Updates on Employment Law After Constitutional Court Ruling Number 168/PUU-XXI/2023 dated October 31, 2024 (Judicial Review of the Manpower Law in the 2023 Job Creation Act)

On October 31, 2024, the Constitutional Court Ruling Number 168/PUU-XXI/2023 (“CC Ruling 168/2023”) was officially read in relation to the judicial review of the Manpower Law in the 2023 Job Creation Act (“Manpower Law”).

CC Ruling 168/2023 partially granted the claims submitted by the Partai Buruh, FSPMI, KSPSI, KPBI, KSPI, et.al, which resulted in changes on the following 21 (twenty one) labor provisions.

Provision on Foreign Workers  

1. Authoritative Body for RPTKA. The legalization of the Foreign Manpower Utilization Plan (RPTKA) is to be exercised by the ‘Ministry of Manpower’, replacing the previous term of ‘Central Government’ (amending Article 42 paragraph 1).

2. Preferential Use of Local Manpower. The employment of foreign manpower must take into consideration the preferential use of local Indonesian manpower (amending Article 42 paragraph 4).

Provision on Fixed-Term Employment Agreement (PKWT)

1. Maximum Period for PKWT. The Ruling affirmed that the employment period for PKWT is maximum 5 (five) years, including extension (amending Article 56 paragraph 3).
2. Writing PKWT Agreement. Re-arranged the wording for provision that the fixed-term employment agreement must be made in writing, by using Indonesian language and Latin letters (amending Article 57 paragraph 1).

Provision on Outsourcing

1. Type and Field of Outsourced Work. The minister is to stipulate a part of the work assigned in accordance with the type and field of outsourced work that is agreed upon in the outsourcing agreement (amending Article 64 paragraph 2).

Provision on Resting Time

1. Weekly Rest Time. Adding a new provision that the employer must provide ‘2 (two) days weekly rest for 5 (five) working days within 1 (one) week’, in addition to (alternative) a ‘1 (one) day weekly rest for 6 (six) working days within 1 (one week)’ (amending Article 79 paragraph 2).
2. Long Resting Time. Certain companies are to provide ‘long resting time’ as regulated under the employment agreement, company regulation or collective labour agreement (amending Article 79 paragraph 5). It is no longer optional, as previous stipulated.

