Recent Developments of the Manpower Law
Authors
On 31 October 2024, the Constitutional Court of Indonesia rendered a decision which made amendments to Law No. 13 of 2003 concerning Manpower (“Law 13/2003”) through the Constitutional Court Decision No. 168/PUU-XII/2023. This ruling responds to a petition for a formal judicial review of Law No. 6 of 2023 concerning the enactment of Government Regulation in Lieu of Law No. 2 of 2022 on Job Creation into law (“Law 6/2023”) (collectively referred as “Constitutional Court Decision No. 168/PUU-XII/2023”).
Although the changes do not overhaul the legal framework of the Indonesian Manpower Laws entirely, the Constitutional Court Decision No. 168/PUU-XII/2023 may be considered a step forward in the development of the Manpower Laws in Indonesia. The aim is to create a more unified legal landscape that addresses longstanding issues faced by employees and employers alike.
Proposed Amendments Made by the Petitioners
The amendments were driven by grievances regarding constitutional harms and losses experienced by employees in Indonesia. On 1 December 2023, a collective of various labour unions or worker federations and two individuals (“Petitioners”) submitted a request to the Indonesian Constitutional Court for the judicial review of 49 articles in Law 6/2023, which amends Law 13/2003. In their petition, the Petitioners divided the articles to be reviewed into seven sections, as follows:
- Foreign Workers (Tenaga Kerja Asing - TKA)
- Fixed-Term Employment Agreements (Perjanjian Kerja Waktu Tertentu - PKWT)
- Outsourcing (Pekerja Alih Daya)
- Leave and Leave Pay (Cuti dan Upah Cuti)
- Wages and Minimum Wage (Upah dan Upah Minimum)
- Termination of Employment (Pemutusan Hubungan Kerja - PHK)
- Severance Pay, Compensation of Rights, and Long-Service Pay (Uang Pesangon, Uang Penggantian Hak, dan Uang Penghargaan Masa Kerja)
Granted Amendments by the Constitutional Court
In response to the Petitioners’ request, the Constitutional Court partially granted the petitioners' request, approving 21 (twenty-one) articles while rejecting 28 (twenty-eight) articles. The approved articles cover focus on Foreign Workers; Fixed-Term Employment Agreement (PKWT); Outsourcing; Leave and Leave Pay; Wages and Minimum Wage; Termination of Employment (PHK); and Severance Pay, Compensation of Rights, and Long-Service Pay. Such amendments to the approved articles are summarised on the attachment section of this ARMA Update.
Please see the attached table here
Considerable Changes to the Manpower Laws
The Constitutional Court Decision No. 168/PUU-XII/2023 introduced several significant changes, including both removals and additions, which essentially clarify the provisions in the regulations, as follows:
- Prioritizing Local Manpower, Article 42, paragraphs 2 and 4, is amended to include the clause “with due regard to prioritizing the use of Indonesian workers,” to emphasize that providing opportunities for foreign workers in Indonesia is unavoidable, especially in sectors requiring special skills that are not yet met by Indonesian workers. However, the employment of foreign workers must be based on clear and measurable needs and must not negatively impact job opportunities for Indonesian workers.
- Affirmation of the maximum period for a PKWT, to avoid doubt and ambiguity, an explanation is added to Article 56, paragraph 4, stating that the duration or completion of a specific job shall “not exceed 5 years, including any extensions.” This is based on the consideration that in practice, many employers have misunderstood and misused the maximum period of PKWT contracts.
- Obligation of Sabbatical Leaves (Istirahat Panjang), The Constitutional Court Decision No. 168/PUU-XII/2023 subsequently amended the provision in Article 79, paragraph 5, by removing the word “may,” resulting in the obligation for certain companies to provide sabbatical leaves as regulated in their Employment Agreement, Company Regulations, or Collective Labor Agreement. However, there is still uncertainty as the Constitutional Court Decision No. 168/PUU-XII/2023 has yet to provide clarity concerning the criteria of “certain companies”.
- Terms of Providing Severance Pay, The Constitutional Court Decision No. 168/PUU-XII/2023 also adds the term “at least” in Article 156, paragraph (2) regarding severance pay, by using the phrase “at least,”. This change allows the opportunity for workers to receive severance pay above the minimum amount, better meeting the living needs of workers who are laid off.
Validity of the Constitutional Court Decision and the Development of the Indonesian Manpower Laws
Normatively, the Constitutional Court holds the authority to examine and adjudicate at the first and final hearing regarding laws in Indonesian in relation to the 1945 Constitution of the Republic of Indonesia, in which the Constitutional Court’s decision (verdict) is considered final and binding. This would mean that the Constitutional Court Decision No. 168/PUU-XII/2023 can be directly enforced without the need for additional rulings from authorized officials, unless otherwise provided by statutory regulations. Thus, the Constitutional Court's decision in amending the 21 articles of the Manpower Law shall be prevail from the moment it is pronounced.
In regard to the 21 articles which are considered conditionally unconstitutional by the Constitutional Court, this would mean that the implementing regulations of Law 13/2003 that are relevant to the 21 articles under judicial review are also considered irrelevant. In response to this, The Constitutional Court mandated that the immediate formulation of new manpower law is required to avoid further misinterpretations and ambiguity. The Constitutional Court further stated that a maximum period of 2 years is considered sufficient for the legislators to make a new law that accommodates the substance of Law 13/2003 and Law 6/2023, as well as involving the active participation of trade unions. Therefore, it is expected that a new manpower law may be enacted in 2026.
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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