The Constitutional Court Decision on Manpower Provisions under the Job Creation Law

On 31 October 2024, after a lengthy court case, the Constitutional Court of the Republic of Indonesia issued Decision No. 168/PUU-XXI/2023 (‘Court Decision’) on the judicial review of the Job Creation Law, particularly in relation to the manpower provisions (‘Manpower Law’).

Key Points of the Court Decision

The Constitutional Court has found that certain provisions of the Manpower Law are conditionally unconstitutional. This means that these provisions remain valid as long as they are interpreted in line with the Court Decision.

Additionally, the Constitution Court believes that the legislator must immediately draft a new Manpower Law and separate the Manpower Law from the Job Creation Law.

Here are the key points of the Court Decision that are relevant for employers and their interpretation.

Subject	Manpower Law	Interpretation under Court Decision
Employment of Foreign Workers	Foreign employees can only be employed in Indonesia for certain positions and for certain periods of time and must have the skills required for the position to be filled.	Foreign employees can only be employed in Indonesia for certain positions and for certain periods of time and must have the skills required for the position to be filled, with priority being given to the employment of Indonesian workers.
Definite Term Employment Agreement	The time period for completing a specific job under a fixed-term employment contract is determined on the basis of the employment contract.	The duration of the completion of a specific work under a fixed-term employment contract may not exceed 5 years, including any extension.
Outsourcing	The government determines the implementation of outsourcing.	The Minister of Manpower shall determine the implementation of the outsourcing based on the ‘types and areas’ of outsourcing work that have been agreed in a written outsourcing agreement.
Rest Day	Employees are entitled to one day of rest for every six working days.	Employees are entitled to one day of rest for every 6 working days or 2 days of rest for every 5 working days.
Leaves	In addition to the legally required rest days and vacation time, certain employers may be able to grant longer breaks, as specified in the employment contract, company regulations or collective agreement.	n/a Note: The decision strikes down the word *‘may’* as unconstitutional and thus it is not legally binding. However, there is no revised provision or interpretation.
Wages and Minimum Wages	Wages above the minimum wage are determined on the basis of an agreement between the employer and employees.	Wages above the minimum wage are determined on the basis of an agreement between the employer and the employees or the labor/worker union in the company.
Minimum Sectoral Wage	The sectoral minimum wage was not specified in the Jobs Act.	The Constitutional Court reintroduces the sectoral minimum wage for employees in certain sectors that involve significant risk and require special skills.
Periodic Wage Review	Employers conduct periodic wage reviews, taking into account the skills and productivity of their employees.	Employers are required to determine the structure and level of wages, taking into account their skills and productivity, as well as their class, position, length of service, education and skills.
Employment Termination due to Bankruptcy or Liquidation	If an employer is declared bankrupt or dissolved, all outstanding wages and other employee claims are paid as a priority. In addition, employees' rights take precedence over all creditors, except secured creditors.	If an employer is declared insolvent or is liquidated, all outstanding wages and other claims of employees are paid with priority. Furthermore, employees' rights take precedence over all creditors, including preferred creditors, except secured creditors.
Rejection to the Employment Termination	If an employee has been notified of the termination of their employment and has rejected it, the settlement of the termination of the employment relationship must take place in bilateral negotiations between the employer and the employee and the labor/worker union.	In the event that an employee has been notified of the termination of their employment and has refused it, the settlement of the termination of the employment relationship by amicable bilateral negotiations to reach a consensus between the employer and the employee and the labor/worker union.
	If the above bilateral negotiations fail, the termination of the employment relationship in the next phase will be carried out in accordance with the mechanism for resolving disputes in the context of labor relations.	If amicable bilateral negotiations to reach a consensus as mentioned above fail, the termination of the employment relationship may only take place after a legally binding determination by the Industrial Relations Dispute Settlement institution has been obtained.
Obligations during Dispute	Both the employer and the employee must fulfil their obligations during an industrial dispute until the end of the dispute resolution procedure at each of the stages.	Both the employer and the employee must continue to fulfil their obligations during an industrial dispute until the conciliation process is concluded and has permanent legal effect, in accordance with the Industrial Relations Dispute Settlement law.
Severance Pay	In the event of termination of the employment relationship, the employer is obliged to pay severance pay, compensation for long-term service and any compensation due. Severance pay is calculated on the basis of the conditions set out in the Labor Code.	The calculation of severance pay is to be interpreted as meaning ‘at least’.

As outlined here, the Court interprets the existing Manpower Law provisions mainly to clarify and redefine them, while also introducing new standards in certain areas. These changes aim to enhance legal clarity and ensure fairer treatment and rights for employees.

Employers are expected to proactively align their policies with these new requirements, to observe and implement them accordingly to maintain compliance and promote balanced workplace relations.

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The Constitutional Court Decision on Manpower Provisions under the Job Creation Law

​Key Points of the Court Decision

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Key Points of the Court Decision