LABOR AND EMPLOYMENT DESK BOOK. INDONESIA Ali Budiardjo, Nugroho, Reksodiputro-Counsellors At Law

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1 LABOR AND EMPLOYMENT DESK BOOK INDONESIA Ali Budiardjo, Nugroho, Reksodiputro-Counsellors At Law CONTACT INFORMATION NAFIS ADWANI ALI BUDIARDJO, NUGROHO, REKSODIPUTRO-Counsellors At Law Do you have a plant closing law in your jurisdiction and if so, what does it require? (For U.S. jurisdictions, please answer: Is there a Baby WARN Act in your state and if so, what does it require?) We have no specific plant closing law or regulations. However, in terms of the rights and obligations of the employees in relation to the plant closing, we have Law No. 13 Year 2003 concerning Labor ( Labor Law ), which states in its Article 164 Paragraph (1) and (3) as follows: a) Due to continual losses in two consecutive years Paragraph (1) of Article 164: The entrepreneur/employer may terminate the employment of his or her workers/labourers for the reason that the enterprise has to be closed down due to the continual losses it has been suffering for two years consecutively, or for reason of the occurrence of a force majeure situation. Regarding the continual losses incurred, Paragraph (2) of Article 164 provides that The continual losses referred to in subsection (1) must be provable by the enterprise s financial reports for the last 2 (two) years that have been audited by a public accountant. b) Due to rationalization/efficiency Article 164 Paragraph (3) provides that The entrepreneur/employer may terminate the employment of his or her workers/laborers because the enterprise has to be closed down and the closing down of the enterprise is caused neither by continual losses for 2 (two) years

2 consecutively nor force majeure; but because of rationalization [literal: efficiency]. If this happens, the workers/laborers shall be entitled to severance pay in the amount of twice the amount of severance pay stipulated under subsection (2) of Article 156, reward for period of employment pay amounting to 1 (one) time the amount stipulated under subsection (3) of Article 156 and compensation pay for entitlements that have not been used according to what is stipulated under subsection (4) of Article 156. In light of the foregoing, the termination of the employment of employees of a to-be-closed plant may be conducted for all of the above reasons with due observance to the entitlements of the employees as regulated by the Labor Law. An important requirement in relation to the closing of a plant for the above reasons is prior notification to the employees and the labor union(s) in the company(if any). Following the notification, the employer needs to sit with the labor union(s) or the respective employees in the determination of the amounts of the severance payment including the formula for the calculation. In practice, the labor unions/employees would usually request a higher amount than the amount resulting from the Labor Law s prescribed formula and employers would usually agree to a reasonably higher amount (as sweetener for the terminated employees). When both the employer and the employees have come to an agreement on these matters, a Mutual Employment Termination Agreement is entered, which must be registered in the Industrial Relations Court. 2. Are there special rules on releases/waivers in your jurisdiction? No, releases/waivers are not specifically regulated in the prevailing legislation. Nevertheless, for the purpose of practicality the termination clause of an agreement/contract that is governed by Indonesian law (with the exception of labor contracts/agreements as further discussed below), will usually contain a waiver of Article 1266 and Article 1267of the Indonesian Civil Code ( ICC ) which require a court order for the termination of an agreement. With the waiver, the parties do not need to seek the approval of the court for the agreement termination. Pursuant to Article 1266 of ICC, The condition of the dissolution of an agreement is always deemed as implied in a mutual agreement in the event that one of the parties does not comply with his obligation. In such event, the agreement does not automatically terminate by operation of the law, but must be requested through the court. This request must be also submitted, even if the agreement contains the dissolution condition. If the dissolution is not provided in the agreement, the judge is free, by considering the circumstances, at the defenders request, to allow time for the defendant to comply his obligation, which time, however, may not exceed a period of one month. Further, Article 1267 of ICC stipulates that The party, towards whom the obligation has not been complied, has the option to force the other party to comply with the obligation or to demand the dissolution of the agreement, with compensation of cost, loss and interest.

