In the field of labor in Indonesia, the government has established regulations regarding the rights and obligations of employers and workers, including Law No. 13 of 2003 concerning Manpower, which was amended by Law No. 6 of 2023 concerning the Stipulation of Government Regulation in Lieu of Law No. 2 of 2022 concerning Job Creation (Labor Law), as well as being specifically regulated in Government Regulation No. 35 of 2021 concerning Fixed-Term Employment Contracts, Outsourcing, Working Hours, Rest Periods, and Termination of Employment (Labor Regulation).
In the implementation of the employment relationship, the termination of a Fixed-Term Employment Contract (PKWT) can occur voluntarily or involuntarily. This article will discuss in more detail the legal consequences related to the termination of employment.
First, it is necessary to examine in more detail the existence of the employment relationship based on the Fixed-Term Employment Contract (PKWT). According to Article 1, paragraph 10 of the Labor Regulation, it is stated that:
“A Fixed-Term Employment Contract, hereinafter referred to as PKWT, is an employment agreement between a worker/laborer and an employer to establish an employment relationship for a certain period or for certain work.”
Based on the above provisions, it can be understood that the legal relationship that occurs between the employer and the worker is for a certain period, established through PKWT. Therefore, it is necessary to re-examine the matters that should be regulated in the PKWT as outlined in Article 13 of the Labor Regulation:
“PKWT must at least contain:
- Name, address of the company, and type of business;
- Name, gender, age, and address of the worker/laborer;
- Position or type of work;
- Place of work;
- The amount and method of payment of wages;
- Rights and obligations of the employer and the worker/laborer in accordance with the provisions of the laws and/or working conditions regulated in the Company Regulations or Collective Labor Agreement;
- Start and duration of the PKWT;
- Place and date the PKWT is made; and
- Signature of the parties in the PKWT.”
The end of the employment relationship between the employer and the contract employee may occur due to the expiration of the PKWT period or due to termination of employment. So, what are the rights and obligations of each party when the employment relationship ends?
Rights and Obligations to be Considered Before Terminating Employment
The rights of the employee and the obligations of the employer in the event of termination of employment include:
- Severance Pay
According to Article 1, paragraph 6 of the Minister of Manpower Decree No. 78 of 2001 concerning Amendments to Several Articles of the Minister of Manpower of the Republic of Indonesia Decree No. Kep-150/Men/2000 concerning the Settlement of Termination of Employment and the Determination of Severance Pay, Long Service Award, and Compensation for Losses in Companies (Decree No. 78 of 2001), severance pay is a payment made by the employer to the worker/laborer as a result of the termination of employment. The amount of severance pay is calculated based on the length of service and regulated in Article 40, paragraph (2) of the Labor Regulation.
- Long Service Award
According to Article 1, paragraph 7 of the Minister of Manpower Decree No. 78 of 2001, the long service award is a monetary reward for the services provided to the employee based on the length of service. The amount of the long service award is determined in Article 40, paragraph (3) of the Labor Regulation
- Compensation for Rights
Compensation given to the employee in relation to the rights that can be claimed, based on Article 40, paragraph (4) of the Labor Regulation, includes components such as unused and expired annual leave, the employee’s cost of returning from the workplace, and other items specified in the PKWT.
Termination of PKWT Employment Voluntarily
PKWT Ends
If the employment relationship ends because the term of the PKWT has expired, the employer is required to provide compensation to the employee who has worked for at least one month continuously, according to the provisions of Article 15, paragraph (1) & (3) of the Labor Regulation. The compensation amount is further specified in Article 16, paragraph (1) of the Labor Regulation, which states:
a. For a PKWT of 12 (twelve) months continuously, the compensation provided is equivalent to 1 (one) month’s wages;
b. For a PKWT of 1 (one) month or more but less than 12 (twelve) months, the compensation is calculated proportionally with the following formula:
- Length of service : 12 x 1 (one) month’s wages;
c. For a PKWT of more than 12 (twelve) months, the compensation is calculated proportionally with the following formula:
- Length of service : 12 x 1 (one) month’s wages.
Based on the above explanation, the employer is required to provide compensation to employees whose employment has ended due to the expiration of the PKWT, based on the calculation determined in Article 16, paragraph (1) of the Labor Regulation.