Provision on Wages and Welfare

1. Decent Living. The CC Ruling 168/2023 provide elaboration on the definition of decent living. Previously, the law stated that every worker/laborer has the right to a decent living. The new law says that companies must ensure that the income of their employees meets a liveable standard, which constitutes the total earnings or income of workers/laborers from their work, enabling them to reasonably fulfil the living needs of themselves and their families, including food and beverages, clothing, housing, education, health, recreation, and pension plan (amending Article 88 paragraph 1).
2. Participation of Regional Wage Council. In establishing the wage policies, the central government must also involve the regional wage council, which includes elements of the regional government in formulating wage policies that serve as material for the central government in establishing wage policies (amending Article 88 paragraph 2). Previously, the wage policies were determined solely by the central government.
3. Wage Structure. As part of the wage policy, the wage structure and scale are to be made proportional (amending Article 88 paragraph 3).
4. Sector-Based Wages. Governors are required to stipulate/establish sectoral minimum wages at the provincial level, and this is optional for regencies/cities (adding Article 88C). Previously, sectoral minimum wages were not regulated.
5. Certain Index in Minimum Wages. The CC Ruling 168/2023 provide elaboration on certain index (indeks tertentu). In calculating the minimum wages, it must also take into account the certain index that represents a variable that reflects the contribution of labor to the economic growth of the province or regency/city, taking into account the interests of companies and workers/laborers as well as the principle of proportionality to meet the Decent Living Needs for workers/laborers (amending Article 88D paragraph 2).
6. Certain Circumstances in Determining Minimum Wages. The Government, in a ‘certain circumstance’, can regulate a minimum wage that is different than in point 10, provided that the ‘certain circumstance’ includes, among other things, natural or non-natural disasters, including extraordinary conditions of the global and/or national economy as determined by the President in accordance with the provisions of the law (amending Article 88F).
7. Labor Union’s Participation in Negotiating Wages. Bargaining on wages should be determined based on an agreement between employers and workers/labourers or the labour union/trade union in the company (amending Article 90A). The participation of labor union/trade union in negotiating wages is not stipulated in the previous law.
8. Additional Variable in Determining Wage Structure. The company must now consider the company’s capabilities and productivity, as well as classifications, positions, length of service, education, and competencies to determinine the wage structure and scale in the company (amending Article 92 paragraph 1).
9. Prioritization of Labor Rights in Bankruptcy and Liquidation Process. ‘Other rights’ of workers/laborers in bankruptcy or liquidation proceedings shall be prioritized for payment over all creditors including ‘preferred creditors’ except for secured creditors (amending Article 95 paragraph 3). Previously, ‘preferred creditors’ were not mentioned as part of creditors. ‘Other rights’ are often regulated under the employment agreement, company regulation, or collective labour agreement.
10. Active Participation of the Wage Council. The wage council is to actively participate in providing advice and considerations to the central government or regional government in formulating wage policies and develop wage system (amending Article 98 paragraph 1).
11. Affirmation on Bipartite Purpose. Any employee who refuses a termination of employment must undergo bipartite meetings in a deliberative manner for consensus (musyawarah mufakat) between employers and workers/laborers and/or labor unions (amending Article 151 paragraph 3). The addition of “deliberative manner for consensus (musyawarah mufakat)” is to affirmed that termination of employment is the last resort.
12. Termination of Employment Following the Legally Binding Decision. If no agreement is reached in the bipartite negotiations on the termination of employment, then such termination of employment can only be carried out after obtaining a decision from the institution for resolving industrial relations disputes whose decision has permanent legal force/legally binding decision (amending Article 151 paragraph 4).
13. Obligation to Work and Process Salary During Termination. The obligations of an employer and employee to each other during an industrial relation dispute must resume until the conclusion of the industrial relations dispute resolution process that has permanent legal force/legally binding decision in accordance with the provisions of the industrial relation disputes settlement law (Act 2/2004) (amending Article 157A paragraph 3). Previously, the obligations of an employer and employee to each other would resume until the completion of the industrial relations dispute resolution process according to its level, not until a legally binding decision was made.
14. Formula in Severance Pay. The employer must pay a severance payment (uang pesangon) at least, or at minimum, with the calculation as stipulated under the Indonesian Manpower Law (amending Article 156 paragraph 2). Previously, there was no mention of ‘at least’ or ‘at minimum’, meaning that the severance payment must conform to the calculation stipulated under the Indonesian Manpower Law.

Implementation of CC Ruling 168/2023

Mirroring the 2020 Omnibus Law (effective from November 2020 to December 2022), the full implementation of the manpower law cluster is dependent on the issuance of implementing regulations. However, until these regulations are enacted, it can be argued that the provisions affected by Constitutional Court Ruling 168/2023 are already in effect. Therefore, it is necessary to prepare for internal adjustment following the Ruling.

Regulatory Adjustment

The Government may make an adjustment or passing of new implementing regulations following the CC Ruling 168/2023. The more likely affected regulations are, among others: (a) Government Regulation 36/2021 jo Government Regulation 51/2023 on Remuneration; (b) Government Regulation 35/2021 on Fixed-Term Employment Agreement, Outsourcing, Working Time and Resting Time, and Termination of Employment; and (c) Government Regulation 34/2021 on Implementation of Foreign Workers.

Possibility for New Manpower Law

In Consideration 3.16 of CC Ruling 168/2023, the Constitutional Court emphasizes the need for lawmakers to create a new manpower law that incorporates the essence of both the old and current Manpower Law within 2 (two) years (since 31 October 2024, the date of the ruling).

The court encourages active and meaningful participation and involvement from labor unions in the legislative process. The court observes that the current Manpower Law contains numerous inconsistencies and overlaps with the previous provisions of the old manpower law. This point may prompt lawmakers to consider the necessity of drafting and subsequently passing a new manpower law.

What’s Next?

As of the date of this release, the implementing regulation of the Manpower Law affected by CC Ruling 168/2023 have not been revised by the Government. We will continue to assess the update of implementing laws affected by the Ruling and closely monitor any developments, particularly regarding updates to regulations and the ongoing revision process of GR 35/2021.