The primary legislation governing employment relationships in Indonesia is Law No. 13 of 2003 on Manpower, as amended by Law No. 11 of 2020 on Job Creation (the “Labor Law”). The Labor Law stipulates the primary rules for establishing an employment relationship, employment terms and conditions, and employment termination.

The Labor Law defines an “employee” as someone working for a wage or other form of reward, and an “employment relationship” as one between employer and employee, based on an employment agreement that stipulates the specifics of the job, wages, and work instructions.

The Labor Law categories employment status into 2 types:

• temporary employees, subject to a fixed-term employment agreement; and
• permanent employees, subject to a permanent (indefinite-term) employment agreement.

(These are elaborated on below in Question No. 2.)

The terms “employee” and “worker” are interchangeable. A self-employed individual is not considered an employee as they earn a living by working for themselves, not as an employee of another party.

Other than temporary and permanent employees, the Labor Law does not stipulate other types of employment status.

The Labor Law stipulates 2 types of employment agreements:

• Fixed-term; and
• Indefinite-term.

A fixed-term employment agreement is based on:

1. a specified term; or
2. completion of a particular work/job.
3. Specified-term employment

A fixed-term employment agreement can be made and entered into by an employer and employee only for particular work that can be completed within a specified period:

(i) Work estimated to be completed within a period of time that is not too long (based on a term)

Requirement: A fixed-term employment agreement for work estimated to be completed within a period of time that is not too long (item (b) above) may last for up to 5 years. If an agreement is due to expire and the work is not yet completed, the agreement may be extended between the employer and employee, to the extent that the total period of the agreement does not exceed 5 years.

(ii) Seasonal work (based on a term)

Requirement: A fixed-term employment agreement for seasonal work may be made for up to 5 years. If an agreement is due to expire and the work is not completed, the agreement may be extended between the employer and employee, to the extent that the total period of the agreement does not exceed 5 years.

In this instance, the term “season” is not related solely to weather, but also to business demands.

(iii) work related to a new product, a new type of activity, or an additional product that is still in an experimental or try-out phase (based on a term)

Requirement: A fixed-term employment agreement for work related to a new product, a new type of activity, or an additional product that is still in an experimental or try-out phase can be made for up to 5 years. If an agreement is due to expire and the work is not yet completed, the agreement may be extended between the employer and employee, to the extent that the total period of the agreement does not exceed 5 years.

1. Completion of particular work/job

Work to be performed and completed at once or is temporary in nature (based on the completion of a certain work/job)

Requirement: The scope, limitation and term (including an extension of the term) of a fixed-term employment agreement for this type of work must be based on an agreement between the employer and employee.

A fixed-term employment agreement cannot be made and entered into for work that is permanent in nature. Violation of this requirement will lead to the automatic conversion of an employment relationship from one that is non-permanent (fixed-term) to one that is permanent (indefinite-term).

A fixed-term employment agreement may not require a probationary period, while an indefinite-term employment agreement may require a probationary period of up to 3 months. Should a definite-term employment agreement contain a probation clause it will be deemed null and void.

In general, an agreement governed by Indonesian law is deemed valid and enforceable only if the agreement fulfills the conditions and requirements stipulated in Article 1320 of the Indonesian Civil Code (the “ICC”):

• consent of the parties to bind themselves; consent is not valid if it is granted due to an oversight, under duress, or due to fraud.
• capacity to enter into an agreement; the parties to the agreement must be competent and authorized to sign the agreement.
• specific object; the object of the agreement must be specified in the agreement and is of a specific value.
• admissible cause; the cause of the agreement must comply with the prevailing law, and public morality and order.

If an agreement does not satisfy the first and second conditions, the agreement is voidable. A voidable agreement will continue to be valid and enforceable if either party to it does not file a request to annul it with the Court. If an agreement does not satisfy the third and fourth conditions, the agreement is null and void by operation of law. A null and void agreement shall be deemed never to have been made and entered into by the parties.

Specifically, the conditions and requirements that need to be met for an employment agreement to be valid are as stipulated in Article 52 (1) of the Labor Law:

• the consent of both parties;
• the parties’ ability or capacity to perform legal actions;
• the existence of the work agreed to; and
• the work agreed to does not conflict with public order or morality, and the prevailing laws and regulations.

