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Asia employment law bulletin 2020

Indonesia

“Disrupting” existing employment laws and regulations with the Omnibus Law on Job Creation

As President Joko Widodo enters into his second term, the Indonesian government continues to propose new measures in an effort to improve the investment climate in Indonesia and in particular, encourage foreign investment. Such new measures include reforming various provisions of the Employment Law and its related regulations, which notoriously favour employees’ interests over employers’. One significant initiative is a raft of legislative changes in the form of a much heralded “omnibus law” bill that is intended to integrate, streamline and amend the Employment Law and its related regulations. 

The government has stated that it will introduce an omnibus law bill specifically to encourage job creation (Omnibus Law), with the expectation that it will boost Indonesia’s employment market, raise its ranking on the 2020 Global Competitiveness Index (GCI) and make it easier to do business in Indonesia.

Details of the Omnibus Law bill were discussed in depth throughout 2019, with the government expressing its intention to pass it into law in 2020. Although a draft of the bill has not yet been released for public discussion and so the final impact of the bill is uncertain, employers in Indonesia should be aware of the potential wide-reaching changes the Omnibus Law may introduce. The government’s stated goals for the new law are to simplify the regulations and improve bureaucratic efficiency in the employment process.  Media reports indicate that, through the Omnibus Law, the government seeks to cut red tape and eliminate overlapping laws and regulations that have placed a burden on foreign investors, thereby hindering job creation.

To implement its stated goals, the government has announced that the Omnibus Law will simplify a great number of laws and provisions on employment-related issues, with the underlying principle of introducing “easy hiring and easy firing” to Indonesia. The main reforms mentioned by the government include simplifying expatriate work permits as well as the statutory procedures relating to many employment matters and setting wages. Other possible amendments introduced by the new law include changes in relation to outsourcing, issues concerning foreign workers, severance pay, working hours, minimum pay and penalties.  Unfortunately, no details are yet available on the substance of such amendments, so at this stage we are unable to say whether they will have substantial impact on job creation or are mainly cosmetic.

The Omnibus Law bill is currently being discussed by the stakeholders, including the government, labour unions, the Employers’ Association of Indonesia (APINDO) and Indonesian employment legal consultants (HKHKI).  In addition, the government has recently formed a task force for public consultation on omnibus laws (Task Force).  Following public consultation, the Task Force must report to the Ministry of Economic Coordinator on its findings.  It is not clear if any public consultations or reports have been carried out or been drafted in relation to the Omnibus Law or, if reports have been drafted, whether they will ever be made publicly available.

Although the government has expressed its intention for the proposed Omnibus Law to be completed and submitted to the legislature in January 2020, we will need to wait and see if the government’s intention becomes a reality. Unfortunately, based on past experience, the timeframe for the passage of a bill into law in Indonesia is unpredictable, the Omnibus Law being no exception.  With this estimated timeframe for completion of the bill in mind, it is important for the government to give details of the proposed changes to the public so that employers in Indonesia will be able to anticipate and adjust to the key changes and enable a smooth transition once the Omnibus Law is eventually passed.

Retno Muljosantoso, Soemadipradja & Taher

Robert Reid, Soemadipradja & Taher

Dimas Koencoro Noegroho, Soemadipradja & Taher

Aveninta Maria Rosalin, Soemadipradja & Taher