation, for reaching the retirement age, or due to urgent reason violation.
2nd - Bipartite Negotiations:
As stated in IR Disputes Law, any industrial relation disputes, including employment termination disagreements, must initially be addressed via bipartite negotiations.
These are consultative discussions held between the workers or labor unions and the employers to reach a consensus. The law mandates the recording of such negotiations in “minutes of the bipartite meeting”, capturing essential details like party names, negotiation dates, reasons for disputes, positions of each party, negotiation results, and respective signatures.
If a resolution is achieved, both parties draft and sign a joint agreement, which is binding and enforceable. This joint agreement should be registered at the relevant IR Court. If, however, no consensus is reached within 30 working days, the negotiation is deemed unsuccessful, which opens the door for the parties to hold mediation or conciliation.
3rd - Mediation or Conciliation:
If the bipartite negotiation fails, either of the parties can escalate the case to the Local Manpower Office (Dinas Ketenagakerjaan), which offers mediation or conciliation. While both processes aim for resolution, mediators are Manpower Office officials, whereas conciliators are private individuals listed with the Local Manpower Office.
If parties don't select a method within 7 working days, mediation becomes the default. Mediators or conciliators initiate a review promptly and convene a hearing. They will try to reach an agreement in the initial 10 days. If no resolution is achieved, a recommendation is issued, and parties are given another 10 days to respond. If both parties consent to the recommendation, a joint agreement is drafted and registered at the IR Court. If not, the case advances to the Industrial Relations Court or PHI.
4th - Proceedings at the PHI:
If a party does not agree with the recommendation of the mediator/conciliator, it may bring the case to the PHI whose jurisdiction covers the workplace of the employees. The PHI is a special court within the sphere of the general justice system. The Civil Procedure Law is applicable in the PHI (unless otherwise stipulated by the IR Disputes Law).
The proceedings at the PHI theoretically should not exceed 50 working days from the first hearing.
5th - Supreme Court:
If either party contests the PHI’s decision, it may bring the case to the Supreme Court (through the Sub-registrar office of the PHI) at the latest 7 working days after the date of the decision (for parties who are present at the court decision hearing) or 7 working days after the date of decision notification (for parties who are absent).
The case details are then forwarded to the Supreme Court Head within 14 working days. As per Article 115 of the IR Disputes Law, the Supreme Court aims to resolve employment termination disputes within 30 working days of receiving the appeal.
However, it's vital to recognize that in practice, the Supreme Court's heavy caseload might extend this duration, with the entire dispute resolution potentially spanning 10 to 12 months or longer.
What are the common mistakes that the Employer or Employee made during the Employment Termination? How to avoid them?
(1) Skipping the proper notice:
Mistake: Sometimes, employers rush things and fail to give employees the proper notice about termination as instructed by the law. On the other side, employees might not read or understand the notice correctly.
Solution: Both parties must always follow the rules. If the law or the employment contract says a 14-day termination notice is mandatory, then the employer must stick to it. Employers should also ensure that the notice is clear. Employees, take the time to read and understand any notice received. If unsure, ask.
(2) Giving the wrong amount of severance entitlement:
Mistake: Calculating severance entitlement can be tricky. Employers might miscalculate the amount, or not pay at all. Employees might not know what they're entitled to and end up accepting less.
Solution: Knowledge is power. Employers should familiarize themselves with the legal requirements for severance pay. Employees should know their rights. If in doubt, consult with a legal expert or a trusted advisor.
(3) Not keeping any record of why the employment termination happened:
Mistake: Sometimes, employers let someone go without writing down the exact reasons. This can lead to confusion and disputes later on.
Solution: Document everything. Paper trails are very important. Employers should keep a clear, written record of the reasons for any termination. This isn't just a good practice; it's protection against potential misunderstandings or legal challenges in the future. Employees should also keep any related documents or communications. It's easier to address any issues that might come up if any of the parties know why a decision was made.
How can Tampubolon Legal Solutions
help you?
At Tampubolon Legal Solutions, our team of experienced employment lawyers is committed to ensuring that your employment termination process runs as smoothly as possible. We understand the intricate nuances of Indonesian employment law and provide an array of tailored services to guide you every step of the way:
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Guidelines for Proper Employment Termination: We will provide comprehensive guidelines on how to conduct proper employment terminations, ensuring you're compliant with all local regulations.
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Strategic Planning for Termination: The termination process isn’t straightforward. From initial discussions to potential courtroom confrontations, a strategy is essential. Our team aids in mapping out the best approach, ensuring you're equipped for bipartite negotiations, mediation sessions, and even courtroom proceedings if they arise.
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Legal Documentation: The importance of correct documentation cannot be overstated. We assist in preparing all important documentation associated with employment termination. Whether you need a clear notice of termination, a mutually agreed upon joint agreement, or any other related paperwork, we ensure every document is in line with legal stipulations.
Navigating the complexities of employment termination in Indonesia can be challenging, but with Tampubolon Legal Solutions by your side, you’re equipped with the expertise and support needed to manage the process effectively and efficiently.
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