Indonesian Insights

This is the sixth part of our 7-part blog series on labour and employment issues in Indonesia. Richard Emmerson will address a new topic each week. Some of our previous posts have look at discrimination, business sales, employee representation and maternity & family leave.

TERMINATION OF EMPLOYMENT

1. Do employees have to be given notice of termination of their employment? How is the notice period determined?

The notice of termination or pay in lieu of notice concept does not apply in Indonesia.  Instead, all terminations involve (i) bipartite negotiation, (ii) non-binding mediation and (iii) Labour Court approval unless settled by agreement in writing at any time during the process.

2. Can employers require employees to serve a period of “garden leave” during their notice period when the employee remains employed but does not have to attend for work?

Yes, employers can require employees to serve a period of “garden leave” in a form of suspension pending the outcome of mediation and Labour Court proceedings. During such period the employees are still entitled to their salary.

3. What protection do employees have against dismissal? In what circumstances is an employee treated as being dismissed? Is consent from a third party required before an employer can dismiss?

An employer is prohibited from terminating an employment relationship based on the following reason:

• an employee is prevented from attending work due to illness based on a doctor’s statement, for a period not exceeding 12 consecutive months;
• an employee is prevented from  carrying out his/her work due to fulfilling state duties in accordance with the provisions of the prevailing laws and regulations;
• an employee performs religious rites prescribed by their religion;
• an employee gets married;
• a female employee is pregnant, gives birth, miscarries or is nursing her baby;
• an employee has a blood and/or marital relationship with another employee in the same company, except where this is regulated in the employment agreement, company regulation or collective labour agreement;
• an employee establishes, becomes a member of and/or the management of a labour union, an employee conducts activities for a labour union outside working hours or during working hours with the agreement of the employer or pursuant to the provisions regulated in the employment agreement, company regulation or collective labour agreement;
• an employee reports the employer to the authorities for a criminal act committed by the employer;
• differences in ideology, religion, political leaning, ethnic group, skin color, group, gender, physical condition, or marital status; or
• an employee is permanently disabled, injured due to a work accident or injured due to the employment relationship where, based on a doctor’s statement, the recovery period required cannot be predicted.

An employment termination conducted for one of the reasons above shall be void by law and the employer must rehire the employee.

Under the Manpower Law and other prevailing labour laws and regulations, termination at will is not recognized in Indonesia, and termination must be ‘with cause’. The termination of employment relationship must follow the procedures under the Manpower Law and Law No. 2.

Causes for termination are as follows:

• “ordinary” cause (i.e., violation of the employment contract, company regulation or collective labour agreement) after 3 warning letters; and
• “serious” cause including  theft, providing false information harmful to the company, dangerous or immoral conduct etc.  We note that the “serious” cause provision of the Manpower Law was revoked by a Constitutional Court decision in 2003.  However, in 2005 the Minister of Manpower and Transmigration issued Circular Letter No. SE.13/MEN/SJ-HK/I/2005 which mentions that a company may terminate an employment relationship for an “emergency reason”, subject to approval from the Labour Court.  This is intended to reinstate termination for serious cause provided that the employer obtains Labour Court approval.

4. When will an employer be entitled to dismiss for: 1) reason related to the individual employee; or 2) business related reasons? Are employees entitled to compensation on dismissal and if so how is compensation calculated?

An employer is entitled to dismiss an employee for reasons related to that individual employee when:

• there is a cause as explained in question 3;
• the employee resigns;
• in the event of death of the employee; or
• the employee reaches retirement age;

An employer is entitled to dismiss an individual employee for the following business related reasons:

• upon a change in status, merger or consolidation of the company;
• if the company (or a division thereof) is closed down with or without losses being suffered by the company for a continuous period of 2 (two) years or due to force majeure (losses or force majeure impacts on entitlement); or
• if the company goes bankrupt.

Termination of employment relationship gives rise to termination benefits which include severance pay, service pay, other compensation and separation pay (uang pisah). An employee’s termination entitlement depends upon the circumstances of his/her separation.  In each case, all references to a “month’s wages” means the sum of fixed cash monthly salary and other monthly fixed cash benefits payable to the employee during his/her last month of employment, and does not include any non-cash benefits or discretionary bonus arrangement.

Severance Pay:

Service Pay:

Other Compensation:

• Compensation for annual leave to which the employee is entitled but which has not been taken and which has not been forfeited;
• Any costs or expenses incurred in returning the employee and his/her family to the place where he/she was recruited;
• Compensation for housing, medical and hospitalization (which is deemed to be 15 percent of the severance pay and/or service pay to which the employee is entitled);
• Other matters agreed in the employment agreement, company regulation or collective labour agreement.

Separation Pay (Uang Pisah)

The Manpower Law contemplates another form of compensation called ‘separation pay’ which is, in effect, a fourth category of termination entitlement.  For non-management employees only, they may be entitled to a certain amount of separation pay (uang pisah) for resignation (Article 162 of the Manpower Law), serious cause termination (Article 158 of the Manpower Law) and/or termination due to absence without leave (Article 168 of the Manpower Law) only if so specified in the respective company regulation, collective labour agreement or employment contract.

5. Are there any specific procedures that an employer has to follow in relation to individual dismissals?

Yes. Before terminating an employment relationship, the parties (the employer and the employee or, if applicable, the union representative) are required to meet in an attempt to reach an amicable termination settlement.  If negotiations fail, the employer may only terminate the employee after obtaining approval from the Labour Court with few exceptions.  The exceptions are:

• an employee is still in his/her probationary period;
• an employee who has submitted a resignation request in writing of his/her own accord without any conditions;
• an employee who has reached the retirement age stipulated in the employment contract, company regulation or collective labour agreement;
• an employee whose employment contract terminates after a fixed period (i.e., a fixed term contract employee);
• an employee who dies; or
• an employee who faces criminal proceedings for more than six months or who is found guilty by the court before the end of the six-month period; or
• if in a dispute brought an employee against the employer, the claim filed by the employee against the employer is not proven.

In case the plan to terminate an employee is disputed, then the termination process may take up to 140 working days to complete, from bipartite negotiations through to a Supreme Court decision (i.e., if the Labour Court decision is appealed).  During the termination process the employer is still required to pay salary and other benefits to employee.

6. What claims can an employee bring if he or she is dismissed? What are the remedies for a successful claim?

With regard to his or her termination, an employee can bring the following claim:

• termination is without a valid cause;
• termination is conducted in a manner not in conformity with the prevailing laws and regulations; or
• the termination benefit is less than the mandatory amount (please see question 5).

Remedy for successful claim can be in the form of rehiring or enhanced termination benefit.

7. Can employers settle claims before or after they are initiated?

Yes, employers can settle claims at any time during the above-noted process.

8. Does an employer have any additional obligations if it is dismissing a number of employees at the same time?

No, the prevailing laws and regulations do not differentiate based on the number of employees dismissed.

9. How do employees enforce their rights in relation to mass dismissals and what are the consequences if an employer fails to comply with its obligations?

The prevailing laws and regulations do not differentiate between mass dismissals and individual dismissals therefore all dismissals are subject to Labour Court approval unless settled in writing at any stage of the process.

This article appeared in the 2011 edition of The International Comparative Legal Guide to: Employment & Labor Law; published by Global Legal Group Ltd, London