Indonesia’s Omnibus “Job Creation” Law: READING THE FINER DETAILS

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Illustration: Agung Wahyudi/IO

IO – On October 5, 2020, the Plenary Session of the Indonesian House of Representatives (DPR) passed the “Job Creation Bill” into law. Since President Jokowi announced the government’s intention to table a Job Creation Law through an omnibus law strategy, targeting 79 existing laws, it has continued to arouse controversy and protests from many sides – the general public, academics, mass organizations, environmental activists, labor unions and two political parties (Democratic Party and Prosperous Justice Party) – during the plenary session where the bill was approved. 

The Job Creation Law is the government’s initiative. The draft was prepared by the the Coordinating Economic Minister Airlangga Hartarto, with the support of all government ministries and institutions. This law is the main target of Jokowi’s second-term administration. The objective of the Job Creation Law is to expedite various legacy regulations that have hindered investment in Indonesia and, over the medium-to-long term, help propel the nation into the orbit of advanced economies by 2045. It aims to raise per capita income to Rp320 million per annum, GDP in the neighborhood of US$7 trillion (around Rp98,000 trillion assuming Rp14,000 per US dollar), and achieve a near-zero poverty rate. 

The spirit of the Job Creation Law is laudable, namely, to generate more employment opportunities by simplifying the investment permit process. If a permit becomes more straightforward, it will be more attractive for investors to do business here. 

To date, Indonesia’s GDP growth of around 5 per cent is well below the ideal level, considering that 2.6 million to 3 million people enter the work force each year, resulting in a persistent surplus of labor. In Jokowi’s first term, about two million jobs were created, meaning that the administration’s target to create 10 million jobs within five years was on schedule. 

The Open Unemployment Rate (TPT) was around 5 per cent in early 2020, but crept upward because of the impact of a Covid-19 pandemic. Around 58 per cent of the workforce is informal workers, high school graduates, and low-skilled laborers. The government has a tremendous task to improve the welfare of the Indonesian people. 

To solve the above scourge, discussion of the Job Creation Bill was accelerated, even in the midst of Covid-19 pandemic, where the government’s resources should ideally be redirected to overcoming this pandemic and salvaging the economy. This led to mass demonstrations that could incidentally spread the virus. The government was unaffected, and is steadfast in pursuing its target of having the bill passed into law by October 2020. 

The lingering issue 

An admirable intention to create job opportunities should follow prevailing rules and regulations, formally and materially, taking into account philosophical, sociological and judicial aspects of the previous law and the draft bill in deliberation. 

Without question, the making of Job Creation Law through the omnibus law technique involving 79 laws divided into 11 clusters is a tough job that must be carried out carefully, to both achieve its goals and be accepted by the Indonesian people. 

From the formal or procedural side, there are several problems that are of concern to the public, resulting in a problematic process that will affect the quality of the Job Creation Law’s content. 

Those problems are, first, that an “omnibus law technique” is actually not known in Law No. 12/2011, which serves as a reference in passing laws and regulations. The bill doesn’t have to be completed in three House hearings. Let the process take longer, with more intense public involvement, so as to ensure its quality and resilience. 

Secondly, Article 96 of Law No. 12/2011 stipulates that the public has the right to provide oral and written input in the creation of laws and regulations. The mandate for public involvement in the law-making process is, of course, a binding provision that both the government and the House are bound to adhere to. However, a variety of public proposals have been dismissed, even though the philosophical, judicial and sociological arguments submitted by diverse sides are much stronger, because they are inspired by the 1945 Constitution, rather than the content of an academic study and the Job Creation Bill proposed by the Government. 

Regarding the involvement of labor unions in the discussion of the labor cluster, this was only agreed to after protests from the unions. However, their involvement is only one-directional (monologue) from the government to the unions. The small team formed by the government failed to produce a quality dialogue, resulting in several unions leaving the team as the meetings were mostly held to accommodate their proposals, not to discuss and jointly formulate articles in the labor cluster between the government, business sector and labor unions. 

