In Indonesia, the number of expatriate employees taking legal action against their employers for terminating their employment contracts, whether for economic reasons or misconduct, has grown in recent years. Notably, the general view is that although Indonesian permanent employees who are made redundant, retire or are otherwise terminated without cause are entitled to generous severance payments, the same does not apply to foreign employees. Under Indonesian law, foreign employees require a work permit from the Ministry of Manpower (MOM) and can be employed only for a certain type of work and a certain period.
The Manpower Law (13/2003) contains a number of basic provisions regarding foreign employment in Indonesia. Notably, all foreign employees must hold a valid MOM work permit (IMTA) and a temporary residency permit (KITAS) to be able to work in Indonesia. The IMTA is valid for one year only, regardless of whether the contractual employment period is longer. The KITAS is generally issued in line with the IMTA, although in some cases the duration may differ (eg, a KITAS may be for a longer period because it relates to a stay permit issued by the immigration authority). There has long been some argument as to whether all of the provisions (specifically those relating to termination procedures and severance entitlements) of the Manpower Law and its implementing regulations apply to foreign employees. In recent years, many foreign employees have, upon their termination, demanded not only severance entitlements, but also overtime and the religious holiday allowance.
As mentioned above, foreign employees are generally deemed to be fixed-term employees by nature (their entitlement to work in Indonesia is based on the duration of their IMTA under Article 42 of the Manpower Law). Nonetheless, it has been argued that foreign employees do not fall under the definition of 'fixed-term employee' that applies to Indonesian employees under Article 59 of the law. Accordingly, upon termination of their employment, foreign employees should be entitled to their unpaid salary only for the remaining period of their IMTA and not the remaining period of their employment agreement, unless provided otherwise.
The MOM has recognised this view in its unwritten policies. However, in a number of recent cases involving foreign employees, the MOM has applied Article 59, whereby fixed-term employees who are terminated before their contract expires are entitled to their unpaid salary for the remaining term of their contract. Article 59 provides certain requirements which employers should comply with when entering into a fixed-term contract with an employee. The violation of some of these requirements will result in the employee's status changing from fixed term to permanent.
As there is no system of precedent in Indonesia, it is difficult to guarantee how any particular court, including the Industrial Relations Court, will arrive at a judgment on a particular matter. A small number of rulings and recommendation letters issued by MOM officials have given some hope to foreign employees who want to be recognised as permanent and therefore entitled to the same severance pay and other benefits as Indonesian following termination. Such rulings have been based on:
- the courts' recognition of the foreign employment contract in question as permanent in nature; or
- violations of certain Article 59 requirements governing fixed-term employment agreements.
In one such example, a foreign employee who had been working in Indonesia for approximately three months was found to have illegally imported a firearm into the country. The employee was terminated without compensation, as his employment contract permitted summary (immediate) dismissal. The employee challenged his termination at the local MOM office, arguing that his employment contract was a fixed-term employment agreement under Article 59 of the Manpower Law. As the agreement was valid for one year, but he had worked for only three months, the employee argued that he should be entitled to his salary until the expiry of his employment agreement, as required under Article 59.
After examining the case, the MOM-appointed mediator concluded that as the employer had initiated the foreign employee's termination, it had to pay him compensation equal to his salary up until the date of expiry of his employment agreement. Thus, in the MOM's perspective – at least in this particular case – foreign employees may have the same rights as Indonesian employees in respect of fixed-term employment.
However, in another termination case between an employer and a foreign employee, the mediator concluded contrary to the above. In this dispute, the foreign employee asked for full severance entitlements under the Manpower Law upon his termination. However, the mediator concluded that the foreign employee could not be deemed a permanent employee, as Article 42 of the Manpower Law clearly states that foreign employees can be employed only in a certain position and for a certain term. As such, the employee's request for severance entitlements under the Manpower Law was considered inappropriate and was denied.
In a 2014 case, a foreign employee filed a claim for being dismissed by his employer without receiving any termination entitlements. He argued that he had been employed as a manager in 1992 and become a director in 1993. After serving as a director for 20 years, he had been dismissed in 2013 by the general shareholders' meeting and received no termination entitlements. He claimed that his employment should be regarded as one of permanent employment and that the employer should pay termination entitlements. In response, the employer argued that a director cannot be categorised as an employee under the Manpower Law; therefore, the employee was not entitled to receive any entitlements. Notably, the Industrial Relations Court decided that the employee's contract could be regarded as a permanent employment contract and ordered the employer to pay compensation for his dismissal. However, the Supreme Court annulled the Industrial Relations Court's decision, holding that as the employee had been a director, he was not subject to the Manpower Law and thus not entitled to the severance payments and other benefits provided by the law.
It is clear on reviewing terminations of foreign employees that legal uncertainty regarding such employees' rights and obligations exists in Indonesia. Although most jurists maintain that expatriates cannot be permanent employees or receive the same severance entitlements as Indonesian permanent employees, this has not always been the case. Given the generous entitlements that they may be missing out on and a potential reluctance to leave Indonesia, some expatriates try to take advantage of this uncertainty and argue that they are entitled to full severance entitlements. As defending such actions can be time consuming and expensive (attorney fees are generally non-recoverable in Indonesia), the mere raising of such an action can raise significant problems and uncertainties not to mention disruptions and expense for employers.
As such, employers should be aware of the actions that they can take and the provisions that they can include in employment contracts in order to reduce the above risks.
For further information on this topic please contact Lia Alizia or Raditya Anugerah Titus at Makarim & Taira S by telephone (+62 21 252 1272) or email ([email protected] or [email protected]). The Makarim & Taira S website can be accessed at www.makarim.com.
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