Employment agreements in Indonesia are governed primarily by Law No. 13 of 2003 on Manpower, as amended by Law No. 11 of 2020 on Job Creation (often referred to as the Omnibus Law) and its implementing regulations. These laws establish the framework for the relationship between employers and employees, outlining the types of contracts, mandatory terms, and conditions for employment. Understanding these regulations is crucial for companies operating in Indonesia to ensure compliance and foster stable working relationships.
Properly drafted and compliant employment agreements are essential for both employers and employees. They provide clarity on roles, responsibilities, compensation, benefits, and the terms under which the employment relationship exists and can be modified or terminated. Navigating the specifics of Indonesian labor law requires attention to detail, particularly regarding contract duration, required clauses, and termination procedures.
Types of Employment Agreements
Indonesian law recognizes two primary types of employment agreements:
- Fixed-Term Employment Agreement (Perjanjian Kerja Waktu Tertentu - PKWT): Used for work that is temporary, project-based, or related to seasonal activities. PKWTs have a defined start and end date. The maximum duration and extension rules for PKWTs are regulated, and they cannot be used for permanent positions. Specific types of work suitable for PKWT are outlined in regulations.
- Indefinite-Term Employment Agreement (Perjanjian Kerja Waktu Tidak Tertentu - PKWTT): Used for permanent positions. These agreements do not have a fixed end date and continue until terminated according to the provisions of the law.
| Contract Type | Abbreviation | Purpose | Duration |
|---|---|---|---|
| Fixed-Term Agreement | PKWT | Temporary, project-based, seasonal work | Fixed duration, subject to legal limits |
| Indefinite Agreement | PKWTT | Permanent positions | No fixed end date, continues until termination |
Essential Clauses in Employment Contracts
Indonesian law mandates that certain information must be included in any written employment agreement. While specific requirements can vary slightly based on contract type and implementing regulations, key elements typically include:
- Names and addresses of the employer and employee.
- Position or type of work.
- Place of work.
- Wage or salary amount and method of payment.
- Job description.
- Terms and conditions of employment (e.g., working hours, leave entitlements).
- Start date of employment.
- Location and date of the agreement.
- Signatures of both parties.
Additional clauses covering aspects like probation, benefits, confidentiality, and termination procedures are also common and recommended for clarity, provided they do not contradict labor law.
Probationary Period
Probationary periods are only permitted for employees under Indefinite-Term Employment Agreements (PKWTT). They are not allowed for employees on Fixed-Term Employment Agreements (PKWT).
- Duration: The maximum duration for a probationary period is three months.
- Conditions: The terms of the probationary period must be explicitly stated in the employment agreement. During probation, the employee is entitled to receive at least the minimum wage.
- Termination during probation: Either party may terminate the employment during the probationary period without severance pay, provided the termination is notified according to the agreement's terms.
Confidentiality and Non-Compete Clauses
Confidentiality and non-compete clauses are common in Indonesian employment agreements, particularly for roles involving sensitive information or specialized skills.
- Confidentiality: Clauses protecting confidential business information are generally enforceable, provided they are reasonable in scope and duration.
- Non-Compete: Non-compete clauses, which restrict an employee from working for a competitor after leaving the company, are more challenging to enforce in Indonesia. Their enforceability depends heavily on their reasonableness in terms of geographical scope, duration, and the specific nature of the restriction relative to the employee's role and the employer's legitimate business interests. Overly broad or restrictive clauses are likely to be deemed unenforceable by Indonesian courts. It is advisable to draft such clauses carefully and ensure they are narrowly tailored.
Contract Modification and Termination Requirements
Modification and termination of employment agreements in Indonesia are subject to specific legal requirements.
- Modification: Any changes to the terms and conditions of an employment agreement must generally be agreed upon by both the employer and the employee and documented in writing, often through an addendum to the original contract. Unilateral changes by the employer may be challenged.
- Termination: Termination of an employment agreement must comply with the grounds and procedures stipulated in the Manpower Law and its implementing regulations. Grounds for termination include resignation, reaching the end of a fixed term (for PKWT), mutual agreement, employee misconduct, company efficiency measures, and other legally defined reasons. Specific procedures, including notification requirements and potential severance pay obligations, apply depending on the reason for termination and the type of contract (PKWT vs. PKWTT). Termination of PKWTT requires a valid reason and often involves a process that may include warnings and potentially approval from the Industrial Relations Court if disputed.
