Makarim & Taira S.
  January 7, 2010 - Indonesia

Indonesia - Termination for Serious Misconduct; any Recent Developments?

The fifth anniversary has just passed of the Constitutional Court’s 2004 ruling which declared that Article 158 and certain other articles of the Manpower Law in relation to serious misconduct were against the Indonesian Constitution. Effectively, an employer could not immediately terminate an employee for serious misconduct but had to wait for a court judgment of guilt before initiating termination. Although the Ministry of Manpower subsequently issued 2 circular letters relating to the Constitutional Court decision and its effect, there is still uncertainty on what is and is not possible in the way of termination of employment for serious misconduct, both at a legal and at a practical level.

As can be imagined, there does not appear to be absolute certainty either at the Industrial Relations Court or the Supreme Court level. In practice, and after having reviewed some judicial decisions, it appears that there are very few instances where the employer waits for criminal proceedings to occur. By far the most common scenario appears to be that the two parties try to come to some amicable solution which does not lead to a case at the Industrial Relations Court. Ideally, the employee would sign a mutual agreement (or a resignation letter) which would almost always lead to the employer giving some financial payment to the employee in order to secure an immediate termination or resignation. 

The other common option where no mutual agreement is reached is for the employer to initiate the termination action based on provisions of the company regulations, collective labour agreement or employment agreement, as applicable. What this means is that those documents should be drafted to ease and simplify the process for a termination for serious misconduct. It is common for specific wording to be inserted as well as ancillary documents such as ethical codes etc to be incorporated by reference in order to provide contractual grounds for termination for serious misconduct which are much wider than those contained in Article 158.

It will be interesting to see how this area of labour law develops in the next few years and whether the present uncertainties can be cleared up so that both parties can know in advance what the limits and scope are for termination for serious misconduct. In the meantime, all employers should be reviewing their employment documents to try to give themselves a higher chance of a successful termination.