If an employment agreement does not satisfy the first and the second conditions, the employment agreement is voidable; if it does not satisfy the third and the fourth, it is rendered null and void by operation of law, which is similar to the concept under the ICC.

A definite-term employment agreement must be made in writing, in the Indonesian language, and in the Roman alphabet, while an indefinite-term employment agreement can be made either in writing or verbally. A written employment agreement must state at least the following:

• name, address and line of business of the employer;
• name, gender, age and address of the employee;
• position of the employee or the type of work;
• place where the work is to be carried out;
• the wage and how it will be paid;
• terms and conditions of employment stating the rights and obligations of both the employer and employee;
• effective date of the employment agreement and its duration;
• place and the date where the employment agreement is made; and
• signatures of the parties to the employment agreement.

If an employment agreement is made in both Indonesian and a foreign language, the Indonesian language version will prevail in the event of any difference in interpretation.

Part-time employment is regulated under Government Regulation No. 36 of 2021 on Wages (“GR 36/2021”). GR 36/2021 explains the formula to calculate the hourly wage for part-time employees and expressly restricts an employer from paying/implementing an hourly wage for part-time employees only.

GR 36/2021 or the Labor Law does not detail other rights of part-time employees. GR 36/2021 does not cite other employee entitlements such as minimum wage, social security, or Tunjangan Hari Raya (“THR”, defined below) – as the three are the minimum statutory benefits for employees. Taken from a different perspective, the implementing regulations related to minimum wage, social security or THR do not differentiate between part-time and full-time work, mainly because part-time work was never formally recognized until GR 36/2021 was issued.

Despite the above, a company may still create its own policy for part-time employees and the entitlements that the employees will gain, in addition to hourly wages, in accordance with GR 36/2021.

The Labor Law is silent on the assignment/transfer of employees. Therefore, it can be carried out only with the agreement of all related parties, i.e., the current employer (the transferor), the new employer (the transferee), and the employees concerned. Transfer of employees with proper and legal consent from the parties is common in Indonesian employment practice. 

Transfer with Acknowledgement of Employee Seniority:

The new employer acknowledges employee seniority as well as their latest benefits as provided by the previous employer. Under this scenario, there is no employment termination before the transfer, hence there is no payment of severance package or any other compensation to transferred employees.

If in the future (after the transfer is completed), the new employer wishes to terminate a transferred employee, the severance package calculation will take into account the period of service of the employee, starting from employment with the transferor, as a result of acknowledgment of their seniority by the new employer when they were transferred.

Transfer without Acknowledgement of Employee Seniority:

The previous employer first terminates the employment and pays the employee a severance package, before the commencement of new employment with the new employer. In this case, the previous employer terminates the employment and pays a severance package.

When the termination is effective, the new employer may start the employment with the employee under new employment terms. The employment relationship with the new employer will start on ‘zero seniority’ (as if the new employer newly recruited the employee); hence, in the event of termination of the employment in the future, the severance package is calculated from the period of service upon commencement of employment with the new employer.

Transfer of an employee requires notification to, and the consent of, the employee concerned. If the employee declines to be transferred, the transferor may also terminate the employee. Upon termination, the transferor must pay a severance package. Payment of severance package will only apply to permanent employees.

As stipulated under Article 61 (3) of the Labor Law, in the event of the transfer of a company, the employee's rights and entitlements will become the responsibility of the purchaser of the company, unless it is agreed otherwise in the respective transfer agreement (without diminishing the employees' rights and entitlements).

Standard practices for the transfer of employees are implemented under both of the following scenarios:

1. Transfer of employees without termination; and
2. Transfer of employees with termination.

SCENARIO 1 - TRANSFER OF EMPLOYEES WITHOUT TERMINATION:

In this scenario, the acknowledgment of the transfer is to be made to an employment transfer agreement. The agreement will provide the provisions on employee consent to be transferred and the acknowledgment of the employee’s length of service at the transferor company, and that the employee will receive the same wage at the transferee company. The employment transfer agreement is to be signed by the transferor Company, the transferee company, and the employees concerned.

The transfer may not trigger severance payment for a permanent employee if the permanent employee agrees to continue employment with acknowledgment of seniority and the latest compensation and benefits at the new company. In this situation, there will be no employment termination for such transfer, so the transferor company will not be obligated to provide a severance package to the transferred employee.

