Garment: Employment Security

GARMENT EMPLOYMENT GUARANTEE

Information about employment guarantee including employment agreement, contract, termination of employment, severance pay, and probation period in the garment sector in Indonesia

 

EMPLOYMENT AGREEMENT

1. What is an Employment Agreement?
2. What is a Fixed Term Employment Agreement (FTEA)?
3. What is an Indefinite Term Employment Agreement (ITEA)?

 

FTEA IN THE GARMENT SECTOR

1. What are the FTEA requirements for garment workers?
2. Is the FTEA applicable to all types of work in the garment sector?
3. How long is the FTEA effective period?
4. Can the FTEA be extended?
5. Can the FTEA be renewed?
6. What happens when the garment workers are employed with a contract extension of more than 5 years?

 

TERMINATION OF EMPLOYMENT

1. What is a Termination of Employment?
2. What are the consequences when the employment is terminated prior to the expiry of the employment agreement?
3. Is the probation period requirement allowed for the FTEA in the garment sector?
4. Garment workers often work without any employment agreement but with a verbal agreement, is this legal?
5. What are the consequences if the employment agreement/contract infringes the rules although it has been signed by the workers?
6. What kinds of employment agreement infringements that legally turns an FTEA into an ITEA? 
7. Garment workers with an FTEA turned into an ITEA, which one serves as the basis for calculating the period of service?
8. Garment workers with an ITEA having a probation period, which one serves as the basis for calculating the period of service?
9. What are the causes of termination of employment?

 

VALUE OF SEVERANCE PAY, COMPENSATION PAY, & OTHER COMPENSATIONS

1. For garment workers whose employment contract period expires, what are their rights?
2. For garment workers terminated by the company, what are their rights?
3. Because most of the garment workers are female, can a garment worker be terminated due to being pregnant/giving birth?
4. What are the rights of garment workers whose company is dissolved?
5. What are the rights of garment workers whose company is bought by or merged with another company?
6. What are the rights of garment workers terminated for committing an infringement and previously issued the first, second and third warning letters?
7. What are the rights of retired garment workers?
8. What are the rights of resigned garment workers?
9. Value of severance pay, long-service pay, compensation pay, and severance pay

 

 

EMPLOYMENT AGREEMENT

WHAT IS AN EMPLOYMENT AGREEMENT?

Employment agreement is an agreement between the workers/laborers and the employer, which contains the terms of employment, rights and obligations of the parties. Under the manpower rules in Indonesia , there are 2 types of employment agreement by expiry period, i.e. Fixed Term Employment Agreement (FTEA) and Indefinite Term Employment Agreement (ITEA).

 

WHAT IS A FIXED TERM EMPLOYMENT AGREEMENT (FTEA)?

An FTEA or Fixed Term Employment Agreement shall mean an employment agreement between the worker/laborer and the employer to establish an employment relationship with a fixed term or for a particular work. The FTEA is based on the term or completion of a particular work under the employment agreement. The worker is often called a contract worker. 

 

WHAT IS AN INDEFINITE TERM EMPLOYMENT AGREEMENT (ITEA)?

An ITEA or Indefinite Term Employment Agreement is an agreement between the Worker/Laborer and the Employer to establish a permanent Employment Relationship. This permanent employment relationship has no time limitation (it may be up to the retirement age or when the worker dies). The worker is often called a permanent or fixed worker. 

FTEA IN THE GARMENT SECTOR

WHAT ARE THE FTEA REQUIREMENTS FOR GARMENT WORKERS?

The FTEA requirements shall be generally applicable to all employment agreements in various employment sectors. The general requirements shall include agreement, capacity of the parties (capability of the parties making an agreement in the eyes of law), consideration, and validity of such consideration. These are the general requirements for a valid agreement pursuant to the civil  laws.

The requirements for manpower rules to be observed shall be the completeness of identity of the parties, the types of work or position, amount of pay (not against the rules), term of agreement, and worker placement. Then, as additional requirements, the employment agreement should be made in duplicate where each party should hold one counterpart having the same legal power. In addition, the number of contract workers and the types of work should also be registered with the local manpower department.

 

IS THE FTEA APPLICABLE TO ALL TYPES OF WORK IN THE GARMENT SECTOR?

