When enacting Law No. 11 of 2020 on Job Creation (“Law 11/2020”), also known as the Omnibus Law, the Government made some major amendments to Law No. 13 of 2003 on Manpower (the “Manpower Law”), aiming to provide greater flexibility for businesses. However, Law 11/2020 faced significant opposition, leading to a judicial review by the Constitutional Court.
In response to the Constitutional Court’s ruling, the Government issued Government Regulation in Lieu of Law No. 2 of 2022 on Job Creation, which was later ratified as Law No. 6 of 2023 (“Law 6/2023”), to revise and amend certain parts of the Omnibus Law.
Recently, this legislative landscape shifted yet again when the Constitutional Court rendered Decision No. 168/PUU-XXI/2023 (“Decision 168”) a few weeks ago, ruling against Law 6/2023.
The Key takeaways of Decision 168 for employers are summarised below:
- Hiring Foreign Workers: While hiring foreign workers is still permissible, Decision 168 emphasizes the need to prioritize local workers. The specifics of how this “prioritization” will be implemented remain to be seen.
- Definite-Term Employment Agreement (PKWT): Decision 168 affirms that all PKWTs, including project-based PKWTs, and their extensions are limited to a maximum of five years. PKWTs must be written in Indonesian using the Latin script.
- Outsourcing: Decision 168 directs the Minister of Manpower to specify the types and fields of work eligible for outsourcing. This may limit the current broad scope of outsourceable work, potentially restricting it to supporting/non-core work only.
- Performing Obligations amidst Disputes: Previously, the cut-off date for parties to continue performing their obligations during an industrial relations dispute was not really clear. Decision 168 now clarifies this, specifying that obligations persist until a final and binding decision is rendered by the institution for the settlement of industrial relations disputes. This may entail the employer’s obligation to continue paying a terminated employee’s salary throughout the dispute process.
In addition to the four main issues outlined above, Decision 168 also address petitions seeking to challenge provisions of the Manpower Law on wages, leave-taking, and severance packages. However, the rulings on these three issues are mostly administrative, simply clarifying existing practices. For leave taking, the weekly rest days are set as one day for a six-day workweek and two days for five-day workweek. Furthermore, companies are permitted to pay severance amounts higher than the statutory minimum.
The Constitutional Court has mandated lawmakers to enact a new manpower law within two years. Until the new law is in place, the current Manpower Law must be interpreted in line with Decision 168.
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