Industrial Relations in Indonesia - The Good, The Bad, and The Ugly

The Industrial Relations Court (Pengadilan Hubungan Industrial / PHI) located in the Central Jakarta District Court has handed down an interesting decision that has implications for the employment of expatriates across the board. This particular dispute arose between a number of teachers who believe that they have been unfairly, arbitrarily, and unilaterally dismissed contrary to the provisions enshrined in the Labor Law (Law No. 13 of 2003) to protect them.

In a blow to labor of all forms in Indonesia the PHI has sided with the employers in this case. Why is it a blow? The decision expands the previous interpretations of the provisions of the Labor Law in a manner which clearly favors employers over their employees. This brings into question whether employees have any real employment security once an employer decides to terminate their services for any reason, real or imagined, in a unilateral manner.

The Labor Law is presumably to enhance and protect the interests of both parties in this situation and to ensure this occurs a limited interpretation of the provisions must be applied. Limited in this sense refers to interpretations that comply not only with the spirit of the provisions but with the wording of those provisions as well.

An interesting aside to this case is that there was a previous mediated decision formulated by the Labor and Transmigration Office of West Jakarta that indicates that the Respondents in this case were in breach of the provisions of the law. This mediated decision made an award to the Plaintiffs. However, there was a stipulation that if either party disagreed with the award then they could proceed with an action in the PHI.

In this case the Respondents chose this option. It is worth noting that the PHI did not give any consideration to the mediated settlement decision of the Labor and Transmigration office despite the document being entered into evidence.

Of most interest to employers in this decision is that Specified Term Employment Contracts (Perjanjian Kerja Waktu Tertentu / PKWT) cannot morph into Unspecified Term Employment Contract (Perjanjian Kerja Waktu Tidak Tertentu / PKWTT) even where the employer fails to renew the expired PKWT. The reasoning offered by the PHI was that the Labor Law requires expatriates to be on PKWT.

The literal reasoning and application of the provision above flies in the face of the creative interpretation offered by the PHI with regard to the language of PKWTs. The Labor Law at Article 57(1) seems to explicitly suggest that a PKWT must be in Indonesian. One of the claims of the Plaintiffs was that the only contracts they had were in English. However, the PHI held that the contracts in English fulfilled the necessary requirements under the law.

For employees it is important that they understand that once they have been terminated that the “clock is ticking”. This means that the prevailing laws and regulations only allow for a certain amount of time to elapse before any claim must be lodged. It is important to note that the PHI made specific reference to matters that were submitted outside of the stipulated time frame.

However, in a win for employees, the PHI held that if an individual was engaged into employment after the mandatory retirement age then an employer could not rely then on Article 167 to terminate the employee because they had entered mandatory retirement age.

The decision was determined on 8 April 2008 and read out in open court on 17 April 2008.

The Plaintiffs have already commenced the process of appeal. A reading of the judgment suggests that there was a considerably large amount of "evidence" that did not make it into the record of evidence and an equally large amount of uncontested evidence submitted by the Respondents in the case.

Perhaps an impartial review by lawyers not connected to the case needs to be part of the appeal strategy of the Plaintiffs in this case.

This is not the first case where teachers have been unilaterally dismissed by their employers. In a previous case that was judged at the PHI the decision was in favor of the teacher.