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Indonesia: Limits to Be Placed on Contract Labor

(Nov. 23, 2012) On November 15, 2012, Indonesia’s Manpower and Transmigration Ministry published a decree that limits the use of contract workers. The new decree has been sent on to the Justice and Human Rights Ministry for review before adoption, according to Manpower and Transmigration Minister Muhaimin Iskandar. (Ridwan Max Siiabat, New Labor Decree Off Course, THE JAKARTA POST (Nov. 19, 2012).)

The decree will affect how companies use contract workers, banning the outsourcing of core business operations. When the new rules are in force, other than temporary activities lasting just a few months, such as building repairs and painting, only cleaning services, security services, driving services, support services for mining sites, and catering services will be able to be outsourced. The decree will give managers six months to incorporate workers currently under outsourcing contracts into their permanent staffs. (Id.)

Many companies that are in labor-intensive industries have preferred to outsource their core operations in order to avoid the requirements imposed on businesses by the labor laws for permanent employees. The decree comes in the wake of labor union pressure and a January 17, 2012, Indonesian Constitutional Court decision ruling that outsourcing labor, resulting in workers not receiving benefits, in many cases is unconstitutional. (Id.; Constance Johnson, Indonesia: Labor Law to Be Revised, GLOBAL LEGAL MONITOR (Jan. 25, 2012).)

Muhaimin Iskandar commented on the decree, stating that “[b]usinesses are required to comply with the Labor Law and respect workers’ normative rights on remuneration, allowances, annual leave and bonuses.” (Siiabat, supra.)

Two labor groups, the Confederation of Indonesian Workers Union and the Confederation of Indonesian Prosperous Labor Union, praised the proposed decree, calling it a step toward improving poor labor conditions in the country. (Id.) The Indonesian Employers Association, however, is not pleased with the plan and stated that some manpower supply companies anticipate challenging the decree in either the Jakarta Administrative Court or the Supreme Court. (Id.) The Association indicates that 14 million workers in the country are employed through outsourcing; an independent survey puts the figure at about 20 million. (Id.)