20 Apr 2018
Supreme Court Stresses Expats May Only Work on Temporary Contracts, but Surprises Still Possible

A. Introduction

Following our recent legal update on Presidential Regulation No. 20 of 2018, which significantly streamlines the requirements for the hiring of expatriates [click here to view], we have received a number of queries as to the rights and protections afforded to expatriate employees under Indonesian manpower law. In particular, we have been asked whether there is any possibility for an expatriate to be employed on a permanent basis in Indonesia.

B. Fixed-Term versus Permanent Employment Contracts

In response, the first thing to be said is that the relevant legislation (the “Manpower Law”[i]) draws a very clear distinction between a permanent employment contract and a fixed-term employment contract (“FTEC”, also known as a temporary or specific-job contract).

Generally, the Manpower Law expressly discourages temporary employment on the basis of a fixed-term contract by setting strict limits on the amount of time and the types of work for which an employee may be hired on a temporary basis. Conversely, the Manpower Law also makes it impossible for an expatriate to enjoy permanent employee status by expressly providing that an expatriate may only be employed to perform a specific job and that his/her employment may only be on the basis of an FTEC (see Article 42(4) Manpower Law).

Thus, local employees and expatriate employees are treated very differently under the Manpower Law.

Nevertheless, confusion has arisen as to whether an expat can in certain circumstances become a permanent employee. This is because of the Manpower Law’s failure to clearly identify:

(1) those of its provisions that apply only to Indonesian employees, those that apply only to expatriate employees, and those that apply to both; and

(2) those of its provisions that apply only to permanent employment contracts, those that apply only to FTECs, and those that apply to both.

In other words, the way in which the Manpower Law is structured and framed has the potential to often leave the hapless reader scratching his/her head in bewilderment.

C. Restrictions on Use of Fixed-Term Contracts

This question of whether or not a provision of the Manpower Law is applicable to both local employees and expatriate employees is particularly important in the case of Article 59, which sets out strict limitations on the use of FTECs.

Essentially, Article 59 provides that a fixed-term contract may only be entered into in respect of work that is intrinsically of a one-off, seasonal or temporary nature, work which it is estimated will be completed within not more than three years, or work that is related to product or process development. A fixed-term contract may not be entered into for work that is intrinsically permanent or recurring in nature.

Further, Article 59 provides that a fixed-term employment contract may be entered into for up to a maximum of two years, which period may be extended once by up to a maximum of one year, or renewed once for a maximum of two years, with a 30-day grace period between the expiry of the first contract and the commencement of the renewed contract. Accordingly, an employee may work for the same employer on a temporary basis for a maximum period of either three or four years depending on the nature of the second contract.

Thus, Article 59 sets restrictions on (1) the type of work that may be performed under a FTEC, and (2) the length of time that a person may be employed in the same job and by the same employer on the basis of a FTEC.

Crucially, Article 59 (7) provides that an FTEC that falls foul of the above restrictions will automatically convert into a permanent employment contract. This conversion occurs by operation of law, meaning that no action needs to be taken by the employee for it to happen.

D. Do Restrictions on Fixed-Term Contracts Also Apply to Expatriates?

So, the big question is whether the restrictions on the use of FTECs and the mandatory conversion provision contained in Article 59 also apply to expatriates? At first sight, they appear to be universally applicable as the article provides for no exemptions. Indeed, the Industrial Relations Court has handed down a number of decisions that held this to be the case. These decisions appear to have aroused hopes that expatriates who have worked for more than three or four years, as the case may be, with the same employer can have their FTECs automatically converted into permanent contracts, and thus be entitled to enjoy all the benefits and protections afforded under the Manpower Law, such as its tight restrictions on termination, paid sick leave for at least 12 months (on a sliding scale from 100% to 50%), severance and service pay entitlements, etc.

Unfortunately (from the expat’s perspective), the Industrial Relations Court’s decisions referred to above are in a clear minority, and the vast preponderance of the court’s rulings have been to the contrary, i.e., that Article 59 Manpower Law does not apply in the case of an FTEC entered into by an expatriate.

E. Supreme Court’s Stance

This issue would now appear to have finally been put to bed with the issuance of Supreme Court Circular No. 1 of 2017 (the “Circular”) on 19 September 2017. A Supreme Court Circular (or Surat Edaran Mahkamah Agung) is an instrument that can be used by the Supreme Court to impose a common understanding across the judicial system as regards the interpretation or application of particular aspects of the law.

Section B.2.b.1 of the Circular stipulates, among other things, that:

(a) An expatriate may only be employed in Indonesia on the basis of a specific job and a FTEC.

(b) Only an expatriate employee in respect of whom an Expatriate Employment License (“IMTA”) has been issued is entitled to enjoy protection.

(c) Upon the expiry of an expatriate employee’s IMTA, he/she will no longer enjoy legal protection.

Paragraph (a) simply reiterates what is stated in Article 42(4) Manpower Law. However, paragraphs (b) and (c) are somewhat problematic, even without taking into consideration the changes brought about by Presidential Regulation No. 20 of 2018. For example, what precise type of protection / legal protection is being referred to in paragraphs (2) and (3)? If it is protection under the Manpower law and/or the immigration legislation, then why not simply state this? If we were to interpret these two paragraphs literally, then all forms of legal protection will be withdrawn from an expatriate employee whose IMTA has expired, such as the legal right to protection of property. While this confusion may simply be put down to poor drafting, such negligence can have consequences in Indonesia given the unpredictability of the country’s courts.

This unpredictability may also affect the extent to which the Circular is heeded by the courts. Given the long-running and widely acknowledged problem of indiscipline in judicial decision-making in Indonesia, there is no guarantee that it will be faithfully adhered to in all cases. So, it should come as no surprise if decisions emerge in the future that run contrary to its purport.

With regard to the references to an IMTA in paragraphs (b) and (c) above, It should also be borne in mind that, with the issuance of Presidential Regulation No. 20 of 2018, the requirement to obtain a stand-alone IMTA from the Ministry of Manpower in order to employ an expatriate has essentially been replaced by a notification process under which all the prospective employer needs to do is to submit its Expatriate Manpower Employment Proposal (RPTKA) for approval by the Minister of Manpower. Such approved RPTKA then doubles up as an IMTA.

F. ABNR Commentary

As in many other jurisdictions, the rights of expatriate workers in Indonesia are tightly circumscribed. The rules set out in the Manpower Law not only have regard to labor market conditions and the needs of employers, but also take into account socio-cultural realities in Indonesia, where there has long been a fear among sections of the public that the country is on the cusp of being flooded by foreign labor. Given this background, what is surprising is not so much the substance of Circular No. 1/2017 (in so far as it pertains to expatriate manpower), but rather that it took the Supreme Court so long to reiterate that under no circumstances can an expat be employed on the basis of a permanent contract. By Indra Setiawanisetiawan@abnrlaw.comand Tara Riandikatriandika@abnrlaw.com

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[i] Law No. 13 of 2013 on Manpower / Undang-undang Nomor 13 Tahun 2013 Tentang Ketenagakerjaan.