Employment Termination Mechanism According to Indonesian New Job Creation Law [2021]

The enactment of Law No. 11 of 2020 on Job Creation (“Job Creation Law”) has changed most of the employment provisions previously stipulated in Law No. 13 of 2003 on Employment (“Employment Law”) especially on employment termination procedure.

Causes of Termination

Termination may be due to downsizing or restructuring in order to reduce costs. It could also occur if one’s performance fails repeatedly and only so much time will allow before termination becomes inevitable. An employee may also find themselves unemployed because they are unable to comply with certain regulations set forth in their contract such as those prohibiting potential liability risks; violating trade secrets or copyright violations; refusing job reassignment requests on reasonable grounds; failing drug tests despite providing evidence of rehabilitation twice within six months after first test result was confirmed negative; and any illegal actions including but not limited too theft, violence against persons/property and discrimination claims.

The following are other reasons an employer might offer for employment termination:

1. the company merges, takes or being taken over, or split-up into two separately-run companies and either and/or both employee or employer do not wish to maintain the employment;
2. company efficiency either followed or not by closure of the company due to losses;
3. the company closes due to the continuous losses for 2 (two) years;
4. company closure caused by force majeure;
5. the company is in a state of delay in debt repayment obligations;
6. the company becomes insolvent;
7. application for employment termination submitted by the employee on the grounds that the employer committed the following actions:

• • abusive actions or threatening the employee;
  • persuade and/or instruct the employee to perform acts contrary to the laws and regulations;
  • failed to pay wages on time for 3 (three) consecutive months or more, even if the employer pays the wages on time thereafter;
  • failed to perform obligations promised to the employee;
  • instruct the employee to carry out work not accordance with their supposedly job description; or
  • instruct the employee to perform activities that endanger the life, safety, health, and decency of the employee while such activities are not listed in the employment agreement;

8. decision made by industrial relations dispute resolution agency that states the employer did not commit the act as referred to in point (g) against the dispute submitted by the employee and the employer decided to terminate the employment;
9. the employee resigns on his/her own volition thus these conditions must be fulfilled:

• • submit a written resignation application no later than 30 (thirty) days prior to the date of resignation;
  • not tied to a service assignment from the company; and
  • carry out their obligations until the date of the resignation;

10. the employee skips work for 5 (five) or more consecutive working days without a written statement and valid supporting proof and has been called 2 (two) times appropriately and in writing by the employer;
11. the employee violates the provisions stipulated in the employment agreement, company regulations, or collective labor agreements and have previously been given the first, second, and third warning letters respectively valid for a maximum of 6 (six) months unless otherwise stipulated in the employment agreement, company regulations, or collective labor agreements;
12. the employee is unable to perform work for 6 (six) months due to being detained by the authorities for alleged criminal acts;
13. the employee suffers prolonged illness or disability due to work accident and cannot do his/her job after exceeding the limit of 12 (twelve) months;
14. the employee enters retirement age; or
15. the employee passes away.

In addition to the reasons for employment termination as referred to above, other reasons for employment termination may be determined in employment agreements, company regulations, or collective labor agreements.

New Employment Termination Mechanism

Basically both the Job Creation and Labor Law always seek to avoid layoffs, however if layoffs can not be avoided, according to Article 151 paragraph (2) of the Job Creation Law:

“(2)In the event that employment termination is inevitable, then the purpose and reason for employment termination shall be notified by the employer to employees and/or workers/labor union.”

So if the employer wants to do layoffs, then the employer first informs the purpose and reason for the layoffs to employees and/or unions/trade unions. After receiving the notice, employees can reject the layoffs, and bipartite negotiations between employer and employees must be conducted. If the bipartite negotiations fail, a settlement can be made in accordance with the mechanisms set forth in the Law No 2 of 2004 on Industrial Relations Dispute Resolution, as stated in Article 151 clause (3) and (4) Job Creation Law that states:

“(3)In the event that an employee has been notified and rejects termination of employment, the settlement of termination of employment shall be done through bipartite negotiations between the employer and the employee  and/or the workers/labor union.

(4)In the event that the bipartite negotiations as referred to in paragraph (3) do not obtain an agreement, termination of employment shall be carried out through the next stage in accordance with the mechanism of settlement of industrial relations disputes.”

To protect the company, the  company is obliged to make the following documents:

1. If the company wants to do a job relationship because the employee committed a violation, then the company must provide a warning letter starting with the first warning letter until the third warning (each warning letter is valid for 6 months).
2. Notice of layoffs.
3. Termination letter signed by the company and submitted by the employee.
4. Mutual agreement between the company and the employee in which the employee states he/she will not file a claim for layoffs.
5. Severance Calculation.

There are many anticipated regulations that will impact the contents of this publication. The content in this publication can and may change pending the issuance of various expected changes as per The Job Creation Law’s provisions.

Author: Rini Handayani, S.H.