General overview of Employment Termination in Indonesia
Employment termination in Indonesia can be very difficult (and expensive) and the process is quite different in other jurisdictions. There are numerous requirements that must be fulfilled and issues that can arise.
In principle, unilateral employment termination is not allowed in Indonesia. However, the general rule under Law No. 13 of 2003 on Employment (as lastly amended through Law No. 6 of 2023 on Job Creation) (“Indonesian Labor Law”) provides that, if the employer wants to unilaterally terminate their employee, employers must first obtain a favorable decision on the termination of employment from the Industrial Relations Court (“IR Court”).
Can Indonesian employer terminate their employee due to their poor performance?
It is important to note that the Indonesian Labor Law does not explicitly regulate an employee’s poor performance as a reason for terminating the employment relationship.
In practice, employment termination based on the employee’s poor performance in Indonesia falls under the category of termination of employment due to the violation of the employment agreement, the company regulation, or the collective labor agreement (Article 52(1) of Government Regulations No. 35 of 2021 on Fixed-Term Employment Agreement, Outsourcing, Working time and rest, and Termination (“GR 35/2021”).
For this category, technically an employer may only terminate the employment relationship of an employee after giving the employee a 1st, 2nd, and 3rd warning letter consecutively.
Please note that unless the termination of employment falls within the “exceptions” under the Labor Law (see below), if the employee does not agree with the termination (i.e. does not sign a joint termination agreement or voluntarily resigns) even after the 3 warning letters have been issued the employer must still go through the termination process under the applicable laws and regulations including obtaining the prior approval of the termination from the IR Court.
Exceptions to the General Rule
Exceptions to the general rule under Indonesian Labor Law that employers must first obtain a favorable decision on the termination of employment from the IR Court is limited to the following circumstances:
employee's voluntary resignation (provided in writing, without intimidation or duress from the company);
expiration of a fixed-term employment agreement (PKWT);
employee reaching the retirement age as provided in the employment agreement, company regulations, or collective labor agreement;
death of the employee;
detention of the employee by the authorities causing his/her inability to work for 6 months;
a court decision finding the employee guilty of a crime (within the 6 months that the employee is detained by the authorities).
Regarding Warning Letters
Each of the 3 warning letters can be effective for a maximum of 6 months (unless otherwise stipulated in the employment agreement, the company regulation, or the collective labor agreement).
A warning letter must specify the provision(s) of the employment agreement, company regulation, or the collective labor agreement that has been violated. If the warning letter does not set out what provision(s) of the employment agreement has been violated, the employee could argue that the warning letter is not valid.
Please also note that after issuing the 3rd warning letter, the employer needs to provide a certain period of time for the employee to correct the problem and improve their performance. Typically, this period relates to the validity of the warning letter. During this period, the employer must monitor the employee’s work focusing on the problem that causes the issuance of the third warning letter and whether the employee has taken any action to correct his/her mistake. Near the end of the period, the employer and the employee should discuss and evaluate any action that the employee has taken to improve or correct the problem that causes the issuance of the third warning letter.
If the employer finds that the employee has not taken satisfactory action to improve or correct the problem, the employer can commence the employment termination procedure under the applicable laws and regulations.
Serving the employee with the Termination Letter
Before the employer can commence with the employment termination procedure, the employer must serve the employee with termination letters in accordance with prevailing regulations. According to Article 37 of GR 35/2021, the following steps must be followed:
Notification: The employer must notify the employee and, if applicable, the labor union of the intention to terminate the employment. This notification must include the reasons and grounds for the termination. The notification must be delivered in the form of a formal letter and must be communicated in a proper and legitimate manner.
Timing of Notification: For general terminations, the notification letter must be delivered at least 14 working days before the termination date.
Employee’s Response: Upon receiving the termination notification, if the employee does not object to the termination, the employer must report the termination to the local manpower office.
Dispute of Termination: If the employee rejects the termination, they must submit a written objection with reasons within 7 working days of receiving the termination notice. Afterward, the employer can commence with the employment termination procedure under the applicable regulation.
Employee’s Mandatory Termination Payment for Poor Performance
The formula of an appropriate termination payment for poor performance cases will depend on the evidence presented by the employer.
If proven that the non-performance is caused by the employee's incompetence or negative attitude (and the employee concerned has been given the required 3 warning letters), it is likely that the IR Court (or Supreme Court) would approve the termination of employment due to non-performance, but with the obligation of the employer to pay the employee a termination payment calculated based on the “0,5x Formula” (0,5x severance pay + 1x long service pay + 1x compensation of rights) as reflected under Article 52(1) of GR 35/2021.
If in the IR Court’s opinion, there is no evidence of the employee's poor performance, it is also possible that the IR Court will not approve the termination of employment and will require the employer to re-instate the employment relationship. However, in practice, this rarely occurs.
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END NOTE: This article is intended for informational purposes only and should not be construed as legal advice or a legal opinion. Specific cases require specific advice, and the content provided herein may not be applicable in all situations. Legal regulations and interpretations can vary widely and may change over time, necessitating consultation with legal experts. If you require specific legal advice or guidance, please contact a qualified legal professional. It is crucial to consult with legal experts before applying the information in this article to ensure compliance with current legal standards and requirements.
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