Part 1 – MK Decision on Employment: Key Changes on the Use of Foreign Worker, Fixed-Term Employment Agreement, and Termination of Employment

Gain an understanding of the revisions regarding the use of foreign workers, fixed-term employment agreement, and termination of employment under the Constitutional Court Decision No. 168/PUU-XXI/2023.

1. The use of foreign workers (tenaga kerja asing “TKA”) is only permitted for specific positions and fixed-term based on needs, while prioritizing local workers in various sectors.
2. Constitutional Court (Mahkamah Konstitusi “MK”) clarified that the maximum duration of a fixed-term employment contracts (perjanjian kerja waktu tertentu “PKWT”) for “completion of a specific task” of 5 years, including if there is an extension.
3. The resolution of termination of employment (pemutusan hubungan kerja “PHK”) must prioritize a deliberative process between the employer and the worker and/or the workers’ union.
4. PHK can only be carried out after obtaining a legally binding decision from an industrial relations dispute resolution institution.

MK through Decision No. 168/PUU-XXI/2023 (“MK Decision 168”) has made significant changes to employment regulations as outlined in Law No. 6 of 2023 on the Ratification of Government Regulation in Lieu of Law No. 2 of 2022 on Job Creation into Law (“Job Creation Law”).

At least 21 key points are addressed in MK Decision 168, including matters related to the use of TKA, PKWT, and PHK.

Regarding the use of TKA, the previous regulations did not explicitly state that local labor must be the primary priority. Following MK Decision 168, the use of TKA is only permitted for specific positions and fixed-term based on needs, while prioritizing local workers in various sectors.

In addition, the MK emphasized that the authority to approve plans for the use of TKA lies with the Minister of Manpower.

Under Job Creation Law, PKWT may be executed for a maximum period of 5 years. The following article stipulates that PKWT may be extended or renewed. However, this provision has led to various interpretations. Therefore, MK clarified that the duration of a PKWT for “completion of a specific task” may be established for a maximum period of 5 years, including if there is an extension.

MK has made significant changes regarding PHK. In principle, MK emphasized that the resolution of PHK must prioritize a deliberative process in accordance with legal provisions to protect workers’ rights.

PHK must be resolved through bipartite between the employer and the worker and/or the workers’ union. If no agreement is reached, PHK can only be carried out after obtaining a legally binding decision from an industrial relations dispute resolution institution. The obligations between the employer and the worker remain in effect until the dispute resolution process concludes with a legally binding decision.