Asia-Pacific law bulletin 2023

Indonesia

On 30 December 2022, the Government of Indonesia (GOI) passed Government Regulation in-lieu of Law No.2 of 2022 on Job Creation (Emergency Regulation). The Emergency Regulation replaces Law No.11 of 2020 on Job Creation (locally known as the Omnibus Law), which was the subject of much controversy ever since it came into force on 2 November 2020.  The controversy had many bases, including that the Omnibus Law ambitiously attempted to revise over 70 laws, including many key provisions of Law No.13 of 2003 on Employment (the Employment Law).

Background to the Emergency Regulation

On 25 November 2021, the Indonesian Constitutional Court (Constitutional Court) declared the Omnibus Law “conditionally unconstitutional”.  The Constitutional Court further declared that:

• the law-making procedure needs to be amended to provide for an “omnibus law” methodology (so that one law can amend many laws) and the Omnibus Law must be corrected by ensuring meaningful public participation, all within two years of the Constitutional Court’s ruling (i.e., by 25 November 2023);
• failure by the lawmakers to make such amendments and corrections would cause the Omnibus Law to become permanently unconstitutional and therefore have no binding force, causing the laws that were revoked or amended under the Omnibus Law to be automatically reinstated;
• the lawmakers are not permitted to issue any new laws in relation to the Omnibus Law; and
• all “strategic and significant-impact actions/policies” in relation to the Omnibus Law are to be suspended.

Given the need for an urgent response to the Constitutional Court’s two-year deadline to make the required amendments and corrections to the Omnibus Law and law-making procedure law (and the potential economic disaster if the Omnibus Law were to become permanently unconstitutional), the GOI issued the Emergency Regulation. Immediately following its issuance, public protests erupted from various sectors, including legal practitioners who have criticised the GOI’s apparent refusal to respect the Constitutional Court’s ruling.

However, the GOI maintains that there was in fact an emergency to justify the Emergency Regulation’s issuance, since there would likely be an economic crisis if the Omnibus Law were to become permanently unconstitutional.  The GOI has argued that if it had followed the normal course of law-making, the process for the Indonesian Parliament (DPR) to approve a replacement of the Omnibus Law (satisfying the Constitutional Court’s requirements) would have exceeded the two-year deadline, potentially plunging the country into economic uncertainty and chaos.

Employment law under the Emergency Regulation

Most of the amendments to the Employment Law that are set out in the Emergency Regulation are the same as the amendments introduced under the Omnibus Law. However, one of the most significant employment-related amendments in the Emergency Regulation now permits the government to limit the scope of work that a company can outsource.

Before the Emergency Regulation was issued, the Omnibus Law had lifted the outsourcing restrictions, thereby enabling a company to outsource all or part of a company’s employment requirements.  But before the Omnibus Law came into force in November 2020, the outsourcing rules were quite strict.  Before November 2020, the Employment Law restricted outsourcing to only a part of a company’s activities.   

Under the Emergency Regulation, however, a company may only engage another company to perform part of its work by way of an outsourcing agreement.  Which “part” of a company’s work can be outsourced is still unknown and we will need to await the implementing government restriction to understand the extent of the new limitation.

It would be prudent for any company currently contemplating outsourcing any of its activities, to wait until the new implementing government regulation has been issued to clarify the outsourcing limitations’ scope.  If a company has already entered into outsourcing arrangements for any of its activities, the company should contemplate the possibility that it may be required to amend such arrangements to comply with the future implementing regulation.

Soemadipradja & Taher: Retno Muljosantoso, Robert Reid, Dimas Koencoro Noegroho and Tjok Wulan