When a person is hired by a company, he/she will sign an employment agreement[1]. This employment agreement creates an employment relationship between the entrepreneur and the worker/labor. For an employment agreement to be valid, it must fulfill the following requirements:

1. consent from both sides;
2. The capability or competence to conduct legal actions;
3. The existence of the job which both sides have agreed about;
4. The job which both sides have agreed about not contradicting with public order, morality and prevailing laws.

Employment agreements may be made either in writing or orally. A written employment agreement shall at least include:

1. The name, address and line of business of the company;
2. The name, sex, age and address of the worker/ labor;
3. The occupation or the type of job;
4. The work location;
5. The amount of wages and how the wages shall be paid;
6. Terms and conditions of employment which contains the rights and obligations of the entrepreneur and the worker/ labor;
7. The commencement date the work agreement and the term of the work agreement;
8. The place and the date of the execution of the work agreement; and
9. The signatures of the parties in the work agreement.

According to its term, there are 2 types of employment agreement, namely:

1. An employment agreement for a specified period of time

An employment agreement for a specified period of time shall be made in writing and must be written in Indonesian with Latin alphabets. An employment agreement for a specified period of time cannot stipulate a probation period. Otherwise, the probation period shall then be declared null and void by law. A work agreement for a specified period of time can only be made for a certain job, which, because of its type and nature, will complete in a specified period of time or temporary, that is:

1. Work to be performed and completed at one go or work which is temporary by nature;
2. Work which completion is estimated at a period of time which is not too long and no longer than 3 (three) years;
3. Seasonal work; or
4. Work that is related to a new product, a new activity or an additional product that is still in the experimental stage or try-out phase.

An employment agreement for a specified period of time may be made for a period of no longer than 2 (two) years and may only be extended one time for a period that is no longer than 1 (one) year. No later than 7 (seven) days prior to the expiration of the employment agreements, the entrepreneurs notify the intention to extend the employment agreements for a specified period of time in writing to the workers/ labor. In addition, the renewal of an employment agreement for a specified period of time may only be made after the lapse of grace period of 30 (thirty) days after the expiry of the employment agreement for a specified period of time. This renewal may only be made once and for a period of no longer than 2 (two) years.

If one of the parties terminate the employment relation prior to the expiration of the agreement, or if their employment agreement is terminated for reasons other than stipulated under Article 61 (1) Manpower Law[2], the party who terminates the employment relation is obliged to pay compensation to the other side in the amount that shall be the same as the amount of the remaining wages that the worker/ labor is entitled to receive until the expiration of the agreement.

 2. An employment agreement for an unspecified period of time.

An employment  agreement for an unspecified period of time may require a probation period for no longer than 3 (three) months and the entrepreneur is prohibited from paying wages less than the applicable minimum wage. An employment agreement for an unspecified period of time can be made in writing or orally. If an employment agreement for an unspecified period of time is made orally, the employer is required to make a letter of appointment for the worker / labor concerned.

An employment agreement shall not be terminated due to the entrepreneur dies or due to the transfer of ownership of the company because the sale, inheritance, or grants. In the event of a transfer of ownership of a company, the rights of the worker/labor become the obligation of the new entrepreneur. If the entrepreneur, who is a sole proprietorship, dies, his or her heir may terminate the employment agreement after a negotiation with the worker/ labor. If a worker/ labor die, his or her heir has a rightful claim to the worker’s entitlements according to the prevailing laws or to the entitlements that is stipulated in the employment agreement, the company regulation, or the company’s collective labor agreement.

Besides the 2 agreements above, there is also another agreement named collective labor agreement.  A collective labor agreement is an agreement resulted from negotiations between a worker/ labor union or several worker/ labor unions registered at an agency which responsible for manpower affairs and an entrepreneur or several entrepreneurs or an association of entrepreneurs which contains the terms and conditions of work, rights and obligations of both sides. In a company, there is only one collective labor agreement that applies for all worker/labor. The collective labor agreement shall be made in writing in Indonesian using Latin alphabets. In case the collective labor agreement is written in foreign language, then it must be translated into Indonesian by a sworn translator.

A collective labor agreement shall at least contain:

1. The rights and obligations of the employer;
2. The rights and obligations of the worker/ labor union and the worker/ labor;
3. The period and the effective date of the collective labor agreement; and
4. The signatures of the party in the collective labor agreement.

The entrepreneur and the worker/ labor union must inform the contents of the collective labor agreement or its amendments to all the company’s workers/ labors. Even, the entrepreneur must print and distribute the text of collective labor agreement to each worker/ labor at the company’s expense.

A collective labor agreement shall have the period for no longer than 2 (two) years and may be extended for no longer than 1 (one) year based on a written consent between the entrepreneur and the worker/ labor union(s). Negotiations for the new collective labor agreement may be started as early as 3 (three) months prior to the expiration of the existing collective labor agreement. In case the negotiations fail to result in any agreement, the existing collective work agreement shall remain effective for a period of 1 (one) year at the longest.

In the event of dissolution of a worker/ labor union or the transfer of the company’s ownership, the existing collective labor agreement shall remain valid and effective until it expires. If a company with a collective labor agreement merges with another company with another collective labor agreement, then the prevailing collective labor agreement is the one that gives the worker/ labor more advantages. If a company that has a collective labor agreement merges with another company that has no collective labor agreement, then the collective labor agreement shall apply to the merged company until the collective labor agreement expires.

Any employment agreement made by the entrepreneur and worker/labor shall not contradict with the collective labor agreement.  If there is contradiction, then the provisions in the employment agreement shall be declared null and void and the provision of the collective labor agreement shall apply.

Hope this is useful.

FREDRIK J PINAKUNARY LAW OFFICES

This article also available in Indonesian. Follow this link: Perjanjian Kerja & Perjanjian Kerja Bersama.

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[1] Article 1 point 14 Law No. 13 Year 2003 concerning Manpower (“Manpower Law”)

“A employment agreement shall be defined as an agreement made between a worker/ labor and an entrepreneur or an employer which specifies work requirements, rights and obligations of both parties.”

[2] Article 61 (1) Manpower Law:

“An employment agreement shall be terminated  if:

a. The worker dies; or

b. The employment agreement expires; or

c. There is a court ruling and/ or a decision or a resolution of the institute for the settlement of industrial relations disputes, which has permanent legal force; or

d. There is a certain situation or incident stipulated in the labor agreement, the company regulations, or the company’s collective labor agreement which may effectively result in the termination of employment.”