Updated Journey of the Job Creation Law

Brief Overview of Omnibus Law

The former President envisioned creating a decent life for the people of Indonesia through job creation. To achieve this goal, some regulations must be adjusted to improve ease of doing business, protect and empower micro, small, and medium-sized enterprises (MSMEs or UMKM in Indonesian), enhance the investment ecosystem, accelerate national strategic projects, and strengthen worker protection and welfare. For the first time, the government took significant steps to synchronize various issues across multiple laws into a single comprehensive law known as the Omnibus Law.

The Omnibus Law is a legislative method that involves amending, adding, and deleting certain provisions to consolidate them into one cohesive legal framework. The process of enacting an omnibus law is similar to that of passing any other law; it requires approval from both the President of Indonesia and the House of Representatives. In Indonesia, the Omnibus Law is embodied in Law Number 11 of 2020 concerning Job Creation ("Law No. 11/2020").

Updated Journey of the Law Number 11 of 2020 concerning on Job Creation

The Omnibus Law on Job Creation (UU Cipta Kerja) was enacted on November 2, 2020. After its introduction, this Law brought controversial issues, particularly for laborers, relating to compensation for termination, and more. This law garnered significant attention, especially from labor unions and other segments of society, who protested and urged the government to revoke it through demonstrations.

1. Revocation by Constitutional Court Decision (91/PUU-XVIII/2020)

Following the enactment of Law No. 11/2020, various individuals, NGOs, and indigenous communities filed for a judicial review of the law with the Constitutional Court. On November 25, 2021, the Court ruled that:

• The process of forming Law No. 11/2020 contradicted the 1945 Constitution and would be deemed legally invalid if not revised within two years from the decision.
• Law No. 11/2020 would remain effective during the revision period.
• The government was ordered to implement the required revisions within two years from the decision date.

2. Issuance of PERPU 2/2022 

In response to the Constitutional Court’s decision, the government passed Law No.  3 of 2022, amending Law No. 12 of 2011 on the Formation of Laws and Regulations. This amendment formalized the use of the omnibus method in lawmaking. Additionally, it emphasized "meaningful participation," ensuring that the public had the right to be heard, considered, and given explanations. To address the urgency of revisions and prevent a legal vacuum, the President issued Government Regulation in Lieu of Law No. 2 of 2022 (PERPU 2/2022) on December 30, 2022. This regulation aimed to:

• Comply with the Constitutional Court’s decision.
• Foster job creation through strategic investment policies.
• Address the threat of a global recession.

Upon enactment, PERPU 2/2022 revoked Law No. 11/2020, making the latter legally invalid.

3. Transition from PERPU 2/2022 to Law No. 6/2023

According to Law No. 12/2011, a PERPU must be submitted to the House of Representatives for approval in the next session. PERPU 2/2022 was ratified on March 31, 2023, as Law No. 6 of 2023 on Stipulation of Government Regulation in Lieu of Law No. 2 of 2022 on Job Creation to become Law. From that point onward, Law No. 6/2023 replaced PERPU 2/2022 as the legally binding regulation on job creation.

• Key considerations for business for the transition into Law No. 6/2023:
• Business permits and certificates issued under Law No. 11/2020 remain valid until expiration.
• Permits and certificates issued by the Central and Regional Governments before the enactment of Law No. 11/2020 will remain valid until their expiration.
• Business entities established under Law No. 11/2020 remain valid until the end of their term.
• The provisions of Law No. 6/2023 will govern business permits currently in process.
• Legal actions undertaken by the Central and Regional Governments based on Law No. 11/2020 remain legitimate, provided they adhere to good governance principles.

This evolving legal framework reflects the Indonesian government’s efforts to balance constitutional requirements, job creation, and economic stability amidst global challenges.

4. Amendment by Constitutional Court Decision

 Referring to Constitutional Court Decision No. 168/PUU-XXI/2023, which was decided on October 31, 2024, the following are important notes or highlights for stakeholders regarding Law No. 6/2023:

• Use of Foreign Workers

o   The authority, previously regulated by the Government, has been specifically transferred to the Minister of Manpower as the institution authorized to approve plans for using foreign workers.

o   The principle of using foreign workers still prioritizes using Indonesian workers over foreign workers.

• Fixed-Term Employment Agreement (PKWT)

o   It is emphasized that the duration or completion of work in a Fixed-Term Employment Agreement (PKWT) should not exceed a maximum of 5 (five) years, including extensions.

o   Previously, PKWT could be made verbally or in writing. This decision stipulates that PKWT must be written using the Indonesian language and Latin letters.

o   The authority, previously regulated by the Government, has now been specifically transferred to the Minister of Manpower, who determines the implementation of work according to the type and field of expertise outlined in the Written Outsourcing Agreement.

• Rest Time and Leave

o   An additional rest time is now mandated: not only 1 (one) day for a 6 (six)-day workweek, but also the possibility of 2 (two) days for a 5 (five)-day workweek.

o   Certain companies must provide extended rest periods, as regulated in the Employment Agreement, Company Regulations, and/or Collective Labor Agreement.

• Workers' Right to Fair Wages and Livelihood

o   The definition of workers' right to a fair livelihood, as part of human dignity, is emphasized, expanding the meaning of fulfilling reasonable living needs, which includes food, drink, clothing, housing, education, healthcare, recreation, and pension security.

o   Wage policy-setting must involve regional wage boards and local government elements as considerations for the central government.

o   The wage calculation formula must consider variables such as economic growth, inflation, and certain indices, which represent the contribution of labor. Governors are required to set minimum sectoral wages for provincial and regency/municipality levels.

• Workers' Rights in Bankruptcy and Industrial Relations Dispute Resolution

o   Other rights (aside from wages), such as severance pay, must be prioritized over all creditors, including preferred creditors, except for creditors with secured collateral.

o   The principle of prioritizing deliberation to reach a consensus in negotiations for the termination of employment between Employers and Workers/Unions must be upheld.

o   If no agreement is reached, termination of employment can only occur after obtaining a decision from an industrial relations dispute resolution institution with legal force.

The updated implications of this Constitutional Court decision are key points for the government, the Minister of Manpower, dispute resolution institutions, employers, and trade unions/workers' unions to understand and adapt to these changes.Employers are encouraged to review and make adjustments to their policies or labor regulations in light of these new provisions.

Author: Meilisa Husein (meilisa@fknk.co.id) & Aldo Rahmandana (aldo@fknk.co.id)