INDONESIA Law and Practice Contributed by: Agus Ahadi Deradjat (Agung), Gustaaf Reerink, Adri Dharma, Karina Widyaputri and Ilma Sulistyani, ABNR Counsellors at Law
4.4 Termination of Employment Contracts In Indonesia, all employment terms and conditions are governed by the employment contract between the employer and employee, as well as by applica - ble laws and regulations, including the Labour Law and GR 35/2021, the company’s internal policies, and any relevant collective labour agreements. As such, termination of employment must comply with these legal frameworks, including the procedures and enti - tlements involved. The Labour Law emphasises that termination of employment should be a last resort. Employers, employees, and the government are required to make every effort to avoid termination. However, if termina - tion is unavoidable, it must be based on legally recog - nised grounds and follow proper procedures. Employers are generally required to provide at least 14 calendar days’ notice prior to termination, except in cases where:
• termination requested by the employee due to employer misconduct; or • termination based on an industrial relations court ruling confirming no employer wrongdoing. Employee Conduct and Absence • Absence without notice for five consecutive work - ing days despite two written summonses. • Violation of employment terms (employment contract, employee handbook, or collective labour agreement) after three written warnings. • Serious misconduct as defined in the employment contract, employee handbook, or collective labour agreement. Detention and Criminal Cases • Detention for more than six months, regardless of whether the employer suffers losses. • Conviction in court before six months, with or with - out employer losses. Health and Retirement • Inability to work for more than 12 months due to illness or work-related disability. • Retirement. • Death of the employee. Terminated employees are entitled to compensation, which varies depending on the type of employment. Permanent employees are generally entitled to sever - ance packages, while fixed-term employees receive compensation at the end of their contract. The amount is calculated based on factors such as the reason for termination and length of service, in accordance with GR 35/2021. Employers and employees may also mutually agree to end the employment relationship through a Mutual Employment Termination Agreement, which must be documented in writing. While Indonesian law does not specifically regulate collective redundancies or mass terminations, such actions are permitted provided they comply with the applicable legal procedures and ensure that all affect - ed employees receive their statutory entitlements. All terminations – whether individual or collective – must follow the same legal process.
• the employee resigns voluntarily; • the employment contract expires; • the employee reaches retirement age; or • the employee passes away.
Under the Indonesian Labour Law, the legally recog - nised grounds for termination include the following. Corporate Actions and Business Conditions • merger, consolidation, or division of the company, where either party refuses to continue the employ - ment relationship; • acquisition resulting in changes to employment terms, which the employee rejects; • efficiency measures due to actual or potential losses; • company closure due to continuous losses over two years; • force majeure leading to closure or discontinued operations; • suspension of payment (with or without losses); and • bankruptcy. Employee-Initiated or Legal Grounds • voluntary resignation;
474 CHAMBERS.COM
Powered by FlippingBook