Indonesian Constitutional Court orders rectification of the Job Creation Law

published on 3 December 2021 | reading time approx. 2 minutes

The Law No. 11 of 2020 on Job Creation (“Job Creation Law”) – also commonly referred to as the “Omnibus Law” – has been subject to a judicial review by the Constitutional Court of the Republic of Indonesia (Mahkamah Konstitusi or “MK”) since late 2020. Through the decision No. 91/PUU-XVIII/2020 (“Decision 91”), dated 25 November 2021, MK has declared the Job Creation Law to be “conditionally unconstitutional” which means the enactment of the Job Creation Law was not fully compliant with the constitution of the Republic of Indonesia (the “Constitution”) and therefore needs to be rectified.

In its consideration for the Decision 91, MK holds the view that the omnibus format (ie. issuing one law to amend several existing laws) adopted by the Job Creation Law is inconsistent with the prevailing law on the formation of laws and regulations, as such law does not recognize the omnibus format. The fact that there are substantial differences between the bill (draft) of the Job Creation Law and the enacted law also contributes to the imposition of the “conditionally unconstitutional” status to the Job Creation Law.

In light of the above, the Decision 91 renders the following:

to declare that the formation of the Job Creation Law contradicts with the Constitution and will have no legal binding power if it is not rectified within the period of two (2) years as of the date of the Decision 91;
to declare that the Job Creation Law shall remain valid until the above rectification is made within the period of two (2) years;
to order the lawmakers to rectify the Job Creation Law within 2 (two) years, as otherwise the Job Creation Law shall become permanently unconstitutional;
to declare that, in the event the rectifications were not made within the prescribed timeline, any and all articles or provisions of laws revoked or amended by the Job Creation Law will be reinstated; and
to declare the suspension of all strategic and broad-impact actions/policies, and to restrict the issuance of new implementing regulations in relation to the Job Creation Law.

Our Conclusion on the decision and its impact on investments in the country

The above decisions may give rise to practical risks, as to date the implementation of the Job Creation Law remains a work-in-progress. Since there are some technical implementing regulations that still need to be issued by the ministries in charge as a result of the enactment of the Job Creation Law, the restriction to issue new implementing regulations imposed by Decision 91 might lead to the current uncertainty caused by the absence of relevant technical implementing regulations to persist, which may also catalyze disruptions in the licensing process.

The Indonesian Government has made a significant step into the right direction opening the country more for foreign investments. Current and future investors are concerned that the decision at hand might put their investment at jeopardy. The Government has already announced to address the decision in due course, and it can be expected that this is handled with priority to reduce concerns at hand. Following the intention to open the country more to foreign investors it can be expected that the legislative is working with the judicative to solve the latter’s concerns related to the enacted laws.

Rödl & Partner will closely monitor the situation and provide updates on the status on a regular basis.