Indonesia Job Creation Law: Updates on Termination of Employment Regulation

At some point, termination of employment is inevitable. Whether it is caused by the employee’s voluntary resignation or unilateral termination by the employer. Since the enactment of the Omnibus Law No. 11 of 2020 on Job Creation (“Job Creation Law”) and the Government Regulation No. 35 of 2021 on Fixed Term Employment, Outsourcing, Working Hours, Rest Times, and Termination (“GR 35/2021“) – (Job Creation Law and GR 35/2021 hereinafter referred as to “Manpower Law”), there were some key changes on the termination of employment regulation.

Grounds of Termination

As previously stated, there are two types of employment termination: (i) voluntary resignation by the employee; and (ii) unilateral termination by the employer. In principle, the employer, employee, trade or labor union, and the government should make every effort to avoid the termination of employment. 

Based on the current Manpower Law regime, the legal grounds for termination of employment are as follows:

1. The company merges, consolidates, acquires, or separates and the employee is not willing to continue the employment relationship or the employer is not willing to accept the employee;

2. The company performs efficiency, followed by the closure of the company or not followed by the closure of the company due to the company suffering a loss;

3. The company closed because the company suffered losses consecutively for 2 (two) years;

4. The company closed due to force majeure;

5. The company is in a state of suspension of debt payment obligations;

6. The company is declared bankrupt by the Court;

7. There is an application for termination of employment submitted by the employee on the grounds that the employer has committed the following actions:

a. mistreated, insulted, or threatened an employee;

b. persuaded and/or ordered the employee to take actions that are contrary to the laws and regulations;

c. The employer failed to pay the employee’s wages on time for 3 (three) consecutive months or more, even though they were paid in a timely manner after that;

d. The employee failed to fulfill the obligations that had been promised to the employee;

e. ordered the employee to perform work that was not agreed upon; or

f. provided a task that endangers the life, safety, and ethical aspects of the employee while the said task is not stated in the employment agreement.

8. The decision of the industrial relations dispute settlement institution which states that the employer has not committed the act as referred to in point 7 above, against the application submitted by the employees and the employer decides to terminate the employment relationship;

9. The employee resigns of his own accord and fulfill the following requirements:

a. submitted a written application for resignation no later than 30 (thirty) days prior to the effective date of the resignation;

b. not bound by official ties; and

c. continue to carry out their obligations until the effective date of resignation.

10. The employee is absent for 5 (five) working days or more in a row without written information accompanied by valid evidence and has been summoned by the employer 2 (two) times properly and in writing;

11. The employee violated the provisions stipulated in the employment agreement, company regulations, or collective work agreement and has previously been given the first, second, and third warning letters respectively, each valid for a maximum of 6 (six) months except stipulated otherwise in the work agreement, company regulations, or collective employment agreement;

12. The employee is unable to work for 6 (six) months due to being detained by the authorities because he is suspected of committing a crime;

13. The employee experienced a prolonged illness or disability due to a work accident and is unable to carry out his/her work after exceeding the 12 (twelve) month limit;

14. The employee entered retirement age; or

15. The employee passed away.

Termination of Employment Mechanism

Should the termination of employment is unavoidable, the employer shall notify the employee and/or the labor union (if he/she is a member of a labor union) in writing which consist the reason for termination at least 14 (fourteen) working days before the date of termination, or 7 (seven) working days if the employee is on a probationary period.

However, the employer is not required to provide the above-mentioned notification if: (i) the employee resigns on his own accord; (ii) the employee and the employer terminate their employment in accordance with the fixed-term employment agreement; (iii) the employee reaches retirement age in accordance with the employment agreement, company regulations, or collective employment agreement; or (iv) the employee passed away.

Regardless of the foregoing, based on the current Manpower Law, the employer may waive the notice obligation if the employee has committed an urgent violation of the employment agreement, company regulation, or collective employment agreement.

Lastly, if the employee accepts the termination, the employer may proceed to notify the relevant manpower office of the termination. Otherwise, if the employee refuses such termination, he/she must submit a rejection letter to the employer within 7 (seven) working days. Thus, if such rejection is submitted, the employee and employer must engage in a bipartite negotiation. If no agreement is reached, both parties must proceed with the industrial relations dispute resolution procedures.

Severance Package for Permanent Employee

Once the termination is done, the employer is obliged to pay a severance package for the terminated permanent employee. Below is the updated guide to calculate the severance package based on the prevailing Manpower Law.

1. Severance Payment

2. Service Payment

3. Rights Compensation Payment

The rights compensation payment refers to the compensation based on the remaining annual leave, repatriation expenses of the employee, and other compensation as determined in the employment agreement, company regulation, or collective employment agreement.

4. Separation Payment

Separation payment is one of the rights that may be received by the employee as stipulated in the employment agreement, company regulation, or collective employment agreement.

Severance Package Based on the Grounds of Termination