On a separate note, if, in the future, the transferee company wishes to terminate an employee, the employee’s seniority with the transferor company must be taken into account when calculating the severance package. Furthermore, the offer of the transfer may result in the payment of a severance package to permanent employees, if the transferor company receives a refusal from an employee of an offer of transfer, and the employee asks to be terminated by the transferor company in connection with a business transfer.

SCENARIO 2 – TRANSFER OF EMPLOYMENT WITH TERMINATION:

Under the scheme in Scenario 2, as the employee’s service years with the transferor company will not be acknowledged by the transferee company, the transferor company will be obliged to provide the affected employees their rights to a severance package as a result of the termination. On the other hand, the transferee company has the right not to accept the employment of the transferor company’s employees, as the employees will be considered new applicants to the transferee company.

This type of termination (in relation to the transfer of employment) is not provided for under the law, so termination of permanent employees will be regarded as termination without cause. In practice, companies that initiate termination of employment without cause usually calculate severance packages as similar to a pension package based on the Employment Law (greatest total severance payment). Further, termination should be carried out with the employee’s consent; otherwise, there is a possibility that the employee may challenge the termination.

The termination must be made mutually by the transferor company and the employee by signing a Mutual Employment Termination Agreement (“META”). Once the termination is effective, the transferee company can re-hire the terminated employee on new terms and conditions by signing a new employment agreement. In this scenario, there is no obligation for the transferee to match the compensation and benefits of the employee with the transferor.

Change of control in a company (known as “acquisition of a company”) may trigger the rights of the employees to object if they are of the opinion that their interests will be prejudiced (as provided under the Company Law) or to seek a severance package if the acquisition results in a change of working terms and conditions.

Law No. 40 of 2007 on Limited Liability Companies (“Company Law”) stipulates that in the event of a change of control in/acquisition of a company, the Board of Directors of the company is obligated to announce a summary of the acquisition plan in at least 1 newspaper with nationwide circulation and also in an announcement to the employees, 30 days before the call notice for the General Meeting of Shareholders or prior to the date of execution of a Shareholders Resolution approving the acquisition. The employees are entitled to file an objection to the acquisition plan. This objection, however, will not affect the plan itself.

Moreover, under Article 42 (2) of the Government Regulation No. 35 of 2021 on Fixed-Term  Employment Agreements, Outsourcing, Work and Rest Time, and Termination of Employment (issued on February 2, 2021)  (“GR 35/2021”), in the event that an acquisition results in a change of working terms and conditions, employees may ask to discontinue their employment relationship with a company and the Company may carry out termination based on such request. In these circumstances, the employees will be entitled to a severance package of 0.5 x severance pay, 1 x service appreciation pay and compensation of entitlements. In other words, in accordance with GR 35/2021, employees may not request termination if the acquisition does not result in a change of working terms and conditions.

Non-permanent employees may refuse to continue their employment should the acquisition result in a change of working terms and conditions. If so, a non-permanent employee may leave the company without an obligation on the company to pay them compensation. On the other hand, if the new owners refuse to continue to employ non-permanent employees, the company may terminate the employment relationship but must compensate the employees in an amount equal to the salary of the employees as of the expiry of the term of their definite-term employment agreement, and to provide compensation pay as described in GR 35/2021. The calculation of the latter (compensation pay) will be in accordance with the completed period of the fixed-term employment agreement.

In general, the terms of employment are stipulated under the employment agreement, the Collective Labor Agreement (“CLA”), or the Company Regulation/Manual/Employee Handbook.

The employment agreement must be negotiated, made, and executed with the consent of both the company and the employee. Article 55 Labor Law stipulates that an employment agreement may not be revoked or amended unless by agreement of both parties.

The CLA exists if there is a labor union in the company, and the content of the CLA must be negotiated, made, and entered into by and between the company and the representatives of the labor union, registered with the relevant Manpower Office, and be valid for a maximum period of 2 years as of its execution. According to Article 125 of the Labor Law, amendments to the provisions of the CLA can be made at any time upon agreement of both the company and the labor union.