Employee Dies (Article 57 of the Labor Regulation)
If the employment relationship is terminated due to the employee’s death, the employer is
required to provide severance pay equivalent to 2 (two) times the provisions of Article 40, paragraph (2) of the Labor Regulation, long service awards as specified in Article 40, paragraph (3) of the Labor Regulation, and compensation for rights such as unused leave, transportation costs, and other rights specified in the PKWT.
Termination of Employment Not Voluntarily
According to Article 17 of the Labor Regulation, both the employer and the employee can terminate the employment relationship before the end of the PKWT. In this section, we will explain the termination of the employment relationship that can be initiated by either the employer or the employee, excluding termination due to corporate actions (merger, acquisition, bankruptcy), company losses & efficiency, suspension of debt payment obligations or bankruptcy, liquidation of the company, and employee retirement.
Termination of Employment Initiated by the Employee
- Improper Actions by the Employer (Article 36, letter g of the Labor Regulation)
Acceptable reasons for an employee to initiate the termination of the employment relationship are listed in Article 36, letter g of the Labor Regulation, if the employer does the following:
- Abuse, insult, or threats against the employee;
- Persuading and/or instructing the employee to perform actions that contradict the law;
- Failing to pay wages on time for 3 (three) consecutive months or more, even though the employer pays wages on time thereafter;
- Failing to fulfill obligations that were promised to the worker;
- Ordering the worker to perform work outside what was agreed upon, or assigning dangerous work that jeopardizes the worker’s life, safety, health, and morals, whereas such work was not specified in the Employment Contract;
If the employer engages in any improper actions as explained in Article 36, letter g of the Labor Regulation, the legal consequences are that the employer must pay severance pay, long service awards, and compensation for rights such as unused leave, transportation, and other rights specified in the PKWT.
- Employee Resignation Unilaterally (Article 50 of the Labor Regulation)
If the termination of the employment relationship is due to the employee’s own will (resignation), the employer is only required to provide compensation for rights such as transportation costs, unused annual leave that can be cashed, and other matters stipulated in the Employment Contract (Article 40, paragraph 4 of the Labor Regulation). If the employee does not have leave rights, the employer is not required to provide such compensation. Additionally, if the Employment Contract does not stipulate severance pay, the employer is not obligated to provide it.
Termination of Employment Initiated by the Employer
Termination of employment for contract employees can be carried out by the employer under certain conditions, such as:
- Employee Illness (Article 55 of the Labor Regulation)
The employer/employee can terminate the employment relationship due to the employee’s prolonged illness or work-related disability. If the employee is unable to perform their duties after exceeding 12 (twelve) months, the legal consequence is that the employer must provide severance pay equivalent to 2 (two) times the provisions of Article 40, paragraph (2) of the Labor Regulation, long service awards, and compensation for unused leave, transportation, and other rights specified in the PKWT.
- Employee Absence (Article 51 of the Labor Regulation)
If the employer terminates the employment relationship due to the employee being absent from work for 5 consecutive days and the employee has been called to work 2 times in writing, the employer will only provide compensation for rights such as transportation costs, unused annual leave that can be cashed, and other matters stipulated in the Employment Contract (Article 40, paragraph 4 of the Labor Regulation). If the employee does not have leave rights, the employer is not required to provide compensation, and if the Employment Contract does not stipulate severance pay, the employer is not required to provide compensation.
- Employee Violating the Employment Contract (Article 52 of the Labor Regulation)
If the employer terminates the employment relationship due to the employee violating the Employment Contract and has previously issued 3 warnings (Article 52, paragraph (1) of the Labor Regulation), the employer is required to provide 0.5 of the severance pay calculated according to Article 40, paragraph (2) of the Labor Regulation, long service awards if the employee has worked for more than 3 years, compensation for unused leave, and transportation costs, and severance pay if agreed in the Employment Contract.
If the termination is due to the employee’s breach of contract, such as theft, embezzlement of company assets, leaking company secrets, threats, and abuse, or recklessness that harms the company, the employer can terminate the employment without notice or warning and is only required to provide compensation for unused leave and severance pay if stipulated in the Employment Contract.
Conclusion
Based on a legal review of labor regulations in Indonesia, the termination of employment for contract employees bound by a PKWT can occur voluntarily (PKWT ends, employee dies) or involuntarily (termination initiated by the employee or employer). This results in the employer’s legal obligations to provide severance pay and/or long service awards and/or compensation for rights, with the amounts and components regulated in detail in Article 40 of the Labor Regulation.