3 With respect to labor/employment agreements/contracts governed by Indonesian law, as we mentioned above, the waiver to Article 1266 and 1267 in the ICC is not allowed. This is because of the existence of this provision in the Labor Law, i.e. Article 151 Paragraph (2), which states that if despite all efforts made the termination of an employment remains inevitable, then, the intention to carry out the employment termination must be negotiated between the entrepreneur and the trade/labor union to which the affected worker/laborer belongs as member, or between the entrepreneur and the worker/laborer to be dismissed if the worker/laborer in question is not a union member. In addition, Article 151 Paragraph (3) provides that If the negotiation as referred to under subsection (2) fails to result in the parties agreement, the entrepreneur/employer may only terminate the employment of the worker/laborer after receiving a decision [a permission to do so] from the institute for the settlement of industrial relation disputes. Further to the above, Article 155 (1) sets forth that Any termination of employment without the decision of the institute for the settlement of industrial relation disputes as referred to under subsection (3) of Article 151 shall be declared null and void by law. 3. What are the equal employment opportunity/ non-discrimination categories in your jurisdiction (For U.S. jurisdictions, please answer: Are there protected categories beyond Title VII in your state?) Labor Law, specifically on Article 5 and Article 6 guarantee (i) every person s equal opportunity to obtain employment without any discrimination (ii) the right of each and every employee/worker to equal treatment with no discrimination by their employer. Further, Indonesia has also ratified several international conventions with regard to equal employment/non-discrimination through the enactment of the following laws: a) Law No. 80 of 1957 concerning Ratification of ILO Convention No. 100 regarding Equal Remuneration for Men and Women Workers for Work of Equal Value; b) Law No. 7 of 1984 concerning Ratification of the Convention on the Elimination of All Forms of Discrimination Against Women; c) Law No. 21 of 1999 concerning Ratification of ILO Convention No. 111 regarding Discrimination in Employment and Occupation. 4. What are the minimum wage and overtime rules (and exemptions) in your jurisdiction? In Indonesia, the Governor being the head of a region is the authority in charge of determining the minimum wage for his/her region; therefore the minimum wage varies from region to region. For example, the minimum wage of the special region of the Municipality of for the year 2009 is Rp. 1,069,865.00/month.(around USD 100) The standard working hours in Indonesia is 8 hours per day for 5 workdays per week or 7 hours per day for 6 workdays per week. Employees may be required to work overtime for a maximum of 3 hours/day and 14 hours/week, with pay. The overtime pay Rate Per Hour

4 ( RPH ) is 1/173 of the employee s monthly wage, and the formula for the calculation of the overtime pay is as follows: a) If the overtime work is carried out on normal workdays: 1,5 times the RPH for the first hour, and 2 times the RPH for the remaining hours. b) If the overtime work is performed on a rest day and/or official holiday and the work is performed for six workdays: Two (2) times the RPH for the first seven hours, three (3) times the RPH for the eighth hour, and four (4) times the RPH FOR the ninth and tenth hours. If the official holiday falls on the shortest workday: two (2) times the RPH for the first five hours, three (3) times the RPH for the sixth hour and 4 (four) times the RPH for the seventh and eighth hours. c) If the work is carried out weekly during leave or official holidays for a period of five workdays: two (2) times the RPH for the first eight hours, three (3) times the RPH for the ninth hour and four (4) times the RPH on the tenth and eleventh hours. The above, however, do not apply to workers in the energy and mineral resources sector who are working in remote and/or offshore areas. The remuneration for these workers are regulated in Decree of the Minister of Manpower and Transmigration No. KEP.234 /MEN/ Is there employment-at-will, or some other rule, in your jurisdiction? What are the exceptions? We assume what you meant by employment-at-will rule, is the doctrine in the American law that defines an employment relationship in which either party can break the relationship with no liability, provided there was no express contract for a definite term governing the employment relationship and that the employer does not belong to a collective bargain (i.e., a union), which is attributed to Horace Gay Wood, who described the rule in an 1877 treatise, and which has been judicially adopted over the next forty years by most of the American states. In relation to the above, Indonesian Labor Law provides in its Article 60 Paragraph (1) that: An employment agreement that is entered into for an indefinite term (for an undefined period of employment) may stipulate a probationary period that is not longer than 3 (three) months. In view of the foregoing, provided that such probation period has been stipulated in writing beforehand, under Article 154 of the Labor Law, under a employment contract for an indefinite term the employer/entrepreneur is allowed by law to terminate the employment of the worker/laborer who is still in probation without obtaining a decision [a permission to do so] from the institute for the settlement of industrial relation disputes.

