Constitutional Court Decision No. 168/PUU-XXI/2023: A Game Changer in Employment Law

Constitutional Court Decision No. 168/PUU-XXI/2023 (“Decision 168/2023”) marks an important development in Indonesia’s employment law, introducing clarifications and reaffirmations to key provisions under the Law Number 6 of 2023 on the Stipulation of Government Regulation in Lieu of Law Number 2 of 2022 on Job Creation to Become Law (“Employment Law”). It addresses critical aspects such as fixed-term employment contract (“PKWT”), prioritization of local employees over foreign hires, termination procedures, and language requirements for contracts. Notably, the decision mandates that terminations take effect only after final judicial rulings, altering employer strategies. Employers must proactively align policies with this clarified legal framework to ensure compliance and foster balanced workplace relations while safeguarding operational continuity. This decision signifies a significant stride towards equitable employee rights and enhanced legal clarity.

Decision 168/2023 represents a landmark shift in Indonesia’s employment legal framework, particularly in relation to Law Number 13 of 2003 on Employment as most recently amended by Employment Law. This decision is not just another judicial review, but a pivotal ruling that introduces critical changes while also reaffirming and refining long-standing provisions. It promises to have a lasting impact on both employers and employees, creating ripples across the country’s manpower market.

While the Constitutional Court have tackled numerous issues, there are several key highlights that deserve special attention due to their potential to significantly influence employment relations. These highlights are listed below:

Constitutional Court Decision No. 168

Employment Contract

Decision 168/2023 reaffirms the maximum period of a PKWT in Article 56 paragraph (3) of the Employment Law, which is 5 years including any contract extensions. Previously, this provision was clearly stated in the Employment Law and only regulated in Article 8 paragraph (1) of the Government Regulation Number 35 of 2021 on Fixed-Term Employment Contract, Outsourcing, Working Hours and Breaks and Termination of Employment Relationships. In fact, Decision 168/2023 does not introduce a change but aligns with the longstanding interpretation of the provision, further clarifying its legal position.

Moving forward, employers should review and update their PKWT to ensure compliance with these clarified requirements. By proactively aligning their employment contracts with this legal clarification, businesses can mitigate risks of non-compliance and maintain robust employee relations.

Foreign Employees

Decision 168/2023 reemphasizes the importance of relevant skills held by foreign employees and the prioritization of local employees as set in Article 42 paragraph (4) of the Employment Law, ensuring that local employees remain the primary choice in every employment opportunity. It should be noted that certain positions remain subject to Decree of the Minister of Manpower Number 349 of 2019 on Certain Positions Prohibited for Foreign Employees (“MoM Decree 349/2019”), which regulates certain positions prohibited for foreign employees.

On the other hand, the standards and limits for prioritizing the use of local employees are not yet comprehensively detailed, leaving implementation to depend significantly on how the process unfolds, particularly in managing the required permits.

Consequently, employers should carefully reassess the relevance of the roles and skills of all foreign employees. This includes ensuring that any foreign hires comply with the specific positions outlined in MoM Decree 349/2019 and that the necessary permits are obtained in accordance with prevailing regulations.

Constitutional Court Decision No. 168

Read More: Employment Contract

Termination of Employment Relationship

Decision 168/2023 reiterates the spirit of mutual agreement in bipartite negotiations between employers and employees and/or labor unions should an employee object to termination of employment, as stipulated in Article 151 paragraph (3) of the Employment Law. Additionally, in relation to Article 151 paragraph (4) of the Employment Law, Decision 168/2023 also stipulates that if a bipartite negotiation between an employer and an employee fails to result in an amicable settlement, the termination of employment must be delayed until the dispute resolution process (e.g., litigation) is completed. This means that under the Constitutional Court’s current interpretation, any termination of employment is now clearly only effective after the issuance of a final and binding decision by a judicial institution.

During this time, unless otherwise agreed or regulated, the employer and employee must continue to perform their respective obligations until a final and binding decision is issued, making this a game changer that could impact termination strategies and decision-making, particularly for unilateral termination of employment.

Language Requirements for PKWT

Decision 168/2023 also clarifies the obligation that PKWT must be drafted as a written agreement in Indonesian using Latin script as set out in Article 57 paragraph (1) of the Employment Law. This raises a potential debate in practice, particularly when the governing language of the agreement is a foreign language for foreign employees who do not understand Indonesian. The question arises whether this could be considered in violation of the law, which potentially invalidates the agreement. However, other legal provisions, including Circular of the Chief Justice of the Supreme Court Number 3 of 2023 on the Enforcement of the 2023 Supreme Court Chamber Plenary Meeting Result Formulation as Guidelines for the Implementation of the Duties of the Court (“SEMA 3/2023”), suggest that as long as there is good faith, the language issue should not be grounds for annulment or invalidity of an agreement.

Constitutional Court Decision No. 168

In addition to reaffirming and clarifying existing provisions of the Employment Law, Decision 168/2023 essentially appears to introduce new measures aimed at fostering fairer standards for employee rights. Employers should therefore take proactive steps to ensure compliance, including updating their internal policies and aligning their practices with the newly established legal framework. Doing so will not only protect business operations but also uphold employee rights, fostering a more balanced and legally sound workplace.

For comprehensive insights and expert guidance on employment law in Indonesia, please do not hesitate to contact our firm. ADCO Law is prepared to provide the necessary assistance. Stay informed and compliant to support both the equitable treatment of employees and the continued success of your business activities in Indonesia.

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