Termination of employment in Indonesia can be very difficult (and expensive) and the process is quite different to other jurisdictions. Numerous requirements must be fulfilled and issues can arise. For businesses operating in Indonesia, a comprehensive understanding of these requirements is important. This awareness ensures that employers can make informed decisions while safeguarding their organizational interests. For employees, understanding the framework is crucial to be aware of their rights and entitlements during a termination, ensuring they receive fair and due treatment. The implications of not adhering to the procedures include, for businesses, the risk of legal disputes, financial penalties, and potential harm to their reputation. On the other hand, the employees may miss out on the severance or compensations they are rightfully entitled to or may be unjustly terminated without the chance to seek proper recourse. Both parties, therefore, have much at stake in ensuring compliance with the law. In this article, therefore, we will discuss about:
What are the reasons for employment termination in Indonesia?
What are other valid reasons for employment termination in Indonesia?
Can an employer terminate an employee without cause?
How do you determine a severance pay package in Indonesia and what are the employees' rights in the event of a termination?
What are the procedures for employment termination in Indonesia?
What are the reasons for employment termination in Indonesia?
Termination of Employment Relations (PHK) is the termination of an employment relationship due to certain reasons which result in the end of the rights and obligations between the worker and the company/employer.
According to Article 61 of Law No. 13 of 2003 on Labor as amended with Chapter IV of Law No. 6 of 2023 on Job Creation (“Labor Law”), the reasons to terminate an employment relationship in Indonesia include:
the employee’s death;
the work has been completed (only if the employment is based on PKWT);
the contract has expired (also if the employment is based on PKWT);
there is a favorable decision from the industrial relations court/pengadilan hubungan industrial (“PHI”); or
there is a force majeur event as stipulated in the employment contract.
In light of the above, unilateral termination of employment is not permissible, unless there is a favorable decision from the PHI.
What are other valid reasons for employment termination in Indonesia?
In general, there are 2 (two) main categories of reasons that underly termination of employment, it can be either initiated by the employees or by the employer.
From the employees’ side:
Voluntary Resignation.
Absence during 5 consecutive working days.
Employee is in continuous illness or disabled due to a work accident and unable to work for more than 12 months.
Employee is retiring.
Violation of employment contract/company regulations.
Company is acquiring another company whose employee does not want to continue their employment.
Merger, consolidation, or separation of the company, and the employee does not want to continue the employment.
Employee files for termination, yet cannot prove the Company's misconduct.
Employee is unable to carry out his/her work due to being detained for more than 6 months from being charged for causing losses to the company.
Employee is unable to carry out his/her work due to being detained for more than 6 months.
Employee is found guilty of committing criminal action within 6 months period.
Employee is found guilty of committing criminal action which causes loss to the company within 6 months period.
From the employer’s side:
Company is being acquired.
Merger, consolidation or separation of the company, and the company does not want to continue the employment.
Company is closed due to continuous loss in 2 consecutive or inconsecutive years.
Company is closed due to force majeur.
Company is in force majeur but not causing the company to be closed.
Company is closed not due to losses.
Company is conducting efficiency due to suffering from losses or in order to prevent the losses.
Company is bankrupt.
Employee files for termination due to an evident Company's misconduct.
Company is in suspension of payment either because or not because of suffering from losses.
In addition to the above, there is also another reason for employment termination, which is based on urgent reasons (alasan mendesak). The employer in essence can determine any reasons as an “urgent reasons” under its company regulations, so long as it follows the guidelines of determining the “urgent reasons” as set out by the Minister of Manpower.
Can an employer terminate an employee without cause?
In Indonesia, termination of employment without a valid cause is not permissible. Every act of employment termination must be backed by a clear, legally recognized reason, to ensure the process is fair and transparent.
If an employer dismisses an employee without such cause, it could be considered as a wrongful termination of employment, and it can open the door to potential legal challenges to the employer from the employees.
Employees who believe they've been wrongfully terminated, depending on the situation, can challenge the process by following the legal termination of employment procedure, and if the termination is indeed found unjust by the court, the employer might be compelled to provide compensation or even asked to reinstate the employee.
How do you determine a severance pay package in Indonesia and what are workers' rights in the event of a layoff?
If termination occurs, employers are obliged to pay compensation for the reasons for the termination. The compensation is in the form of: severance pay, long service pay, and compensation rights.
Severance pay is given under the following conditions:
working time less than 1 year, 1 month's wages;
working time 1 year or more but less than 2 years, 2 months wages;
working time 2 years or more but less than 3 years, 3 months wages;
working time 3 years or more but less than 4 years, 4 months wages;
working time 4 years or more but less than 5 years, 5 months wages;
working time 5 years or more, but less than 6 years, 6 months wages;
working time 6 years or more but less than 7 years, 7 months wages;
working time 7 years or more but less than 8 years, 8 months wages;
working time 8 years or more, 9 months wages.
