On October 28, 2026, the Indonesian Government enacted Law No. 27 of 2026 on Employment Protection (the “New Manpower Law”). This landmark legislation introduces fundamental shifts in employment regulations, notably eliminating administrative requirements concerning formal termination notices and certain previously recognized grounds for termination, such as standard business efficiency and specific categories of serious violations.
In their place, Article 228 of the New Manpower Law sets out a more structured framework for employment termination, signaling a shift toward a more restrictive approach in which termination is treated as a last resort rather than a routine administrative decision.
These changes have important implications for employers, particularly when assessing the legal grounds and procedures for terminating employment in Indonesia.
10-Step Protocol: Exhausting Every Option
Rather than leaving the concept of preventing employment termination open to interpretation, Article 228 establishes a structured, ten-stage hierarchy of measures that employers must consider and document before proceeding with termination on efficiency-related grounds. These measures are intended to encourage employers to explore operational adjustments and cost-saving alternatives before resorting to workforce reductions.
- Eliminating Holiday Overtime: Halting premium-rate overtime work on public holidays.
- Reducing Daily Overtime: Trimming regular overtime hours.
- Scaling Back Shift Schedules: Decreasing overall operational cadence.
- Shortening Working Hours or Days: Adjusting weekly schedules to distribute available work.
- Contract Expirations: Allowing fixed-term employment agreements to expire naturally without renewal.
- Retirement Attrition: Leaving vacant positions unfilled as staff reach retirement age.
- Managerial Pay Adjustments: Reducing wages or facilities provided to executive-level employees and management to share financial burdens.
- Rotational Furloughs: Temporarily suspending or rotating permanent staff.
- Voluntary Early Retirement: Providing attractive exit packages for employees willing to step aside.
- Standard Retirement Pathways: Facilitating formal retirement for eligible employees.
By requiring adherence to these sequential steps, the New Manpower Law establishes a clear burden of proof: employers must demonstrate that operational and managerial sacrifices were fully tested before frontline roles were eliminated.
The Bipartite Clock: 30 Days to Reach Consensus
If the preventive measures prove insufficient and job cuts become unavoidable, the legal process moves to a structured dialogue phase. Termination cannot be executed unilaterally. The law requires bipartite negotiations based on mutual consensus through deliberation between the employer and the trade union or, where the worker is not a union member, directly with the employee concerned.
To prevent negotiations from continuing indefinitely, Article 228 sets a time limit of 30 working days from the commencement of negotiations. The bipartite negotiation process must be concluded within this period, providing a defined timeframe for the parties to seek an agreed resolution.
Failure to Reach Agreement: Final and Binding Dispute Resolution
If bipartite negotiations fail to produce an agreement within the prescribed period, the dispute must proceed through formal industrial relations dispute resolution procedures. Article 228 establishes a significant safeguard at this stage:
Termination of employment may only be carried out after obtaining a determination from an industrial relations dispute resolution institution whose decision has obtained permanent legal force.
Unilateral dismissals carried out without either a signed mutual agreement or a court order holding permanent legal force are rendered null and void by law. In such circumstances, the employer is legally obligated to reinstate the worker immediately and restore their full employment rights.
Key Takeaways
- A Structured 10-Step Prevention Process: Before proceeding with efficiency-based employment termination, employers must sequentially consider and document the mandatory ten-stage mitigation protocol, ranging from reducing overtime and working hours to implementing furloughs and retirement schemes.
- Mandatory Bipartite Negotiations: Employers must first engage in bipartite negotiations with the relevant trade union or, where applicable, the employee concerned. These negotiations must be concluded within 30 working days of their commencement, with the parties seeking to reach a formal mutual agreement.
- Mutual Termination Agreement (“MTA”): If the parties mutually agree to the termination in the mandatory bipartite negotiations, it can still be completed with an MTA followed by the mandatory reporting to the Ministry of Manpower and registration at the relevant Labor Court.
OR, if the bipartite negotiations fail to achieve an MTA:
- Mandatory Binding Court Decision: If bipartite negotiations fail, termination cannot occur without an official determination from an industrial relations dispute resolution institution that has obtained permanent legal force. Unilateral terminations without an agreement or binding court decision are automatically null and void by law. (10 November 2026)
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