In the absence of a labor union in the company, the company may issue a Company Regulation, after considering the suggestions of the employees. The Company Regulation will be ratified by the relevant Manpower Office and is valid for 2 years as of ratification. Article 113 (1) of the Labor Law stipulates that amendments to the provisions of the Company Regulation before the expiry of the validity period of the Company Regulation can only be implemented by mutual agreement between the company and the employees’ representatives unless the amended provisions are better than the previous ones.

Based on the foregoing, it can be concluded that a company may not unilaterally change the terms of employment (except for the issuance of new a Company Regulation after the expiration of the previous one) without the consent and acknowledgment of the employees. If the company happens to unilaterally change the terms of employment without employee consent, the employees may challenge the change through the applicable industrial relations dispute settlement procedure as stipulated under the Labor Law and Law No. 2 of 2004 on Industrial Relations Dispute Settlement (the “Industrial Relations Law”), i.e., through a bipartite meeting, mediation process in the relevant Manpower Office, and court proceedings at the Industrial Relations Court and Supreme Court.

No. Indonesia is not an employment-at-will jurisdiction.

In principle, the prevailing Indonesian laws discourage employment termination. The provisions of the Labor Law require employers, employees, labor unions and the Indonesian Government to make every possible effort to avoid the termination of employment. If termination seems inevitable despite all of these efforts, it must be effected by following the rules and procedures prescribed by the Labor Law and the Industrial Relations Law.

Consistent with the above principle, employment termination may not be carried out unilaterally without giving a specific reason that has been stipulated in the Labor Law and the employer’s Company Regulation or CLA. To terminate employment, the employer must:

• refer to the predetermined termination causes under Labor Law, the employer’s Company Regulation or CLA, and/or the employment agreement of the employee concerned;
• serve Notification of Termination of Employment (Article 37 of GR 35/2021) in a notification letter and deliver it in a legal and appropriate manner to the employee and/or the union, at least 14 business days before the termination of employment;
• await a response to the Notice of Termination from the employee. Pursuant to GR 35/2021, after the employee receives a Notice of Termination, the employee has the chance to state his/her refusal to the termination by submitting a letter of refusal within 7 business days after the receipt of such notice;
• should there be a dispute on the termination of employment, the parties must follow the industrial relations dispute settlement procedure under the Industrial Relations Law; and
• seek approval from the relevant Industrial Relations Court or, in certain cases, the Supreme Court as well (as an appeal court).

Termination not mutually agreed by an employer and employee and/or made without the required court approval will be deemed null and void by operation of law. It is also important to note that the employer should not directly ask an employee to resign, as forced resignation is prohibited by law.

Specifically for those employed under a fixed-term employment agreement, Article 62 of the Labor Law stipulates that if the employer wishes to terminate the definite-term employment agreement earlier (before the expiry of the term of the definite-term employment agreement), the employer shall be obligated to compensate the employee in an amount that would equal the salary of the employee until the expiry of the term of the definite-term employment agreement. In addition, Article 17 of GR 35/2021 also requires the employer to provide compensation pay as described in GR 35/2021. The calculation of the latter shall be in accordance with the completed period of employment/agreement.

If the company happens to terminate an employee without cause, or wrongfully, the employee will have a maximum of 7 business days to refuse the termination by sending a letter of refusal to the company. Further, should termination of employment still be in dispute, the employee may challenge the validity of the termination through the industrial relations dispute settlement procedure as stipulated under the Labor Law and the Industrial Relations Law, i.e., through a bipartite meeting, mediation process at the relevant Manpower Office, and court proceedings at the relevant Industrial Relations Court and Supreme Court.

If an employee can prove before court judges that they have been terminated wrongfully and without valid grounds, the Court may order the company to:

• reinstate the employee to their previous position in the company; or
• pay severance package.

The Labor Law and its implementing regulations do not stipulate provisions on protection for whistleblowers.

The primary rule for the protection of witnesses in criminal proceedings, Law No. 13 of 2006 on Protection of Witnesses and Victims, as amended by Law No. 31 of 2014, stipulates that criminal sanctions can be imposed against any person causing a witness or their family to lose their job if the witness makes truthful statements during criminal proceedings. Based on the above provision, it can be concluded that an employee may not be terminated due to his position as a witness or whistleblower.