5 On the other hand, if it is the employee who wishes to terminate the employment relationship by submitting a resignation letter to the employer, irrespective of whether the type of the employment there is no requirement to first obtain the decision of the Industrial Relations Court for the termination. This is regulated in Article 154 (2), which provides an exception to Article 155 (1) which we have explained in section 2 above. 6. What are the legal obligations upon terminating an employee in your jurisdiction? We will discuss the employer s legal obligations prior and upon terminating an employee. Even though Labor Law does not specifically stipulate a prior written notice requirement for the termination of an employment, in practice, the employer should give to the employee a written notification of its/his/her intention at least 30 days prior to the intended termination Date. Prior to the termination, the employer is also obliged under the law to negotiate this termination with the employee/worker directly if he/she is not a union member, or to negotiate with the respective labor union if he/she is a member of the union. Subsequent to this negotiation, the parties should enter into a Mutual Employment Termination Agreement which should be registered with the Industrial Relations Court. In the event that the negotiation fails to result in an agreement, both parties may seek a settlement of their differences through the Industrial Relations Court. The losing party at this level of court may appeal to the Supreme Court. Upon the termination of an employment, the employer is obliged to provide the employee with a severance package, which under the Labor Law comprises severance amount, service appreciation amount, and compensation amount (unused vacation, relocation costs, etc). The amounts of the severance pay and service appreciation pay are dependent upon the employee s years of service and the basic salary. If the termination of the employment is made by the employer for the reason of the employer s redundancy, the severance package amount is doubled. Please note this is only a basic formula and Labor Law requires the amount can be multiplied depending the employment termination reasons. 7. Are there any family and/or medical leave laws in your jurisdiction, and if so, what do they require? (For U.S. jurisdictions, please answer: Are there family and/or medical leave laws in your state beyond FMLA and if so, what do they require?) Employees in Indonesia are entitled to a paid medical long leave provided that such leave is recommended or instructed by a doctor on the basis of a written statement. The following are the details: a) For the first four months, the Employee is entitled to receive 100 (one hundred) percent of their wages; b) For the second four months, the Employee is entitled to receive 75 (seventy five) percent of their wages;

6 c) For the third four months, the Employee is entitled to receive 50 (fifty) percent of their wages; and d) For the subsequent months, the Employee is entitled to receive 25 (twenty five) percent of their wages prior to the termination of employment by the Employer. Under Labor Law employees/workers in Indonesia are also entitled to a paid family leave in the following events: a) Marriage of the Employee, 3 (three) days paid leave; b) Marriage of the Employee s son/daughter, 2 (two) days paid leave; c) Circumcision of the Employee s child, 2 (two) days paid leave; d) Baptism of the Employee s child, 2 (two) days paid leave; e) Birth of the Employee s child or Employee s wife gives birth or miscarries, 2 (two) days paid leave; f) Death of the Employee s spouse, parent, parent-in-law, children or children-in-law, 2 (two) days paid leave; and g) Death of a member of the Employee s household, 1 (one) day paid leave. 8. Please list any miscellaneous, interesting or oddball laws in your jurisdiction, and state under what circumstances they pertain. The following leave entitlements provided to employees under the Indonesian Labor Law may not be recognized in other jurisdictions: a) Two (2) days of menstrual leave for female employees, i.e., the 1st and 2nd day of her menstrual period; b) Two (2) days leave for the employees whose child is circumcised or baptized; c) Two (2) days leave for employees whose spouse, parent, parent-in-law, child, or child-inlaw passes away; d) One (1) day leave for employees whose member of the household passes away; In addition to the above, Moslem employees are entitled to a Hajj Pilgrimage Leave (to go to the holy cities of Mecca and Medina in a certain Islamic lunar calendar month). Pursuant to the Government Regulation of the Republic Indonesia No. 8 of 1981 on Salary Protection, the employer is obliged to pay the employee s salary for a maximum period of 3 (three) months while the employee is on this pilgrimage leave. However there are no specific regulation concerning on whether an employee can take a paid leave to conduct this pilgrimage. The Government Regulation also stipulates that an employer/company is obliged to pay the salary of its employee during his/her pilgrimage only for one pilgrimage. 9. Does your jurisdiction have a law requiring employers to give employees access to, or a copy of, their personnel records? N/A

