Foreign Employees and Termination Benefits in Indonesia

The Indonesian Supreme Court in December issued Circular Letter No. 1, 2017 regarding the Implementation of the 2017 Supreme Court Meeting as a Guideline for the Role of Indonesian Courts (“SEMA No. 1”).

SEMA No. 1 is a 41-page document that contains new policies to be applied by courts in Indonesia when handling criminal, civil, religious and military matters.

It also contains a section on Labor Court policies and in particular the employment of expatriates and their termination benefits under Indonesia’s Manpower Law (Law No. 13 of 2003).

Overview

Article 42 of the Manpower Law suggests that expatriates are permitted to work in Indonesia only for a certain period of time and may therefore only be employed under a fixed-term employment agreement. In other words, foreigners cannot be permanent employees.

As fixed-term employees, foreigners do not enjoy statutory termination or pension benefits under the Manpower Law, such as severance pay, service pay and compensation pay. The terms of employment for fixed-term employees, including any termination benefits, are based solely on the fixed-term employment contract.

The provisions of Article 42 were to be further regulated by the Ministry of Manpower (“MOM”), but the MOM has yet to issue any such implementing regulation.

Can Expatriates Be Permanent Employees?

Despite Article 42 of the Manpower Law, there is a debate over whether foreigners can be hired as permanent employees. This debate arises out of a section of the Manpower Law that says the “period” of employment of foreign employees must be specified.

A fixed-term employment contract can be for a maximum of two years, and may be extended once by up to one year and renewed once for up to two years, with a 30-day grace period (Article 59(4) of the Manpower Law). A fixed-term employment contract must be made in writing and in the Indonesian language (Article 57(1) of the Manpower Law). Dual-language contracts are permitted, but the governing language must be Indonesian (Article 57(3) of the Manpower Law). A violation of any of these provisions shall result in the fixed-term employment contract automatically becoming a permanent employment contract (Articles 57(2) and 59(7) of the Manpower Law).

The Indonesian Labor Court has in fact flip-flopped on the issue of foreign employees and their status. The court has held both that foreigners can be permanent employees and that they can only be fixed-term employees. Court decisions in Indonesia do not constitute binding precedent for future court decisions, i.e. the principle of stare decisis does not apply here.

Foreign employees and SEMA No. 1

In SEMA No. 1, the Supreme Court issued new policies for the Labor Court as follows:

1.Foreigners can be employed in Indonesia only for certain positions and for a certain period of time under a fixed-term employment agreement (Perjanjian Kerja Waktu Tertentu or “PKWT”).

2.Legal protections for foreign employees only apply if such foreign employees have obtained a work permit (Izin Mempekerjakan Tenaga Kerja Asing or “IMTA”).

3.If the work permit of a foreign employee has expired but their fixed-term employment agreement is still valid, the remaining period of the fixed-term employment agreement will not be protected by law.

Conclusion

In practice, with the absence of any implementing regulation for Article 42 of the Manpower Law, the issuance of SEMA No. 1 has changed policy regarding the employment status of foreign employees in Indonesia.

SEMA No. 1 was issued to provide legal certainty that foreigners can only be employed in Indonesia under a fixed-term employment agreement for the period of their work permit. SEMA No. 1 eliminates any possible future claims that foreign employees are permanent employees and thus enjoy statutory termination benefits under the Manpower Law.

By SSEK, APAC, a Transatlantic Law International Affiliated Firm.

For more information on this topic, please contact Indrawan Dwi Yuriutomo at indonesialabor@transatlanticlaw.com.

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