While Indonesia has enacted various laws relating to data privacy in several specific areas (e.g., banking and tax), currently, no specific and dedicated laws have been enacted on the protection of an employee’s privacy before, during, or after employment. The laws that may be applicable are Law No. 39 of 1999 on Human Rights (the “Human Rights Law”) and Law No. 11 of 2008, as amended several times with the latest amendment by Law No. 1 of 2024 on Electronic Information and Transactions (the “EIT Law”).

The Human Rights Law stipulates that each individual has the right to privacy and may not be subjected to an investigation without their agreement. Article 39 of the Human Rights Law provides that freedom and confidentiality of communication by letter or any other electronic media may not be disturbed or interrupted except at the instruction of a judge or other authority. Please note that this fundamental right is applicable to all individuals, regardless of their employment status.

Article 26 (1) of the EIT Law stipulates that, unless provided otherwise by relevant laws and regulations, the use of information through electronic media that involves an individual’s personal data must be made with the consent of the person concerned. Elucidation to Article 26 (1) of the EIT Law further stipulates that the protection of personal data is part of privacy rights that include the following definitions:

• the right to enjoy life as an individual, free from disturbance;
• the right to communicate without conversations being spied upon; and
• the right of access to information regarding an individual’s personal life or privacy.

In relation to the above, Government Regulation No. 71 of 2019 on Electronic Systems and Transaction Provision (“GR 71/2019”), as the implementing regulation of the EIT Law, stipulates that an operator of an electronic system who manages the personal data in an electronic system is subject to the following obligations, including that:

• The collection of personal data must be conducted in a limited and specific scope, lawfully, fairly, and under the acknowledgment and consent of the personal data owner;
• The processing of personal data must guarantee the personal data owner’s rights;
• The personal data processing process must protect the security of the personal data from loss, misuse, unauthorized access and disclosure, and change or destruction of personal data.

In principle, the collection, processing, storage, dissemination, change, and deletion of personal data must be at the express consent of the personal data owner.

Please note that GR 71/2019 defines personal data as any data on a person that is identified and/or identifiable, either separately or in combination with other information, either directly or indirectly, using an electronic or a non-electronic system.

Based on the foregoing, and given the broad interpretation of personal data, data or electronic documents related to employees may be considered as personal data. If an employee is using an employer’s electronic system facilities (e.g., e-mail, messaging platform, communication devices, and other communication or documentation system) during the course of their employment, the employer has the right to access information that is transmitted via such facilities, regardless of whether or not an employee’s personal data is involved.

The employer is entitled to access such information, as all employer’s electronic system facilities, including the information contained within, are considered the employer’s property and must be used for work-related purposes. However, the employer must notify this access to the employees, which can be stated in the employer’s company regulation, internal policy, or employment agreement. In such an instance, the employer is not required to obtain consent from the employees if personal data is to be accessed by an employer. Tambahkan Data Privacy Law ("UU PDP").

The Labor Law protects employees from discrimination in the workplace.

Article 5 of the Labor Law expressly provides that all persons qualified to perform a job have the same opportunity to be given that job without discrimination. The interpretation of Article 5 provides that all persons who are qualified to perform a job have the same right and opportunity to a decent job that is in line with their interests and capability, and to earn a decent living without being discriminated against on the grounds of sex, ethnicity, race, religion, or political orientation (including equal treatment of the disabled).

Article 6 of the Labor Law also provides that:

• all employees have the right to receive equal treatment without discrimination from their employer; and
• employers are under an obligation to provide employees with equal rights and responsibilities with no discrimination based on sex, ethnicity, race, religion, skin color, or political orientation.

In addition, Indonesia has also ratified, among others, the following ILO Conventions: No. 111 of 1958 on Discrimination in Employment and Occupation; and No. 80 of 1957 on Equal Remuneration for Male and Female Workers for Work of Equal Value.