From the material or substantial side of the articles approved in the plenary session, especially in the labor cluster, several are deemed to diminish the level of protection afforded to workers. In addition, the contents of these articles are not as detailed as the ones in Law No. 13/2003 on manpower. They only contain general provisions with detailed implementation left up to Government Regulations (PP). There are 20 PPs mandated in the labor cluster. Of course, issuing a PP is the domain of the government so its contents fall under the prerogative of the government, without the involvement of the House in its discussion. 

Ideally, as mandated by the constitution, the right of workers to get a decent job in the form of job security, a decent quality of life from earning a decent wage and having social security, must become the central objective of the House as people’s representatives to discuss in detail, as what was done in Law No. 13/2003, instead of handing it over to the government. 

By leaving the details of the implementation to PP, the government has flexibility in its formulation and can easily revise it, so provisions on manpower can easily change in the future. If the business sectors find the PP burdensome, they can always ask the government to revise it once again on the pretext that it will make it easier to create more jobs. This will benefit the business sector, and the government only serves to legitimize their demands. Practices like these will lead to more frequent conflicts between the government and labor unions. Just look at the issuing of PP No.78/2015 on wages, which aroused a wave of demonstrations by the labor unions. The House and the government should take this into account. 

The articles deemed weaker than Law No. 13/2003 on Manpower, with the potential to diminish the level of worker protection and welfare, are firstly, Article 59 on Definite Term Employment Agreement (PKWT) or temporary employment contracts in the Job Creation Law no longer explicitly state the term of the contract or the deadline for contract extension. On the contrary, Law No. 13/2003 explicitly states that the maximum contract period is 3 years and may be extended once for a maximum of 2 years and another extension for a maximum of 1 year. The provisions regarding the type and nature of work, the length and deadline for contract extension will be regulated in PP. 

Hopefully the provisions in the PP will be aligned to Article 59 in Law No. 13/2003, so that there is a certainty regarding the implementation of the contract, namely a maximum of 3 years and only one extension. If the PP makes it longer, for example 5 years with multiple extensions, it can result in job insecurity for the workers. In addition, contract workers are vulnerable to being paid wages below the applicable minimum wage provisions and are excluded from social security schemes, namely, National Health Insurance (JKN), and Occupational Accident Benefit (JKK), Death Benefits (JKm), Old-age Benefits (JHT) and Pension Benefits (JP). Weak law enforcement by labor inspectors is the root cause of violations of contract workers’ rights. Provisions regarding the function of labor inspectors should also be included in the Job Creation Law, to beef up law enforcement. 

Article 61 paragraph (1c), which stipulates that employment agreement ends when a certain job is completed, also adds to uncertainty on the part of workers. According to this provision, if a one-year term of employment contract is agreed upon, but is completed within 7 months, the worker will potentially lose his wages for the remaining 3 months. Article 61A only states that workers will be compensated according to the provision to be set in PP. Ideally, the PP should ensure that the amount of compensation is given according to the remainder of the contract. 

Secondly, on outsourced workers: Article 66 of the Job Creation Law no longer requires outsourced workers to be employed for supporting activities. The law allows both core and supporting activities by outsourcing companies. Outsourced workers are contracted by outsourcing companies, making them vulnerable to being paid below the minimum wage and being left out of social security programs. 

Contract workers and outsourced workers will also be discouraged from demanding their core rights, including the right of association. With weak law enforcement, there will be more and more contract and outsourced workers who will be marginalized from norms of labor rights. 

Thirdly, Article 88C in the Job Creation Law only requires the governor to set the provincial minimum wage (UMP) while setting of a regency/municipality minimum wage (UMK) is not mandatory. The sectoral minimum wage was abolished. And the provisions concerning the decision of UMK are based on economic growth and inflation in each region. 

