Termination of Employment Procedure

Employment

8 Jun

General Overview

On February 2 2021, the Government issued Government Regulation No. 35 of 2021 concerning Fixed Term Employment Contract, Outsourcing, Working Time and Rest Time, and Termination (“GR 35/2021”), which stipulates the latest mechanism regarding the procedure for termination of employment (“PHK”).

This ARMA update will discuss the substance of PP 35/2021, especially on the Termination of Employment Procedure.

Termination of Employment Procedure

The termination of employment procedure contained in PP 35/2021 originated from the changes in Article 151 of Law no. 13 of 2003 concerning Manpower as amended by Law Number 11 of 2020 concerning Job Creation ("Employment Law"), which stipulates that the employer can execute a termination without having to be preceded by a decision from the Industrial Relations Court ("PHI"), on condition that employees must agree with the said termination decision.

In GR 35/2021, it is stipulated that first of all, the employer is obliged to provide a notice of termination to the employee which contains the intent and reason for the termination, for no later than 14 (fourteen) working days prior to the termination of the employment contract¹. In the event that the employee has received a notification letter regarding the termination and does not object the termination, the employer shall carry out a report of the termination to the ministry that administers government affairs in the manpower sector and/or the agency that carries out government affairs in the province and district/city manpower sector², which in this case is the local district/city Department of Manpower, Transmigration and Energy (“DMTE”).

However, in the event the employee rejects the termination of the employment contract, the employees have to provide a letter stating its objection which includes its reasons of rejection no later than 7 (seven) working days after receiving the notification letter³. In this case, the said rejection by the employee is considered to be a termination dispute (PHK). Therefore in the event of a termination dispute, it shall go through a settlement process which is carried out through bipartite negotiations. According to the Law No. 2 of 2004 concerning Settlement of Industrial Relations Disputes ("Law 2/2004"), bipartite negotiations are negotiations between employers with its employees to settle industrial relations disputes⁴, which the settlement of the dispute through bipartite negotiations must be completed within 30 (thirty) days from the date of commencement of the negotiations⁵.

Further, provided that through bipartite negotiations an agreement is reached, it will be then set out in a collective agreement signed by the employer and the employee legally binding the both parties. Furthermore, the collective agreement must be registered by the parties who entered into a collective agreement to a PHI in the territory in which the collective agreement was made, moreover after being registered to a PHI, the parties will be given a deed of proof of registration of the collective agreement which is considered as an inseparable document to the collective agreement⁶.

However, if no agreement is reached between the employer and the employee in the bipartite negotiation process, then one or both parties must register the dispute with the Ministry of Manpower (“MoM”) or DMTE whilst providing evidence which states that the bipartite negotiations have been carried out but was not able to yield an agreement from the disputing parties⁷. After receiving the registration, the MoM is obliged to offer the parties the option in choosing a settlement mechanism through conciliation or through arbitration, where within 7 (seven) working days the parties must agree on the choice of settlement. If an agreement is reached through conciliation, a collective agreement must be made along with the registration process as referred to in the previous paragraph.

Moreover, in the event the parties have not decided on a method of resolving the dispute through conciliation or arbitration within 7 (seven) working days, the MoM or DMTE delegates the settlement of the dispute to the mediator in the mediation forum⁸. In the event of that an agreement is reached in the mediation process, a collective agreement must be made again along with the registration process with the PHI. However, if an agreement is not reached, the mediator will provide a written recommendation to the parties, in which the parties must then provide answers to the mediator to accept or reject the written recommendation. In the event that the written recommendation is rejected by one of the parties, then one of the parties or the parties may continue the process of resolving the dismissal dispute to the PHI.

It is important to note that in practice, if there is a collective agreement, in addition to the employer having to register the collective agreement with the PHI, the notification of termination is futher delivered to the local district/city DMTE as regulated in PP 35/2021.

Article 37 (2) of GR 35/2021
Article 38 of GR 35/2021
Article 39 (1) of GR 35/2021
Article 1 (10) of Law 2/2004
Article 3 of Law 2/2004
Article 7 of Law 2/2004
Article 4 (1) of Law 2/2004
Article 4 (4) of Law 2/2004

Disclaimer:
This client update is the property of ARMA Law and intended for providing general information and should not be treated as legal advice, nor shall it be relied upon by any party for any circumstance. ARMA Law has no intention to provide a specific legal advice with regard to this client update.

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