We elaborate below the available days off, holidays, and leave as stipulated under the Labor Law:

• Weekly Day-off
  • The working hours according to the Labor Law are as follows:
    • 7 hours a day and 40 hours a week for 6 working days a week (“6 Working Day System”); or
    • 8 hours a day, 40 hours a week for 5 working days a week (“5 Working Day System”).
    • The employer must give 1 day off under the 6 Working Day System or 2 days off for the 5 Working Day System.
• Public Holiday
  • The employee is not obligated to work on official public holidays.
• Paid Leave
  • Annual Leave. The employer must give a minimum of 12 days of annual leave for an employee who has been working for 12 consecutive months;
  • Long Leave. The employer may create its own policy on long leave in the employment agreement, Company Regulations or CLA.
• Menstrual Leave
  • The employer must allow 2 days of menstrual leave for female employees, i.e., on her 1st and 2nd day of the menstrual period.
• Maternity Leave
  • The employer must allow 3 months of maternity leave for female employees, i.e., 1.5 months before giving birth and 1.5 months afterward;
• Leave due to Miscarriage
  • The employer shall give 1.5 months’ leave to a female employee who suffers from a miscarriage;
• Other paid leave in the following situations
  • if the employee is getting married, they are entitled to 3 days leave;
  • if the employee's child is getting married, they are entitled to 2 days leave;
  • if the employee's child is going to be circumcised or baptized, they are entitled to 2 days leave;
  • if the employee's wife is giving birth or has suffered a miscarriage, he shall be entitled to 2 days leave;
  • if the employee's spouse, parents, parents-in-law, children, or children-in-law pass away, they shall be entitled to 2 days leave;
  • if a member of the employee's household passes away, they shall be entitled to 1 day of leave.
• Pilgrimage Leave/Hajj Leave
  • The Labor Law does not explicitly refer to Pilgrimage Leave. However, the Labor Law states that an employee cannot be terminated if the employee cannot work due to practicing what is required by their religion (for example a Muslim performing the Hajj Pilgrimage).
  • According to Article 43 of Government Regulation No. 36 of 2021 on Wages, the employer is obliged to pay the employee’s salary while the employee makes their pilgrimage pursuant to their religion, provided that it is done once during the employment relationship with that employer. The period of Pilgrimage Leave is to be regulated under the Company Regulation or CLA.

Although the new law and its implementing regulation regarding work time (including annual leave) were issued recently by the enactment of Law No. 11 of 2020 on Job Creation Law and GR 35/2021, in general, the new law and its implementing regulation do not materially change employee leave benefits, and to the best of our knowledge, currently, there is no proposed legislation that will impact leave benefits.

Indonesian laws and regulations do not extensively and expressly stipulate provisions on restrictive covenants, either on non-competition, non-solicitation, anti-raiding, and confidentiality. The Labor Law does not prescribe whether such restrictive covenants could be inserted into an employment agreement, and, if so, what are reasonable restrictions as to geography, duration and scope of activity.

Notwithstanding the foregoing, in general, Indonesian law recognizes the principle of freedom of contract, which allows parties to a contract to agree on matters they wish to be bound by. This principle is codified by Article 1338 of the ICC. The matters that could be agreed upon under the freedom of contract principle must take into account the requirements regulated under the provision of Article 1337 of the ICC, which states that the contracting parties are free to include any provisions they wish into the contract, to the extent that such provisions do not contravene the law, as well as general principles or public order.

Based on Articles 1338 and 1337 of the ICC, the employer and employee should not be prevented from agreeing to include the restrictive covenants in their employment contracts, provided that such restrictive covenants do not contravene the law, general principles or public order.

If the company and the employee have agreed to incorporate such restrictive covenants in their employment agreement, the agreement must be valid, binding, and enforceable. Therefore, if the employee violates the restrictive covenants, the company will be entitled to initiate legal proceedings against the employee as well as to claim compensation for losses incurred by the company as a result of the employee’s alleged violation.

Even though the company, theoretically, is entitled to submit a claim against the employee for violation of the restrictive covenants, from a practical perspective, the company may not exercise its right to submit a claim unless the alleged violation of the restrictive covenants has interrupted the company’s business operation, causing major losses. This is if there are various aspects and issues that must be considered by a company before it decides to initiate legal proceedings against employees, including:

• To the best of our knowledge, there is only limited case law related to the validity and enforceability of restrictive covenants;
• The company’s claims might be dismissed by a court for, among others, violation of civil rights;
• Legal proceedings in Indonesia are costly and lengthy;
• The company is obligated to submit valid and sufficient evidence to support its claims, particularly related to the actual losses suffered; and
• The Court’s decision may not be enforceable against an employee.