7 10. Does your jurisdiction outlaw or restrict drug tests, alcohol tests, genetic tests or any other kind of testing? Drug Testing Pursuant to Regulation of Manpower and Transportation Minister No. 11/Men/VI/2005 on misuse prevention, control and treatment of narcotics, psychotropic and other addictive substances ( MoT Regulation ), an employer may request its employee to have himself/herself tested for narcotic, psychotropic and other addictive substance addiction, if the employer suspects that the employee is suffering from such addiction. The cost of for these tests will be on the account of the employer and the tests must be conducted in an authorized laboratory and in accordance with the prevailing laws and regulations. The test results must be kept confidential, and on the basis of these tests determination may be made on whether the concerned employee should be required to join a rehabilitation program. HIV Testing Article 5 of the Transmigration and Manpower Minister s Decision No. on HIV/AIDS Prevention and Control in workplace, provides : 68/Men/IV/2004, a) Employers are prohibited from including HIV test in their recruitment requirements, to determine an employment status, and as a compulsory regular medical check up. b) A HIV test can only be performed on the basis of a written agreement/consent from the worker/employee concerned; after it is performed, the results may not be used for the purposes meant in point (1) above. c) If HIV test is needed as meant above, the employer must provide the employees/workers concerned with a counseling program before and after the HIV test is performed. Further to the above, Article 6 provides that all of the information obtained from the HIV counseling activities, tests, medical treatment, medical care, and other related activities, must be kept confidential in the same manner as that of any other medical record. Genetic testing and alcohol testing There are no specific regulations in the Indonesian legal system which restricts alcohol and genetic testing. As such, an employer may insert this requirement in an employment agreement/contract. On the other hand, under the prevailing labor laws and regulations an employer has no right under the law to force its employees to undergo a medical related test. 11. Does your jurisdiction have any special rules on the payment of sales commissions? No, we don t have any such specific rules. In practice, these commissions arrangement can be made on contractual basis between the employee and the employer. 12. What are the basic rules on enforcing non-competes and related agreements in your jurisdiction?

8 The Indonesian applicable labor laws and regulations do not specifically regulate these matters. However, in general all agreements, including non-compete, non-solicit, and/or confidentiality agreements, are governed by the provisions of Indonesian Civil Code ( ICC ). Article 1601 X of ICC among others provide as follows: a) An agreement between an employer and an employee, in which the power of the latter is limited after expiration of the employment to perform the work in a certain manner, shall only be valid if such promise is made in a written agreement or in a company s regulation or in the collective labor agreement; The judge (if a dispute arises) is allowed upon the claim of the employee or by request of defending in a law suit, to nullify the entire or part of such agreement based on the reason that comparing the interest of the employer that must be protected, the employee is damaged unfairly by such promise. On the basis of the foregoing, as long as it is agreed between the employer and the employee concerned, an employment termination agreement may contain a non competition clause even though the principle employment contract does contain such clause. However, employers must be aware that such clause may be contested by the employee following the termination of the employment. In other words, their enforceability in practice certainly can not be guaranteed.