The FTEA may not be applicable to all types of work in the garment sector. The FTEA may only be made for a particular work that, by type and nature or activity, shall be finished within a particular period/temporary. Any infringement of these provisions shall legally turn the FTEA into an ITEA (Article 59 paragraph (3) letter b and paragraph (3) of the Law No. 13 of 2003 concerning Manpower)

 

HOW LONG IS THE FTEA EFFECTIVE PERIOD?

Under the new derivative provisions of the Job Creation Law, i.e. article 8 of Government Regulation No. 35 of 2021 concerning Fixed Term Employment Agreement, Outsourcing, Working Time and Break Time, and Termination of Employment, the effective period of entire FTEA and any extension thereof shall not exceed 5 years.

 

CANTHE FTEA BE EXTENDED?

Yes, the FTEA may be extended several times if the work performed is not finished, provided that the effective period of entire FTEA and any extension thereof shall not exceed 5 years.

 

CAN THE FTEA BE RENEWED?

Under the new rules, there is no renewal of FTEA. There is only a rule that the FTEA may only be extended for no more than 5 years.

 

WHAT HAPPENS WHEN THE GARMENT WORKERS ARE EMPLOYED WITH A CONTRACT EXTENSION OF MORE THAN 5 YEARS?

If the workers have executed the FTEA for more than 5 years, then the employment agreement may no longer be renewed. The Company should decide whether to appoint the workers or terminate their employment due to the expiry of employment agreement. These provisions are different from the previous provisions of the Law No. 13 of 2003 concerning Manpower asserting the infringement of term of FTEA causes the FTEA to legally turn into an ITEA.

 

TERMINATION OF EMPLOYMENT

WHAT IS A TERMINATION OF EMPLOYMENT?

Termination of Employment shall mean the termination of employment due to particular matters resulting in the end of rights and obligations between the worker/laborer and the employer. In accordance with the Manpower Law and the Job Creation Law, any terminated worker may receive the compensation for termination on the following conditions:

1. Any FTEA worker having a service period of at least 1 (one) consecutive month shall be entitled to compensation pay upon termination of employment.
2. Any worker with the ITEA status shall be entitled to severance pay and/or long-service pay, and compensation pay of which amount differs, depending on the service period and the reason for termination of employment.

 

WHAT ARE THE CONSEQUENCES WHEN THE EMPLOYMENT IS TERMINATED PRIOR TO THE EXPIRY OF THE EMPLOYMENT AGREEMENT?

Article 17 of Government Regulation No. 35/2021 states that if either party in this case the worker or the company terminates the employment relationship where the contract period has not expired, then the employer shall be required to provide compensation pay, the amount of which shall be calculated on the basis of term of FTEA undertaken by the worker.

 

IS THE PROBATION PERIOD REQUIREMENT ALLOWED FOR THE FTEA IN THE GARMENT SECTOR?

Under the FTEA, the probation period is not allowed to become a requirement in an FTEA. For the FTEA, the service period is calculated since the first time working without the probation period. If the probation period is required, then the probation period shall be null and void and the service period shall remain counted. 

 

GARMENT WORKERS OFTEN WORK WITHOUT ANY EMPLOYMENT AGREEMENT BUT WITH A VERBAL AGREEMENT, IS THIS LEGAL?

Since the existence of changes in the rules stating that the employment agreement may be made in writing or verbally, there is no obligation for the employer to issue the employment agreement in writing. However, for legal certainty of the compliance with the employment agreement by either the workers and the employer, then the employer may remind and ask for the employment agreement to be made in writing. It should be understood that the employment agreement is an agreement containing the terms of employment, rights and obligations of the parties. It means that legal certainty is not only for the benefit of the workers but also the employer.

 

WHAT ARE THE CONSEQUENCES IF THE EMPLOYMENT AGREEMENT/CONTRACT INFRINGES THE RULES ALTHOUGH IT HAS BEEN SIGNED BY THE WORKERS?

If an FTEA infringes the applicable laws and regulations, then the employment agreement shall become null and void (article 52 paragraph (1) letter d and paragraph (3) of Law No. 13/2003) 

 

WHAT KINDS OF EMPLOYMENT AGREEMENT INFRINGEMENTS THAT LEGALLY TURNS AN FTEA INTO A ITEA?

Although it is asserted that any FTEA infringing the rules shall become null and void, there are only 2 (two) types of infringement that legally turn the FTEA into an ITEA, namely:

1. The work set forth in the FTEA is a fixed/permanent work at the relevant company 
2. The daily FTEA where the worker works for 21 (twenty-one) days or more for 3 (three) consecutive months or more.