Specifically, for a non-competition obligation, the legality of the obligation is generally stipulated under Article 1601 (x) of the ICC, which provides that an employer may restrict an employee from performing work in a certain manner after their employment with the employer has ended, by observing the following:

• The agreement is valid only if it is made in writing;
• The Court can nullify the entire agreement or part of it if a claim is made by an employee on grounds that, after comparing the interests of the employer to be protected and those of the employee, the employee has been unfairly disadvantaged by the agreement.

Article 1601 (x) further stipulates that the employer cannot enforce its rights under the written agreement if the employer ends the employment relationship:

• in a way that is in violation of the law;
• deliberately, or due to the employer’s fault has given urgent grounds for the employee to terminate his/her employment, or
• if the court, at the request or pursuant to a claim by the employee, has declared the employment agreement to be terminated for urgent reasons that were submitted by the employee and caused intentionally by or due to the actions of the employer.

As provided under Article 1601 (x), the employee may claim that they are unfairly disadvantaged due to a non-competition clause and consequently have the court nullify it. However, to the best of our knowledge, the parameters for “unfair disadvantage” suffered by an ex-employee that may result in the non-competition clause being nullified have yet to be tested in an Indonesian Court.

Some references also say that implementation of a non-competition clause for an employee could be or are deemed a violation of:

• Article 27 (2) of the Indonesian Constitution, which, in non-specific terms, guarantees every citizen the right to work and a decent livelihood;
• Article 31 of the Labor Law, provides that anyone available for a job shall have equal rights and opportunities to choose a job, be given a job, or move to another job and earn a decent income, irrespective of whether they are employed at home or abroad; and
• Article 38 (2) of the Human Rights Law, stipulates that anyone shall have the right to a free choice of employment and just and favorable conditions at work.

Nevertheless, to the best of our knowledge, the above notion also has not yet been tested in an Indonesian Court.

An employment relationship is basically a contractual arrangement between a company and an employee, and the terms and conditions of employment will apply based only on the agreement and consent of both the company and the employee. Therefore, the company may not force an employee to sign a restrictive covenant. An employee cannot be terminated, either, for refusing to sign a restrictive covenant.

The Indonesian government does not oblige employers to contribute to a private pension or retirement scheme, in addition to the government-mandated social security program as explained below.

According to Law No. 24 of 2011 on the Social Security Management Board (“BPJS Law”), employers in Indonesia are obligated to register their employees in:

• Manpower social security program, which is managed by the Social Security Management Board (“BPJS”) for Manpower; and
• Health security program, which is managed by BPJS for Health

The manpower social security program consists of 4 programs, as follows:

• Work Accidental Security 0.24% to 1.74% (Paid by Employer) (The percentage is different for each line of business. Businesses with higher risk need to contribute higher)
• Death Security 0.3% (paid by employer)
• Old-Age Security 3.7% (employer), 2% (employee)
• Pension Security (Jaminan Pensiun) 2% (employer), 1% (employee)
• Job Loss Security (sourced from the Government  and benefits  of Occupational Accident Security (0.14%) and Death Security (0.1%))*

Specifically, for the pension security program, the government annually determines the maximum monthly salary to calculate the pension security contribution. In February 2024, the amount was Rp9,559,600 (approximately USD 610). This salary cap may be amended from time to time by the government. Please note that expatriates are not required to be registered with the pension security program.

*The employer and employee are not obliged to pay an additional amount for the Job Loss Security benefit. The total payment is still the same as the existing amount; however, part of the Occupational Accident Security and Death Security will be allocated to the Job Loss Security benefit.

The Labor Law stipulates that employees are entitled to receive income sufficient to enable them to earn a decent living. Therefore, employers are obligated to pay a wage that at least equals the minimum wage stipulated by the government. Wages must include basic salary and monthly allowances. The minimum wage may be paid to first-year employees only.

The Labor Law does not specify the type of monthly allowance or benefit that must be provided by employers to their employees. It is therefore subject to agreement between employers and employees in the employment agreement, CLA, or the Company Regulation.

Apart from monthly wages received by employees, under Indonesian Labor Law,  employers must pay the Religious Holiday Allowance ("THR") to employees who have worked for at least 1 continuous month at the time of the relevant religious day. If the employee has been working for 12 consecutive months or more, they are entitled to receive a minimum THR of 1 month’s salary. For an employee who has worked for less than 12 consecutive months, THR is paid pro-rata.