Long service award money is given with the following conditions:
working time 3 years or more but less than 6 years, 2 months wages;
working time 6 years or more but less than 9 years, 3 months wages;
working time 9 years or more but less than 12 years, 4 months wages;
working time 12 years or more but less than 15 years, 5 months wages;
working time 15 years or more but less than 18 years, 6 months wages;
working time 18 years or more but less than 21 years, 7 months wages;
working time 21 years or more but less than 24 years, 8 months wages;
working time 24 years or more, 10 months wages.
Compensation of rights, in the form of:
annual leave that has not been taken and has not expired,
costs or return costs for workers and their families to the place where the worker is accepted to work, and/or
other rights stipulated in the work agreement, company regulations, or collective labor agreement.
Contact us today to learn about the grounds of termination with the entitled of severance pay, long service pay, and compensation rights and how to calculate them.
What are the procedures for employment termination in Indonesia?
According to Article 151 of the Labor Law and Law No. 2 of 2004 on the Settlement of Industrial Relations Disputes (“IR Disputes Law”), the general procedure for employment termination in Indonesia is as follows:
1st - Send a written notification of employment termination to the employee:
This notice is served at the latest 14 working days before the effective date of the termination. If the employees do not agree with the termination, they have the right to respond within 7 working days.
Exception to the “Notification of Employment Termination” is in the event the termination is due to: voluntary resignation, for reaching the retirement age, or due to urgent reason violation.
2nd - Bipartite Negotiations:
As stated in IR Disputes Law, any industrial relation disputes, including employment termination disagreements, must initially be addressed via bipartite negotiations.
These are consultative discussions held between the workers or labor unions and the employers to reach a consensus. The law mandates the recording of such negotiations in “minutes of the bipartite meeting”, capturing essential details like party names, negotiation dates, reasons for disputes, positions of each party, negotiation results, and respective signatures.
If a resolution is achieved, both parties draft and sign a joint agreement, which is binding and enforceable. This joint agreement should be registered at the relevant IR Court. If, however, no consensus is reached within 30 working days, the negotiation is deemed unsuccessful, which opens the door for the parties to hold mediation or conciliation.
3rd - Mediation or Conciliation:
If the bipartite negotiation fails, either of the parties can escalate the case to the Local Manpower Office (Dinas Ketenagakerjaan), which offers mediation or conciliation. While both processes aim for resolution, mediators are Manpower Office officials, whereas conciliators are private individuals listed with the Local Manpower Office.
If parties don't select a method within 7 working days, mediation becomes the default. Mediators or conciliators initiate a review promptly and convene a hearing. They will try to reach an agreement in the initial 10 days. If no resolution is achieved, a recommendation is issued, and parties are given another 10 days to respond. If both parties consent to the recommendation, a joint agreement is drafted and registered at the IR Court. If not, the case advances to the Industrial Relations Court or PHI.
4th - Proceedings at the PHI:
If a party does not agree with the recommendation of the mediator/conciliator, it may bring the case to the PHI whose jurisdiction covers the workplace of the employees. The PHI is a special court within the sphere of the general justice system. The Civil Procedure Law is applicable in the PHI (unless otherwise stipulated by the IR Disputes Law).
The proceedings at the PHI theoretically should not exceed 50 working days from the first hearing.
5th - Supreme Court:
If either party contests the PHI’s decision, it may bring the case to the Supreme Court (through the Sub-registrar office of the PHI) at the latest 7 working days after the date of the decision (for parties who are present at the court decision hearing) or 7 working days after the date of decision notification (for parties who are absent).
The case details are then forwarded to the Supreme Court Head within 14 working days. As per Article 115 of the IR Disputes Law, the Supreme Court aims to resolve employment termination disputes within 30 working days of receiving the appeal.
However, it's vital to recognize that in practice, the Supreme Court's heavy caseload might extend this duration, with the entire dispute resolution potentially spanning 10 to 12 months or longer.
Why work with Tampubolon Legal Solutions?
At Tampubolon Legal Solutions, our team of experienced employment lawyers is committed to ensuring that your employment termination process runs as smoothly as possible. We understand the intricate nuances of Indonesian employment law and provide an array of tailored services to guide you every step of the way:
Guidelines for Proper Employment Termination: We will provide comprehensive guidelines on how to conduct proper employment terminations, ensuring you're compliant with all local regulations.
Strategic Planning for Termination: The termination process isn’t straightforward. From initial discussions to potential courtroom confrontations, a strategy is essential. Our team aids in mapping out the best approach, ensuring you're equipped for bipartite negotiations, mediation sessions, and even courtroom proceedings if they arise.
Legal Documentation: The importance of correct documentation cannot be overstated. We assist in preparing all important documentation associated with employment termination. Whether you need a clear notice of termination, a mutually agreed upon joint agreement, or any other related paperwork, we ensure every document is in line with legal stipulations.
Navigating the complexities of employment termination in Indonesia can be challenging, but with Tampubolon Legal Solutions by your side, you’re equipped with the expertise and support needed to manage the process effectively and efficiently.
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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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