IO – Articles 64-66 of Law No. 13 of 2003 (the Labor Law) regulate outsourcing, or the re-assignment of part of a work assigned to one company by the appointed to another company. The re-assignment for part of the work or the provision of workers to do the work is validated in writing, i.e. in an outsourcing contract. This is the primary contributor to industrial relations (IR) in Indonesia. Violations of basic rights such as minimum wages, social benefits, and the right to unionize are a common problem for workers of outsourced companies.
Outsourced companies are actually obliged by law to implement all of workers’ basic rights. However, there are still violations to these workers’ rights in practice. This is because our labor law enforcement is weak against deviant outsourced companies. In order to ensure that outsourcing entrepreneurs comply with positive labor laws, we need strong permit and operations regulations, accompanied with equally strong labor law enforcement and supervision. This would mean that only outsourced companies will be allowed to operate, which in the end will protect both workers and employing companies (users).
The Minister of Manpower has signed the Regulation of Minister of Manpower (Peraturan Menteri Ketenagakerjaan – “Permenaker”) No. 11 of 2019 concerning the Second Amendment to the Regulation of the Minister of Manpower and Transmigration No. 19 of 2012 concerning Requirements for Partial Assignment of Work to Other Companies dated 1 August 2019.
When I finished reading Permenaker No. 11 of 2019, I see some reasons for criticism. Parts of this regulation make it too easy for outsourced companies to get operational permits:
First, the provision to submit “draft of Work Agreement between outsourced company and the workers/laborers whom it employs” as a prerequisite for the approval of the agreement between employing companies (user) and the outsourced company, originally in Article 20 of the Labor Law, is deleted in Permenaker No. 11 of 2019. This deletion is a loophole that allows outsourced companies to forgo signing individual work agreements with their workers and simply order the workers to do the work as the company pleases. This missing provision should serve as a stepping stone for the Manpower Office to review the draft and avoid the amendment of other articles which would result in a violation of basic and normal provisions. In fact, nowadays there are still many workers employed without proper work agreements. If this provision is deleted, there would be more widespread violations, and workers would suffer as a result.
Second, the bureaucratic process of exacting sanctions is lengthened. In Article 23 of the previous Permenaker, the process of revoking operational permits used to be directly under the authority of Provincial Manpower Offices. However, the new regulation resets the process, splitting it into two administrative sanctions, i.e. two written sanctions issued by the Provincial Manpower Office, before the Ministry of Manpower of RI finally freezes the business permit. In other words, the Provincial Manpower Office is no longer allowed to revoke operational permits, because it is now the authority of the Minister of Manpower. Furthermore, the sanction applies by area instead of affecting the overall outsourced company as an institution. This is the conclusion of the provision of Article 23.C of the Regulation, which states that the freezing of business activities for a specified time only within the area the violation took place. In other words, the sanction is localized even though violations usually occur due to a decision made by the outsourced company’s directors and not by local managers.
Third, Article 24 of the new Permenaker rules that the term denoting legal entity Limited Liability Company (Perseroan Terbatas – “PT”) is deleted. The ruling now applies to any legal business entity, not specifically “PTs”. Certain other requirements, such as possessing a corporate registry certificate, possessing proof of reporting the workers employed in the company, possessing operational permits, having a permanent office domicile and address, and possessing corporate Taxpayer Registry Number (Nomor Pokok Wajib Pajak – “NPWP”) on behalf of the company, are deleted in the new regulation. The failure to require the above would naturally create legal loopholes for an outsourced company’s management. For example, a company may actually be managed by retirees.
Fourth, Article 26 of the old Permenaker, which ruled that operational permits are valid for 3 (three) years and can be extended for the same period of time each time, is deleted. In the new Permenaker, outsourced company business permits are valid for as long as the company is in business. In other words, the evaluation of outsourced companies will be deleted as well, despite this being the measurement of whether or not the firm would be granted an extension of its permit or refused. This deletion overturns the tradition of making all permit processes temporary and extendable such as in the provisions relating to Trading Business Permits (Surat Izin Usaha Perdagangan – “SIUP”), Certificate of Company Registration (Tanda Daftar Perusahaan – “TDP”), and other permits.
Fifth, Article 27 Paragraph (3) of the old regulation states that “If the work agreement is not registered as intended in Paragraph (2), then the institution in charge of manpower in the relevant province shall revoke the operational permit of the relevant company based on a recommendation of the institution in charge of manpower in the relevant regency or municipality.” However, the rule is deleted from the new Permenaker, so that violations of registering work agreements with manpower offices will no longer exist and can no longer be punished. This deletion would potentially encourage such violations and make it harder to monitor companies. This would end up being detrimental to workers.
Consequences of Liberalizing Regulations
Permenaker No. 11 of 2019 negatively affects the implementation of the outsourcing work process in several ways: First, it would allow unqualified outsourced companies to proliferate and generate unhealthy competition. With dubious relations and minimal capital, it would be easy to set up such unprofessional outsourced companies, and really qualified outsourced companies would be buried under the distrust of cheated workers.
Second, with the potential easy establishment of unqualified outsourced companies, employer companies (users) might be left holding the bag as cheated workers demand their rights directly from them because of the incompetence of the partnering outsourcing company.
Third, the evaluation and monitoring of outsourced companies become more limited. This encourages outsourced companies to deny basic rights to their workers. Even now existing labor monitoring is very weak: with these loose new regulations, our labor law enforcement will be weakened further. Quo vadis, Permenaker No. 11 of 2019?
By improving IR conditions and minimizing IR disputes, the Government should ensure that operating outsourced companies become better qualified and professional, and that they satisfy the basic rights of worker and provide no trouble to employer companies. However, this Permenaker No. 11 of 2019 would actually increase the intensity and spread of IR disputes, which is unhealthy for investments in Indonesia. In view of the high level of existing violations of basic rights by outsourced companies, the new Permenaker should be reviewed and discussed by all IR practitioners in Indonesia in order to shut these loopholes.