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17 August 2018
As one of the world's largest emerging markets, Indonesia has long attracted foreign workers. However, the employment of foreign citizens is subject to various restrictions, including with regard to employment terms. Foreign employees can be employed only on a temporary basis (ie, for a set period) and thus cannot be considered permanent employees. However, they also cannot be considered fixed-term employees under Articles 56 and 59 of the Manpower Law (13/2003). Despite this framework, mediators and the Industrial Relations Court has expressed inconsistent views on the legal status of foreign employees.
Articles 42 to 49 of the Manpower Law provide the legal basis for the status of foreign employees. Article 42(4) of the law states that to be employed in Indonesia, a foreign citizen must have an employment contract for a specific position and a set term. As such, foreign employees cannot work in Indonesia permanently.
This view is supported by the recently issued Presidential Regulation 20/2018 and Minister of Manpower Regulation 10/2018, which state that a foreign employee's term of employment is based on their foreign manpower utilisation plan (RPTKA), which in turn is based on the validity period of the relevant employment agreement, which must be for a set term.
In addition, Circular Letter 1/2017 of the Supreme Court states that:
However, even if the Manpower Law prescribes that the contracts of foreign employees must be for a set period, the contract will not be deemed a fixed-term employment contract under Articles 56 and 59 of the Manpower Law.
The law on fixed-term employment contracts apply only to Indonesian employees because, for example, some types of work for which such a contract is allowed are limited under Article 59(1) of the Manpower Law and thus cannot be undertaken by foreign employees. This includes work which is seasonal in nature (eg, labouring work for plantation companies during harvest time). In general, foreign citizens may be hired to perform only work which requires a high level of skill and specialisation or the transfer of technology and knowledge to Indonesian employees.
Under the previous regulations, a foreign employee's term of employment was based on their work permit (IMTA), which every foreign employee had to have in order to be able to work in Indonesia. IMTAs are valid for up to one year, which can be extended with the Ministry of Manpower's approval. However, under Presidential Regulation 20/2018 and Minister of Manpower Regulation 10/2018, an approved RPTKA is now considered a permit to recruit foreign employees (thus making them similar in function to the IMTA) and the IMTA requirement has been eliminated. After an RPTKA has been secured, employers must now apply for approval to recruit foreign employees from the director general for development, the allocation of workers and the expansion of job opportunities.
Although most mediators and Industrial Relations Court judges' panels believe that foreign employees cannot be considered permanent or fixed-term employees, some have decided otherwise. Examples of both views are set out below.
Foreign employees cannot be considered permanent employees
In Recommendation 066/088/HI-PHK/X/2017 of 25 October 2017, the West Jakarta local Ministry of Manpower mediator decided that the issue of foreign employees is specifically governed by Article 42(4) of the Manpower Law, under which foreign employees can be employed in Indonesia only for a set period. Therefore, foreign employees cannot be permanent employees. As such, the mediator ruled that a foreign employee's claim that he should be considered a permanent employee with the same severance entitlements should not be considered.
In Ruling 595K/Pdt.Sus/2010, the Supreme Court ruled that, although the employment agreement at issue had been drawn up only in English, which contravened Article 57(1) of the Manpower Law, this did not automatically mean that the foreign employee was a permanent employee, as foreign employees are subject to Article 42(2) of the Manpower Law, under which they can be employed only under a fixed-term contract. Therefore, the employee was not entitled to severance pay or compensation.
In Supreme Court Ruling 697K/Pdt.Sus-PHI/2016, a foreign employee whose contract had been terminated argued that he should be considered a permanent employee because his employment agreement had been drawn up only in English. The Supreme Court ruled that, under Articles 42(4) and (5) of the Manpower Law, as a foreign citizen, the plaintiff could be employed in Indonesia only in a certain position and for a set period; therefore, there was no legal ground for him to claim to be a permanent employee.
In Supreme Court Ruling 286K/Pdt.Sus-PHI/2013, a foreign employee had been continuously employed under a fixed-term contract for more than 13 years before the company terminated him. The Supreme Court ruled that the foreign employee was not entitled to severance or compensation on his termination.
Foreign employees can be considered fixed-term or permanent employees
In Recommendation B.124/PHIJSK-PPHI/VI/2017, the Ministry of Manpower mediator decided that the Manpower Law provisions on fixed-term contracts apply to foreign employees because:
In Ruling 24/PHI.G/2010/PHI.PN.JKT.PST, the Industrial Relations Court ruled that Articles 57(1) and (2) of the Manpower Law require fixed-term contracts to be drawn up in the Indonesian language; otherwise, they automatically become permanent employment agreements. Therefore, since the foreign employee's contract in the case at hand had been drawn up only in English, it was a permanent employment agreement. Thus, on his termination, the employer had to pay the employee severance, compensation and repatriation costs in accordance with Article 156 of the Manpower Law. However, this ruling was overturned by Supreme Court Ruling 595K/Pdt.Sus/2010 (discussed above).
In practice, mediators and the Industrial Relations Court may hold different views on the status of foreign employees. Although Indonesia does not apply the system of precedent, under which judges must follow the past decisions of higher courts, a party may try to use the different views of mediators and judges' panels to justify or support the far-fetched argument that if an employer violates the provisions on fixed-term employment contracts, the foreign employee can be considered a permanent employee and therefore entitled to severance payments.
If mediators and judges' panels hold different or inconsistent views on this issue, uncertainty about the status of foreign employees will continue, leading to claims that foreign employees can become permanent employees and therefore be entitled to the statutory termination benefits available to Indonesian citizens under the Manpower Law. This inconsistency will create uncertainty among employers of foreign citizens and could ultimately lead to an increase in the number of foreign employees who challenge their employment arrangements or even reluctance on the part of employers to hire such employees.
For further information on this topic please contact Lia Alizia or Hendrik Pasaribu at Makarim & Taira S by telephone (+62 21 252 1272) or email (firstname.lastname@example.org or email@example.com). The Makarim & Taira S website can be accessed at www.makarim.com.
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