 

GARMENT WORKERS WITH AN FTEA TURNED INTO AN ITEA, WHICH ONE SERVES AS THE BASIS FOR CALCULATING THE PERIOD OF SERVICE?

If the FTEA turns into an ITEA, then the one serving as the basis for calculating the service period shall be the FTEA because the calculation of the service period commences since the existence of employment relationship/first time working.

 

GARMENT WORKERS WITH AN ITEA HAVING A PROBATION PERIOD, WHICH ONE SERVES AS THE BASIS FOR CALCULATING THE PERIOD OF SERVICE?

If the ITEA commences with a probation period, then the one serving as the basis for calculating the service period shall be the commencement of probation period because the calculation of the service period commences since the existence of employment relationship/first time working.

 

WHAT ARE THE CAUSES OF TERMINATION OF EMPLOYMENT?

Pursuant to article 61 of Law No. 13/2003 in conjunction with Law No. 11/2021, the employment relationship may terminate, when:

1. The worker dies
2. The term of employment contract expires
3. The completion of a particular work
4. The existence of court judgment or ruling of an industrial relation dispute settlement institution having permanent legal power
5. The existence of particular circumstances or events set out in the employment agreement, the company regulation, or the collective bargaining agreement causing the termination of employment.

 

VALUE OF SEVERANCE PAY, COMPENSATION PAY, & OTHER COMPENSATIONS

FOR GARMENT WORKERS WHOSE EMPLOYMENT CONTRACT PERIOD EXPIRES, WHAT ARE THEIR RIGHTS?

Article 16 of Government Regulation No. 35/2021 governs compensation pay for workers whose employment under the FTEA terminates. The calculation shall be proportional against the term of FTEA undertaken by the worker. The amount of compensation pay shall be determined as follows:

1. FTEA for 12 (twelve) consecutive months, 1 (one) month of pay
2. FTEA for 1 (one) month or more and less than 12 (twelve) months, calculated proportionally with the calculation: service period/12 x 1 (one) month of pay. Example: service period of 6 months, compensation = 6/12 x 1 month of pay = 0.5 x pay/month
3. FTEA for more than 12 (twelve) months, calculated proportionally with the calculation: service period/12 x 1 (one) month of pay. Example: service period of 18 months, compensation = 18/12 x 1.5 month of pay
4. The amount of compensation for the Worker/Laborer in micro and small enterprises shall be provided under a mutual agreement between the Worker/Laborer.

 

FOR GARMENT WORKERS TERMINATED BY THE COMPANY, WHAT ARE THEIR RIGHTS?

In the event of termination of employment, the employer shall be required to pay compensation, the amount of which shall be according to the reason of termination of employment. As for the compensation, it shall be in the form of: severance pay, long-service pay, compensation pay, and separation pay. 

 

BECAUSE MOST OF THE GARMENT WORKERS ARE FEMALE, CAN A GARMENT WORKER BE TERMINATED DUE TO BEING PREGNANT/GIVING BIRTH?

A garment worker who is pregnant or giving birth may not be terminated. Even for female workers who give birth, guarantee should be given that the relevant worker shall be reinstated to her former job and position after taking the maternity leave.

 

WHAT ARE THE RIGHTS OF GARMENT WORKERS WHOSE COMPANY IS DISSOLVED?

A worker who is terminated due to the company being dissolved, then the termination compensation pay shall be adjusted to the circumstance of dissolution of the company, as follows:

1. If the Company is dissolved as a result of the Company suffering from losses consecutively for 2 (two) years or suffering from non-consecutive losses for 2 (two) years, then the worker shall be entitled to: 0,5x severance pay, 1x long-service pay, and compensation pay (article 44 paragraph (1) of Government Regulation No. 35/2021).
2. If the company is dissolved not due to the company suffering from losses, then the worker shall be entitled to: 1x severance pay, 1x long-service pay, and Compensation Pay (article 44 paragraph (2) of Government Regulation No. 35/2021).
3. If the company is dissolved due to a force majeure event, then the worker shall be entitled to: 0,5x severance pay, 1x long-service pay, and Compensation Pay (article 45 paragraph (1) of Government Regulation No. 35/2021).

 

WHAT ARE THE RIGHTS OF GARMENT WORKERS WHOSE COMPANY IS BOUGHT BY OR MERGED WITH ANOTHER COMPANY?

