The Constitutional Court Rules to Amend the Manpower Law as lastly amended by the Job Creation Law
On 31 October 2024, the Constitutional Court of the Republic of Indonesia (Mahkamah Konstitusi Republik Indonesia or “MK”) conferred MK Decision No. 168/PUU-XXI/2023 (“MK Decision 168/2023”), which partially granted the petition for judicial review over some provisions in Law No. 13 of 2003 on Manpower, as lastly amended by Law No. 6 of 2023 on the Enactment of Government Regulation in Lieu of Law No. 2 of 2022 on Job Creation into Law (“Manpower Law”). The petition was filed to MK by the Labor Party, labor organizations, and individuals (“Applicants”).
MK Decision 168/2023 has ruled significant changes to Manpower Law with substantial effects on employers in Indonesia. The changes made by MK Decision 168/2023 are as follows:
1. Completion Period of a Specific Work in Definite Period Employment Agreement (Perjanjian Kerja Waktu Tertentu or “PKWT”): Article 56(2) of Manpower Law shall be amended as follows. PKWTs can be executed based on a specific period or the completion of specific work. Previously, the Job Creation law removes the limit of the completion period for specific work and that the period can be extended based on the agreement of the employee and the employer. MK Decision 168/2023 amends the maximum limit to complete a specific work to 5 years.
2. Governing Language of PKWT: Article 57(1) of Manpower Law is amended to state that PKWTs must be made in writing in Bahasa Indonesia and the Latin alphabet. MK Decision 168/2023 reinforces this requirement by inserting the word “must,” making the use of Bahasa Indonesia and Latin alphabet mandatory. This change emphasizes the importance of ensuring that PKWT agreement is drafted in such format to maintain its validity.
3. Weekly Rest Day: Article 79(2) of Manpower Law regarding daily and weekly rest periods for employees, now include an additional rest day, requiring 2 weekly rest days for employees working 5 days per week. The previous version stipulated that employees were entitled to 1 rest day every 6 working days.
4. Wage Structure and Scale Components: Article 92(1) of Manpower Law on the requirement for the employer to establish a wage structure and scale was reduced by Job Creation Law. The law reduced the components of wages to be based on the company’s capability and productivity, removing factors such as rank, position, length of service, education, and competence, which were included in the original version of Law No. 13 of 2003 on Manpower. MK Decision 168/2023 has restored these provisions, reinstating all factors as essential components in determining the wage structures and scales. In this regard, employers must revise their wage policies to incorporate these
restored components.
5. Affirmation of Employer’s Rights in case of the Company Bankruptcy: MK Decision 168/2023 has amended Article 95(1), which prioritizes the payment of workers’ wages and other entitlements (i.e., unpaid leave, allowances) as priority debts in case of company insolvency. Article 95(3) states that these payments take precedence over other creditors, except secured creditors. MK Decision 168/2023 clarifies that the term “other creditors” includes preferred creditors (i.e., outstanding tax obligations, court fees, and receiver fees), despite the employees’ outstanding wages and other entitlements, which are considered as preferred creditors.
6. Dispute Settlement Mechanism due to Termination of the Employee: Article 151(4) of Manpower Law required termination disputes to progress through the stages of the Industrial Relations Dispute Settlement mechanism if the bipartite negotiations failed. MK Decision 168/2023 revises this provision by stipulating that employment termination can occur after obtaining a final decision from the appropriate employment dispute settlement institution (mediation or judgment from the Industrial Relations Court). This revision emphasizes the effective termination date should the affected employee object the proposed termination by the company.
7. Minimum Severance Payment: MK Decision 168/2023 adds the term “at least” to Article 156(1) regarding severance payment, emphasizing that severance payments must meet the minimum requirements stipulated by law. It is particularly important that the word “at least” opens the possibility of granting the severance payment above the
Manpower Law provision.
8. Fulfilment of Employee’s and Employer’s Obligation during the Dispute Settlement: Article 157A of Manpower Law requires both employers and employees to fulfill their respective obligations during the dispute resolution process. Paragraph (3) stated that these obligations should remain valid until the settlement process was completed. However, the finality of the settlement was unclear. MK Decision 168/2023 amends this provision, requiring both parties to continue fulfilling their obligations until the resolution has the permanent legal force (inkracht) as determined under Law No. 2 of 2004. This is to prevent any premature cessation of obligations and ensure the rights and responsibilities of both parties during the resolution process.
Concluding Remarks
MK Decision 168/2023 introduces significant amendments to the Manpower Law, emphasizing the need for employers to align their policies with these changes. These revisions include stricter requirements for PKWT agreements, enhance worker protections regarding wages and rest days, and provide clearer dispute resolution mechanism. Employers must carefully review and update their practices to comply with the new legal framework and mitigate potential risks of non-compliance.
The article above was prepared by Audria Putri (Senior Associate), Mia Sari (Senior Associate), and M. Irfan Yusuf (Associate).
