Indonesia’s Job Creation Law passed: amfori Update



In September 2020, amfori published an article to inform members about the developments of Indonesia’s Omnibus Law on Job Creation.  At the time of publishing, there were multiple versions of the draft circulating and being discussed by the national assemblies.

The Government’s aim was to attract foreign investment and revitalize the economy. This would broadly be achieved by cutting red tape for businesses and weakening labour rights.

amfori is concerned about the protection of workers rights in the country. In response to the upcoming legislation, we signed a joint letter to Indonesia’s President Widodo. In the letter, we highlighted that workers’ rights – as enshrined in relevant ILO Conventions – should continue to be protected.

After months of intense debates and protests, the final draft was passed into law in November 2020. Indonesia’s two largest trade unions have filed a judicial review at the country’s Constitutional Court to challenge this regulation, and the judges’ decision is still pending.

What Has Changed

The Omnibus Law is a complex cross-sectoral regulation. At 1,035 pages, it amends 76 existing laws and repeal two laws affecting several sectors of state life. These sectors include employment, business permits and land acquisition processes.

In terms of labour law, the regulation introduced the following changes:

  1. Businesses are allowed to terminate labour contracts in a more flexible way
  2. The amount of severance pay has significantly diminished
  3. Fixed-term contracts can now last up to 5 years, and the compensation for expat workers at their expiration has been removed
  4. Limitations on outsourcing have been lifted
  5. Increased overtime hours to maximum 4 hours per day, 18 per week; long rests will be regulated by individual or collective agreements
  6. The minimum wage will not depend on business sectors anymore. The Governor has to determine the provincial minimum wage basing on economic growth or inflation.

From an environmental perspective, this regulation is also expected to accelerate climate change. Significantly, it abolishes the requirement for all regions to maintain a minimum of 30% of their watershed and/or island area as forest area. As a result, this could facilitate deforestation and biodiversity loss. Indonesia is already one of the worst areas in the world affected by deforestation with 60 million hectares of primary forest lost in the last twenty years.

In addition, Indonesia’s legislator has softened the requirements for companies to carry out environmental impact assessments as a prerequisite to obtaining a business license. Subsequently, this has limited the scope of environmental public consultations to those who are directly affected by a specific project. Such provisions seem to aim at hindering environmental experts’ opinions from being taken into account.

amfori’s Actions

Last June, amfori signed a letter to India’s Prime Minister Modi and published the position paper ‘Post-lockdown Labour Rights: Recovering with purpose’. With these efforts, amfori is urging governments with our members to adopt a wider perspective during crises, placing sustainability concerns at the heart of recovery. With regards to deforestation, amfori has recently published a Position paper to call for the EU to adopt an action plan to halt deforestation in supply chains around the world.

For amfori members, amfori BSCI requirements will continue to be applied even if the government requirements are relaxed, thus maintaining respect to the ILO Conventions and Recommendations on which the amfori BSCI Code of Conduct was built.

For more information, please contact Mitsuru Suzuki, amfori Social & Environmental Policy Advisor.