In Indonesia, employment law recognizes several types of employment agreements, each with unique characteristics and implications for both employers and employees.

Permanent Employment Contract (PKWTT)

The Permanent Employment Contract, or PKWTT, is the most common type of employment agreement in Indonesia. This contract establishes an indefinite employment relationship with no predetermined end date, making it ideal for long-term positions. It provides employees with greater job security.

Key features of PKWTT:

• No specified end date for employment.
• Employers must provide written confirmation of permanent employment status.

Fixed-Term Employment Contract (PKWT)

The Fixed-Term Employment Contract, or PKWT, is suitable for temporary or project-based positions with a clearly defined end date. The maximum duration of a PKWT is five years, and it cannot be renewed or extended without converting it into a PKWTT.

Key features of PKWT:

• Specifies a definite timeframe for employment.
• Maximum duration of five years.
• Generally less stringent termination procedures compared to PKWTT.

Indonesian employment law requires certain elements to be included in employment contracts to ensure clarity and protect the rights of both employers and employees.

Basic Information

The contract should identify both parties involved in the agreement, including the company's name, address, and registration details, as well as the employee's full name, identification number, and residential address. It should also provide a clear description of the employee's position, duties, and responsibilities.

Employment Terms

The contract should specify the type of employment agreement, whether it's a Fixed-Term Employment Agreement (PKWT) used for project-based or temporary positions, or an Indefinite-Term Employment Agreement (PKWTT) for permanent positions.

Compensation and Benefits

The contract should detail the employee's base pay, including currency, frequency of payment, and any allowances provided. It should also specify the overtime rate and calculation method, and outline mandatory benefits like social security contributions and healthcare insurance, as well as additional benefits like annual leave, sick leave, and maternity leave.

Working Conditions

The contract should specify the standard working hours per week and daily schedule, adhering to the 40-hour workweek stipulated by Indonesian regulations. It should also define the terms for availing various leaves, including annual leave, sick leave, and maternity leave.

Termination Clause

The contract should outline the procedures for contract termination, including notice periods required by both employer and employee, and the grounds for termination with or without severance pay.

Dispute Resolution

The contract may establish a process for resolving any disputes arising between the employer and employee, which could involve internal mediation or recourse to external legal channels.

Probationary periods are a common feature in Indonesian employment contracts, offering employers a chance to assess a new hire's suitability for the role.

Applicability

Probation periods are applicable only to indefinite term employment agreements, also known as permanent positions. Fixed-term contracts cannot include a probationary period.

Maximum Duration

The maximum duration for a probationary period in Indonesia is strictly three months. This is mandated by Article 60 (1) of the Indonesian Manpower Law and further emphasized in Article 5 (2) of Kepmenaker 150/2000.

Termination During Probation

Employers have the right to terminate the employment relationship during the probation period without following the standard termination procedures outlined in the Indonesian labor law. This means less notice and potentially less severance pay may be required.

Employee Rights During Probation

Even during probation, employers are prohibited from paying a salary below the applicable minimum wage. Employees also have the right to terminate the employment relationship during probation with a shorter notice period than usual.

Key Points to Remember

The terms of the probation period, including its duration, should be clearly stated and agreed upon in writing within the employment contract. If the contract remains silent on probation, it's considered non-existent. The three-month probation period cannot be extended or renewed under any circumstances. If an employer attempts to do so, the employee automatically acquires permanent employee status.

Confidentiality and non-compete clauses are integral parts of employment agreements in Indonesia, despite the nuanced landscape of the country's employment law.

Confidentiality Clauses

Confidentiality clauses are recognized and upheld by Indonesian law, even though the Manpower Law (Law No. 13 of 2003) does not explicitly address them. The Civil Code, through Articles 1337 and 1338, upholds the principle of freedom of contract. This principle allows employers to include confidentiality clauses in employment agreements, specifying the information that employees must protect during and after their employment.

These clauses usually define what constitutes confidential information and prohibit employees from disclosing such information to unauthorized parties. They may also outline the acceptable uses of confidential information and the obligations of employees after their employment ends, such as returning data or securely deleting it.

Non-Compete Clauses

The enforceability of non-compete clauses in Indonesia is a subject of debate. The Manpower Law does not address this issue, and there is a lack of established case law to provide clear guidelines. However, there are some legal arguments regarding their validity:

• Freedom of Contract: The Civil Code upholds the principle of freedom of contract. This principle suggests that employers and employees can agree to non-compete clauses. However, whether these clauses can be enforced depends on specific conditions.
• Right to Work: Article 28 of the Indonesian Constitution guarantees every citizen the right to work and earn a decent livelihood. Overly restrictive non-compete clauses that significantly limit an employee's ability to find new employment in their field could potentially violate this fundamental right.

In practice, employers, especially multinational corporations, often include non-compete clauses in employment agreements. However, their enforceability remains uncertain. When evaluating the validity of such clauses, courts may consider factors such as the reasonableness of the restrictions (in terms of geographic scope and duration) and the employee's position within the company.