As a result of this new provision, current UMK in regencies/municipalities may drop, in line with the provision stating that UMP is lower than UMK. Also, with the elimination of the sectoral minimum wage, workers in priority sectors will no longer receive it. 

This will adversely impact workers’ purchasing power, which will directly affect their welfare. With low purchasing power, commercial activity in the area will slow. The aggregate consumption in the region will decrease and lead to lower economic growth. This will eventually lower investor interest in the area. Tax revenue from the region will also potentially dry up. 

Replacement of UMK by UMP will also have an impact on the decline of JKN premium contribution to the Healthcare and Social Security Agency (BPJS Kesehatan), causing the deficit to widen. Premium contributions for the four social security programs in Workers Social Security Agency (BPJS Ketenagakerjaan) will also decrease, leading to higher claim ratio, and this will affect the financial viability of the workers social security scheme. 

This is also the case with the calculation of the minimum wage increase, which according to Article 88D paragraph (2) is solely based on regional inflation rate or regional economic growth. This is different from the mandate of Article 44 of PP No. 78/2015, which stipulates that the increase in minimum wage should represent the sum of national economic growth and national inflation rate. Of course, the new provision in the Job Creation Law will have the potential to trim any annual minimum wage increase. Based on Article 44 of PP No. 78/2015, the minimum wage increase is about 8 percent on average, but this may be halved to only around 4-5 per cent in the new law.

My hope is that the operational provisions regarding minimum wage in the PP will still allow for UMK to be implemented in regencies/municipalities that have had it, and the minimum wage increase should be decided based on whichever is highest between regional inflation rate or regional economic growth. 

Fourth, on retrenchment, the rationale for and compensation of which will be regulated by a PP, also has the potential to threaten job security and retrenchment benefits receive by workers who are laid off. This is clear in Law No. 13/2003. The provisions on this matter, to be regulated under a PP, will also become a source of conflict because the government will be able to change them at any time. 

Employers now find it easier to lay off workers. Article 161 of Law No. 13/2003, requires three warning letters to be given before employment can be terminated. This will be relaxed in PP so that even minor mistakes can be potentially used as reason for dismissal. Also, Article 164 paragraph (3) of Law No. 13/2003 juncto Constitutional Court (MK) Decision requires that layoffs due to rationalization must be followed by business closures, however in Article 154A paragraph (1b) of the Job Creation Law opens up the room for the business undergoing rationalization to continue operating (while incurring losses). Of course, this article contradicts the Constitutional Court Decision, and can be potentially repealed by the Court if a judicial review is filed. 

Article 168 of Law No. 13/2003 mandates that workers who skip work for five consecutive days and have been properly warned twice can be dismissed for absenteeism. This provision may change in the PP, with the likelihood that two warning letters are no longer required. This will make dismissal easier, of course. 

To ensure worker protection so that will not lose their jobs easily, I hope that the provisions regarding the reasons for layoffs to be regulated in the PP will still refer to Law No. 13/2003. If the provision is the same, this will at least be able to pacify dismayed workers. 

Provisions regarding the amount of compensation benefits for retrenchment stipulated in Law No. 13/2003 are also removed in the Job Creation Law and will be regulated by a PP. In the new law, this is based on severance pay as stipulated in Article 156, paragraph (2) and long service pay as regulated in Article 156 paragraph (3), while the related 15 per cent compensation is removed. 

However, the provisions regarding the amount of retrenchment benefits based on reasonable grounds are ascertained to be a maximum of 1 x Article 156 paragraph (2), plus 1 x Article 156 paragraph (3), plus 1 x Article 156 paragraph (4), i.e. a maximum of 19 months. The government promises that compensation for 6 months is regulated in the social security scheme for laid-off workers (JKP) managed by BPJS Ketenagakerjaan. In Law No. 13/2003, retrenchment benefits can reach up to 32.2 times of wages based on the calculation of 2 x Article 156 paragraph (2), plus 1 x Article 156 paragraph (3), plus 1 x Article 156 paragraph (4). 

