1. Background
The President of the Republic of Indonesia declared COVID-19 as a national disaster pursuant to Presidential Decree No. 12 of 2020 on the Determination of the Outbreak of Corona Virus Disease 2019 (COVID-19) as a Non Natural National Disaster ("National Disaster Decree"). Under the National Disaster Decree, the central and regional governments are mandated to take various measures to mitigate the spread of COVID-19.
Following the enactment of the National Disaster Decree on 13 April 2020, relevant government bodies (both at the central and regional level) have taken various public measures, including, amongst others, enforcement of the Large Scale Social Restrictions (Pembatasan Sosial Berskala Besar or "PSBB") and travel bans. These public measures have inevitably affected companies and businesses in Indonesia.
The significant economic impact due to the cessation of business operations by these businesses has forced employers to implement cost saving measures in order to ensure the sustainability of their business. In this client alert, we will discuss the regulatory and practical aspects of manpower related issues arising from the current exceptional circumstances.
2. Key Employment-related Issues Faced by Employers
Currently, the business continuity of companies in various sectors is severely affected in many ways, with one of the major issues they face being how to handle their workforce. We consider below several important employment issues that need to be managed by employers.
Health and safety
In the short term, companies must undertake all measures required by relevant authorities in order to protect their employees' health and safety. Work from home schemes, alternate/reduced work period arrangements, physical distancing procedures and travel restrictions are the top priorities. At present, public health and safety must remain the first priority.
Pursuant to Minister of Manpower Circular Letter No. M/3/HK.04/111/2020 dated 17 March 2020 on the Protection of Employees/Workers and Business Continuity in the Prevention and Countermeasures of COVID-19 ("MOM Circular 3/2020"), employers are required to:
-
conduct guidance and supervision of work health safety measures in accordance with the prevailing laws and regulations;
-
provide relevant information on COVID-19 within the organization;
-
report to the relevant government authorities on any COVID-19 case and suspected case within the organization;
-
implement measures to prevent the spread of COVID-19 infections within the organization;
-
handle any actual or suspected cases of COVID-19 within the organization in accordance with standard procedures from the Ministry of Health.
Cost saving measures
MOM Circular 3/2020 stipulates that employers must pay the salary of employees who are suspected of infection or infected with COVID-19. Further, MOM Circular 3/2020 also provides that any change to the salary amount or salary payment method of employees is to be agreed between the employer and each employee. Consistent with this overarching principle, the followings are several cost saving measures that can be implemented by employers. Suffice to say, it is imperative that employers communicate them properly with the employees (including giving the employees time to consider any of the following measures, as may be necessary):
(a) Directing employees to take annual leave
Pursuant to Law No. 13 of 2003 on Manpower ("Manpower Law"), annual leave is an employee's statutory entitlement, hence employers will not be able to enforce unilaterally the taking of annual leave.
In order to anticipate potential issues in the future, as well as to manage business continuity once the situation is normalized, it is advisable for employers to encourage their employees to take some annual leave days even though they are working from home. This should facilitate the allocation of appropriate workforce to the task of recovery in the later stages of 2020 (e.g. Q3 or Q4) when the COVID-19 situation has subsided.
(b) Directing employees to take unpaid leave
The concept of unpaid leave is basically a derivative of the "no work no pay" principle. Employers would be able to reduce operational costs significantly if employees agree to take unpaid leave during this PSBB period.
However, as with the taking of annual leave discussed in (a) above, employers cannot unilaterally direct their employees to take unpaid leave.
(c) Salary reduction
Based on MOM Circular 3/2020, companies which have been limiting or reducing their business activities resulting in some or all of their employees not being able to work may seek agreement from employees to make changes to the salary amount or salary payment method in order to facilitate business continuity. Again, this process requires an agreement between the employer and the employees.
(d) Deferring salary payment
Another possible solution is to defer employees' salary payment. Employers may propose to their employees that they not be paid in full during the PSBB period. However any outstanding amount must then be paid to the employees when the company is back to normal operation.
It is advisable to obtain written agreement from all employees for the implementation of any of the above cost saving measures in order to avoid any claims in the future.
Postponement of new expatriate recruits
According to the Minister of Law and Human Rights’ Regulation No. 11 of 2020 on the Temporary Restriction of Foreigners to Enter the Territory of the Republic of Indonesia ("MOLHR Regulation 11/2020"), the Government of Indonesia has temporarily restricted the entry of foreigners into Indonesian territory. There are several exceptions to this restriction, such as foreigners who hold a Limited Stay Permit or Permanent Stay Permit and foreigners who work on national strategic projects. However please note that all foreigners entering Indonesia are required to be quarantined for 14 days upon their arrival. The MOHLR Regulation 11/2020 is further implemented by the Directorate General of Immigration Circular Letter No. IMI-GR.01.01-2493 dated 6 May 2020 which stipulates the procedures for renewal of expiring immigration permits during this PSBB period (e.g. for the purpose of family reunion, and for expatriate workers and investors).