A garment worker whose company is brought by or merged with another company and the worker refuses to continue the employment relationship or the employer refuses to accept the worker, then the worker shall be entitled to: 1x severance pay, 1x long-service pay, and Compensation Pay (article 41 of Government Regulation No. 35/2021). If the worker chooses to continue working at the new company, then the service period calculation constitutes the continuation of service period of the previous company. 

 

WHAT ARE THE RIGHTS OF GARMENT WORKERS TERMINATED FOR COMMITTING AN INFRINGEMENT AND PREVIOUSLY ISSUED THE FIRST, SECOND AND THIRD WARNING LETTERS?

A garment worker terminated due to committing an infringement of the provisions set forth in the Employment Agreement, the Company Regulation, or the Collective Bargaining Agreement, and previously issued the first, second and third warning letters, then the worker shall be entitled to: 0,5x severance pay, 1x long-service pay, and Compensation Pay (Article 52 paragraph (1) of Government Regulation No. 35/2021).

  

WHAT ARE THE RIGHTS OF RETIRED GARMENT WORKERS?

Retired garment workers shall be entitled to: 1.75x severance pay, 1x long-service pay, and Compensation Pay (Article 56 of Government Regulation No. 35/2021). If the company enrolls the workers in the pension program, the contribution paid by the company may be calculated as part of the fulfillment of the company’s obligations of the severance pay and the long-service pay and the separation pay as referred to above. However, if the calculation of benefits of the pension program is smaller than the severance pay and the long-service pay and the separation pay, then the difference shall be paid by the Employer.

 

WHAT ARE THE RIGHTS OF RESIGNED GARMENT WORKERS?

Garment workers resigning after satisfying all requirements shall be entitled to: Compensation Pay and Separation Pay of which amount is set forth in the Employment Agreement, the Company Regulation, or the Collective Bargaining Agreement in each workplace.

 

VALUE OF SEVERANCE PAY, LONG-SERVICE PAY, COMPENSATION PAY, & SEVERANCE PAY

The calculation of severance pay is determined under Article 156 paragraph (2) of the Law No. 13 of 2003 concerning Manpower (Law No. 13/2003) in conjunction with Law No. 11 of 2020 concerning Job Creation and Article 40 paragraph (2) of Government Regulation No. 35 of 2021 concerning Fixed Term Employment Agreement, Outsourcing, Working Time and Break Time, and Termination of Employment (Government Regulation No. 35/2021), shall be:

1. service period of less than 1 year = 1 month of pay
2. service period of less than 2 year = 2 months of pay
3. service period of 2 years or more but less than 3 years = 3 months of pay
4. service period of 3 years or more but less than 4 years = 4 months of pay
5. service period of 4 years or more but less than 5 years = 5 months of pay
6. service period of 5 years or more but less than 6 years = 6 months of pay
7. service period of 6 years or more but less than 7 years = 7 months of pay
8. service period of 7 years or more but less than 8 years = 8 months of pay
9. service period of 8 (eight) years or more = 9 months of pay

 

The calculation of long-service pay under article 156 paragraph (3) of Law No. 11/2020 in conjunction with Law No. 13/2003 and article 40 paragraph (3) of Government Regulation No. 35/2021 shall be as follows: 

1. service period of 3 years or more but less than 6 years = 2 months of pay
2. service period of 6 years or more but less than 9 years = 3 months of pay
3. service period of 9 years or more but less than 12 years = 4 months of pay
4. service period of 12 years or more but less than 15 years = 5 months of pay
5. service period of 15 years or more but less than 18 years = 6 months of pay
6. service period of 18 years or more but less than 21 years = 7 months of pay
7. service period of 21 years or more but less than 24 years = 8 months of pay
8. service period of 24 years or more = 10 months of pay.

The compensation pay that should have been received under article 156 paragraph (4) of Law No. 11/2020 in conjunction with Law No. 13/2003 and article 40 paragraph (4) of Government Regulation No. 35/2021, in the form of: 

1. Unclaimed and unforfeited annual leave;
2. Repatriation cost for the worker/laborer and his/her family to the place where the worker/laborer was hired
3. Other matters set forth in the employment agreement, the company regulation or the collective bargaining agreement

The amount of separation pay is set forth in the Employment Agreement, the Company Regulation, or the Collective Bargaining Agreement in each workplace.