Mitigating employment issues during the COVID-19 pandemic situation

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.

(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.