The main sources of employment law in Indonesia are as follows:
a) Law No. 13 of 2003 on Labor as amended by Law No.11 of 2020 on Job Creation (“Manpower Law”);
b) Law No. 2 of 2004 on Industrial Relations Dispute Settlement (“IRDS Law”); and
c) Law No. 21 of 2000 on Employee/Labor Union (“Labor Union Law”).
In principle, employment laws and regulations provide protection to employees who are performing, or about to
perform, their work for employers existing in Indonesia. The Labor Law recognizes two types of employee based on the
period of the employment agreement, i.e., permanent employees and fixed-term employees. Expatriates are employed under a fixed-term employment agreement subject to their work permit.
To supervise the implementation of the Labor laws, the regional offices of the Ministry of Manpower provide supervisors for matters related to manpower, whose task is to ensure compliance with the provisions.
Law No. 2/2004 regulates multi-stage industrial relations dispute settlements, and categorizes industrial relations disputes into the following four groups:
1. disputes of rights: a dispute that arises from the non-fulfilment of a right as a result of differences in the implementation or interpretation of the prevailing laws and regulations, employment agreements, company regulations or collective labor agreements;
2. disputes of interest: a dispute that arises in an employment relationship as a result of disagreements with respect to the establishment of, or changes to, job requirements to be stipulated in an employment agreement, company regulations or a collective labor agreement;
3. disputes on employment termination: a dispute that arises from a disagreement with respect to an employment termination that is initiated by one of the parties to the employment agreement; and
4. disputes between labor unions: a dispute that arises between two labor unions within one company owing to disagreements with respect to the membership, implementation of rights and obligations of the union.
Under the prevailing labor laws, before an industrial relations dispute is brought to court, the parties to the dispute (the respective employer and the labor union) must first make an attempt to settle their dispute through bipartite negotiations. The dispute should be approached in the spirit of deliberation to reach a consensus. If the negotiation is unsuccessful, either party, or both, may register the dispute with the regional manpower agency by submitting evidence of the negotiation. Following registration of the dispute, parties that have failed to reach a consensus by negotiation have the choice of trying to reach a consensus by way of conciliation, arbitration or mediation. In practice, disputing parties generally opt for mediation under the guidance of mediators who are appointed by the Ministry of Manpower. Mediation is the preferred means for the settlement of employment disputes. Upon the completion of the mediation process, the mediator will issue a recommendation. If the recommendation is not accepted by one or both of the parties, the dispute may be brought before the Industrial Relations Court (IRC), which has the authority to examine, try and render a decision in an industrial relations dispute. For disputes specifically concerning employment rights and termination of employments, the unsatisfied party may appeal against the decision of the IRC to the Supreme Court.
We advise on all types of employment and labor-related business situations, including: mergers and acquisitions; purchases; sales; reorganizations; workforce reductions and restructurings; breaches of contract; creation and review of internal policies; executive hiring, compensation, and separation; trade secrets; non-competition and non-solicitation issues; and other aspects of employment of all employees.
We also regularly conduct significant employment-related investigations involving harassment, retaliation, regulatory, and other substantial matters concerning a wide range of employee situations. We help employers stay abreast of legal, regulatory, and compliance trends and legal issues in a variety of ways, including through our regular legal updates.
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