So far, the problem with retrenchment benefits is focused more on the certainty of receiving compensation. With the system in Law No. 2/2004 on settlement of industrial relations disputes, laid-off workers often have to fight for retrenchment benefits in the Industrial Relations Court (PHI), even up to the Supreme Court (MA). 

So logically, if the government and the House want to slash retrenchment benefits to 25 times of wages, it should be followed by the ease and certainty for workers to receive the compensation. The Job Creation Law does not provide certainty and convenience in this respect. This means that workers who are laid off will still have to take their case to the PHI upward to MA, which can take about two years. 

I once suggested that retrenchment benefits be integrated with social security. PSAK (Financial Accounting Standard) No. 24 mandates that every employer contribute a monthly reserve amounting to 8.3 percent of wages for the compensation payment of laid-off workers. I initially hope that the provisions in PSAK 24 can be formalized into BPJS Ketenagakerjaan so that there is certainty and convenience for workers in receiving retrenchment benefits. However, the Job Creation Law failed to adopt this. As a consequence, there is still no certainty that workers will receive compensation. This only reinforces the negative perception of the Job Creation Law and stokes potential for conflict. 

Fifthly, the JKP stipulated in Articles 46A, 46B, 46C, 46D and 46E, is a new social security scheme, integrated with five other schemes. JKP provides benefits in the form of cash, access to labor market information, and job training. JKP will also cover the 6-month retrenchment benefits. Further provisions will be regulated in a PP. 

Is it true that the 6-month retrenchment benefits will be borne by the government through BPJS Ketenagakerjaan? 

Will JKP benefits apply to all workers who are laid off for any reason, namely resignation, minor mistakes, rationalization to serious offenses? I hope that in the PP, JKP benefits will be given to all laid-off workers regardless of the reason. 

Will the JKP cash benefit will be the same as the worker’s last wage before being laid off? Considering the government’s promise to bear 6 months of retrenchment benefits, I hope that in PP the amount of cash to be given to laid-off workers is the same as their final wage. Also, if a laid-off worker has been employed within 4 months, he/she is entitled to the remaining two-months’ worth of wages. 

Those are the five relatively crucial aspects regarding to the new provisions in the Job Creation Law. Of course, other provisions also have the potential to become diminished once they are regulated in PP. Thus, the government should involve the worker/labor unions in formulating the contents of the PP, the provision of which is stipulated in Article 96 of Law No. 12/2011. 

Of course, the worker/labor union will file a judicial review on the labor cluster of the Job Creation Law in the Constitutional Court. With all the problems in the formal and material aspects that I have raised above, the last hope lies with Constitutional Court judges. I hope the judges are consistent with previous rulings on judicial review of labor articles in Law No. 13/2003 in their effort to reach a fair decision on this matter. 

The Job Creation Law has the potential to heighten conflict between workers and employers in the workplace, and workers and the government in terms of regulation and law enforcement. Thus, the government must be professional in implementing the provisions mandated by the Job Creation Law and its ensuing PP, by improving the quality of labor inspectors so that all existing labor norms can be implemented properly. 

Harmonious and fair industrial relations begin with the quality of regulations made, coupled with by good law enforcement by labor inspectors. Of course, the passage of legislation on the labor cluster of Job Creation Law and the low quality of law enforcement will result in industrial relation affairs in Indonesia becoming more inharmonious and unfair. (Timboel Siregar)

 Timboel Siregar, SSi, SH, MM is an observer of social security and manpower. He graduated from the Statistics program of the Bogor Institute of Agriculture (IPB) in 1994. Since 2010, he has served as advocacy coordinator of BPJS Watch and Secretary General of the Indonesian All Workers Organization (OPSI). He is currently pursuing his postgraduate study in Human Resource Economics at Trisakti University.