Indonesia Is Making It Harder for Companies to Lay Off Workers

After years of pro-business reforms designed to make it easier for companies to operate and hire in Indonesia, the government is now moving in the other direction. 

A new labour bill passed by parliament on Tuesday will strengthen worker protections, including higher severance benefits for employees who are laid off and tighter restrictions on when companies can dismiss workers on cost-efficiency grounds. 

"This bill reflects a balance between protecting workers' basic rights and the sustainability of businesses," Manpower Minister Yassierli told parliament after the vote, as quoted by Reuters. 

Whether that balance holds is already being debated, and one of the first open questions concerns gig workers.

Donna Priadi, managing director of the American Chamber of Commerce in Indonesia, said many aspects of the law need further discussion, including whether digital platform workers should be classified as employees.

The question matters because companies like Grab and Gojek define their drivers as "partners," not employees. 

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How It Differs From the 2020 Omnibus Law 

To understand why the law is so significant, it helps to look at what it replaces. The 2020 "omnibus" law on job creation was controversial largely because of how it was made. 

For context, it bypassed revisions of more than 70 older laws and regulations, according to a Nikkei Asia report—of which the new law reverses much of that direction, and labor leaders say the difference is clear.  

Said Iqbal, president of the Confederation of Indonesian Trade Unions, said it offers far better protections than both the omnibus law and the 2003 manpower law before it. 

What It Means for Workers and Talent 

In a job market where businesses are quick to replace human operators with capable AI, the new law offers workers some protection against that risk, and more.

Fixed-term employment contracts are now capped at four years, according to Minister Yassierli, who also said the law guarantees equal opportunities and equal treatment across all aspects of employment. 

Andi Gani, president of the All-Indonesian Workers Union Confederation, also states several other benefits workers stand to gain, including that staffing agencies must now make outsourced workers permanent employees, the provision of a severance guarantee fund, and improved wage calculations. 

"Employers will no longer be allowed to dismiss workers arbitrarily," he added. 

The law also reaches beyond formal employment. Nabiyla Risfa, a labor law lecturer at Gadjah Mada University, said informal workers gain "more explicit protection." 

While the final copy of the law is yet to be made public, Mirah Sumirat, president of the Association of Indonesian Workers, called the law a "victory" but added that the association will read all of the provisions and oversee the implementing regulations. Risfa shares that concern, noting that the implementation details "remain unclear." 

Why Businesses and Investors Are Concerned 

Erwin Aksa, deputy chairman of the Indonesian Chamber of Commerce and Industry, said the new provisions reduce some of the flexibility in the 2020 omnibus law, which was passed under former President Joko Widodo and widely seen as business-friendly.