Employees are also entitled to retirement benefits from the manpower social security program and medical benefits from the health security program managed by BPJS.

The Labor Law does not stipulate comprehensively on retirement-related matters, including provisions on mandatory retirement age.

The determination of the retirement age of an employee is subject to mutual agreement between the employer and the employee as stipulated in the employment agreement, the Company Regulation or the CLA. When an employee approaches retirement age, the employer must issue a notice of termination, stating both the intention and reason for termination (retirement). The employer may add information on how the severance package has been calculated in the same notice. It must be served in writing at least 14 business days before the termination date.

The Labor Law is silent on procedures and requirements for employees who are beyond retirement age. Nevertheless, if the pension age is already set out in an employment agreement, Company Regulations, and/or CLA, the plan to cease pension must be agreed upon by the employees concerned. 

If a company wishes to continue employment, 3 options are open to it:

1. Continue employment and incorporate the new retirement age in the employment agreement;
2. Terminate the employee and re-hire the person under a fresh employment agreement, which stipulates a new retirement age; or
3. Terminate the employee but re-hire them as an expert under a service agreement.

In option (a), the company will continue to fulfill its obligations as an employer, including but not limited to an obligation to pay the salary, allowances, and benefits (insurance, health care, etc.) of the employee as if the employee had not yet reached retirement age. The company will pay pension benefits when the employee reaches the new retirement age as stipulated in the amended employment agreement.

In option (b), the employment relationship between the company and the employee will expire when the employee reaches retirement age;  the company will pay pension benefits to the employee. The company and employee will also sign a new employment agreement, under which the company and employee will mutually agree on the employee’s work terms and conditions, including but not limited to salary, allowances, benefits (insurance, health care, etc.) and new retirement age.

In option (c), the employment relationship between the company and the employee will expire when the employee reaches retirement age; the company will therefore pay pension benefits to the employee. The company and employee will sign a service agreement, under which the person is hired as an expert (not an employee). The expert will be entitled to receive a service fee in an amount mutually agreed upon by the company and the expert. Additional benefits may be agreed upon as part of the service agreement.

The prevailing laws and regulations are silent on this matter.  To date, the Government has not yet issued a regulation that makes the COVID-19 vaccine mandatory for its citizens.

However, if we view the issue from the point of view of Occupational Health and Safety (Kesehatan dan Keselamatan Kerja, “K3”), the employer may argue that it has the right to discipline an employee who refuses to be vaccinated. Under the Labour Law, the employer is under an obligation to keep the working environment safe for all of its employees. Therefore, if the employer is permitted by the Government to determine that a COVID-19 vaccination is a requirement for the implementation of its internal K3 policy, the employer can make the COVID-19 vaccine mandatory. This would include the imposition of sanctions on employees who refuse to be vaccinated.

Further, in relation to termination of employment, please note that immediate termination is not permitted under Indonesian Labor Law. Termination due, for example, to poor work performance or a violation of policy (including K3 policy) will have to be dealt with first by issuing up to 3 written warnings to the employee concerned.

Each warning will expire after 6 months unless otherwise stated in the employment agreement, company regulations, or collective labor agreement.

In some cases, written warnings do not have to be issued in 3 consecutive stages, depending on the provisions violated as stipulated in the employment agreement, company regulations, or collective labor agreement.

An employee terminated for this reason will be entitled to a specified severance package.

Since Indonesia is currently not under COVID-19 restriction, an employer can require employees to return to work in the office, unless there is an internal policy, employment agreement, Company Regulations, and/or CLA that regulates otherwise.

Under the Labor Law and GR 35/2021 (defined in the attached update), the employer may terminate an employee if: 1) they have been absent from work for 5 consecutive business days or more 2) without submitting in writing an explanation of the absence from work, 3) accompanied by valid evidence, and 4) the employer has properly summoned the employee twice in writing over their absence.

As a result of termination by the employer, the employer is required to provide compensation pay as specified in the Labor Law, if the employee is under a fixed-term contract, or separation pay if an indefinite-term contract, in an amount set out under the employment agreement, Company Regulations or Collective Labor Agreement.

We understand that many Indonesian employers apply hybrid working arrangements. If the change to the hybrid working arrangements was made into an employment agreement, Company Regulations, and/or CLA, both parties must abide by such arrangements, unless amended otherwise by the parties.