Following MOLHR Regulation 11/2020, the Ministry of Manpower has issued MOM Circular Letter No. M/4/HK.04/IV/2020 dated 8 April 2020 on the Services for the Utilization of Foreign Workers to Prevent the Entry of Corona Virus (COVID-19) ("MOM Circular 4/2020"), which temporarily suspends new permit applications to utilize foreign workers. The temporary suspension will however not be imposed on foreigners who work on national strategic projects and foreigners that are still domiciled in Indonesia.
For foreign workers who are already employed and currently based in Indonesia but unable to go back to their countries of origin due to a lockdown policy, their permits may be extended.
Employers who are planning to employ foreign workers or already have certain employment arrangements with foreign workers must take into account this current policy.
Measures for the aftermath
Lastly, employers should put in place employment plans to be implemented when the COVID-19 outbreak has subsided. Business sustainability and each company’s reputation are key considerations. These measures might include managing the process of the employees' return to work, business recovery, business restructuring, and possible scaling down of operations.
In this section, we will discuss particularly the scaling down of businesses involving employment termination. The Manpower Law sets out a very limited set of prescribed circumstances in which termination of employment is permitted. As a reminder, termination will require the employers to (i) try to obtain the agreement of the employee, and (ii) failing that, obtain a determination from the Industrial Relations Court. In addition, any employees terminated will be entitled to severance package payments that will be calculated based on the number of years of service.
If a worker's employment is terminated without following the process set out in the Manpower Law, then the termination will be void. In these circumstances the employer would be required to re-engage the individual and pay all wages and entitlements that the employee would have received, as the termination has in effect never occurred.
We set out below several possible employment termination scenarios which may apply in the current COVID-19 situation:
(a) Termination of employment due to force majeure
In this scheme, there are two main issues that will arise, namely closing down of the enterprise and the definition of force majeure.
Generally, for force majeure to exist the Indonesian Civil Code requires several elements (i) an unforeseen event, (ii)which is not within the party's control, (iii) which affects the ability of the party to fulfil its obligations, and (iv) is not due to the party’s own bad faith. The relevant industrial relations court will assess whether there is indeed an occurrence of force majeure.
Along with the "force majeure" aspect, the court will also consider whether there has been a closure of the enterprise. Please note however that Indonesian jurisprudence does not bind an adjudicating judge to take a similar approach. Perhaps also useful is to note that some legal commentators take the view that closing down of a division or unit is deemed as sufficient to fulfil the "closing down of enterprise" aspect, even though there is no actual closing down of the legal entity.
If an employee is terminated due to force majeure, the employee is entitled to 1x severance pay, 1x long service pay, and 1x entitlement compensation.
The termination benefits under the Manpower Law can be summarised as follows:
|
Severance Pay
|
|
|
Long Service Pay
|
-
generally payable after three years of service;
-
between two and ten months' salary, depending on service.
|
|
Entitlement Compensation
|
-
accrued but untaken annual leave;
-
costs for the transportation of the employee and his or her family back to the location of hire;
-
if the employee qualifies for long service pay, a payment equal to 15% of the severance payment and long service payment, as housing and medical compensation;
-
any other contractual compensation provided in the relevant employment documents.
|
(b) Termination of Employment due to Efficiency
The Manpower Law provides a legal basis for employers to terminate employment where the enterprise has closed down due to efficiency considerations. The term "efficiency" is not defined in the Manpower Law but it does not refer to the efficiency of the individual employee. Rather it is generally understood to be equivalent to the term "redundancy", i.e., where there is a business necessity to reduce headcount. Given that the ability to terminate employment for rationalisation exists only where an enterprise is being closed down, it arguably cannot be relied on for a business restructuring or for general cost reductions. Nonetheless, we understand that the requirement of "closing down of enterprise" is sometimes interpreted differently by various regional offices of the Ministry of Manpower.
Note also that the discussion above on possible court attitudes to "closing down of enterprise" also applies here.
If an employee is terminated due to “efficiency”, the employee is entitled to 2x severance pay, 1x long service pay, and 1x entitlement compensation.
(c) Termination of fixed term contracts
Fixed-term employees are not entitled to the severance benefits described above. Generally, the termination of a fixed-term employment contract before its expiry will require the employer to pay the employee the amount that the employee would have received until the expiry of the contract.
Further, the Manpower Law stipulates that foreigners cannot be employed on a permanent basis and are therefore treated as fixed-term employees for the purposes of determining termination and severance benefits.
This publication is a brief regulatory update which contains information which is current as at the date it is issued. This is not intended and should not be taken as legal advice or opinion. No action should be taken in reliance of information contained in this publication without first seeking professional legal advice.
Authors: Ratih Nawangsari, Partner; Prawidha Murti, Partner; and Norman Ibnuaji, Senior Associate.
