As per 10 May 2020, the total confirmed cases of COVID-19 in the world is at the number of 3,925,815 (three million nine hundred twenty five thousand eight hundred fifteen) with the number of 274,488 (two hundred seventy four thousand four hundred eighty eight) deaths. In Indonesia itself, the total confirmed cases of COVID-19 per 10 May 2020 is 14,032 (fourteen thousand and thirty two) cases with 973 (nine hundred seventy three) deaths.  

As an effort to prevent the spread of COVID-19, the Minister of Manpower, Governors and Regents as well as other relevant government agencies have issued circular letters (Surat Edaran) and advises (surat imbauan) related to COVID-19 prevention requiring the public, including but not limited to business actors, to apply social distancing protocol by, among other things, reducing their (business) activities, working from home, and/or requiring their employees to do independent isolation. In addition to this, the President of Indonesia also has issued Presidential Decree No. 12 of 2020 on Determination of the Spread of the Non-Natural Disaster  Covid-19 as a National Disaster.

The issuance of those regulations and/or instructions from the Government above on social distancing protocol inevitably affects all aspects of people's lives at the very least in terms of social and economic aspects, which of course, also affects the businesses. Many business actors affected by the spread of COVID-19 are forced to exert various efforts to save their company, including the difficult choice of terminating the employment relations with their employees (“PHK”). Some of the business actors are considering force majeure (caused by the COVID-19) as the basis for the PHK.

In relation to the above, if a company terminates their employees on the basis of force majeure as referred to Article 164 paragraph (1) of the Law No. 13 of 2003 on Manpower (“Manpower Law”), there are aspects that must be considered by the business actors if they wish to do so, among others:

1. Qualification of the COVID-19 pandemic as Force Majeure

The provisions of Article 164 paragraph (1) of the Manpower Law stipulates that "Employers may terminate their employment relation with their employees/workers due to the company’s closure caused by continuous losses suffered by the company for 2 (two) years, or a state of force (force majeure), under the conditions that the employees/workers are entitled to severance pay, 1 (one) time of the provision of Article 156 paragraph (2), service period recognition pay of 1 (one) time of the provision of Article 156 paragraph (3) and compensation pay in accordance with the provision of Article 156 paragraph (4)".

The issue here is that Article 164 paragraph (1) does not further regulate what can be categorized as a Force Majeure.

According to Supreme Court Decree No. 409K/Sip/1983 dated 25 October 1984, force majeure must meet three elements, namely (i) unexpected, (ii) cannot be prevented by those who must fulfill the obligations or perform the agreement, and (iii) it is not the fault of the party.

In general, to say that the pandemic of COVID-19 creates a force majeure (as a reason for business actors to exercise the PHK as referred to in Article 164 paragraph (1) of the Manpower Law), the business actors must be able to confirm that the pandemic of COVID-19 is a condition that affects their business so that they have no other options but to exercise PHK to their employees, which arise unexpectedly out of their control, cannot be prevented and/or is not their fault and they do not have the ability to overcome it.

However in practice, we believe it is difficult and challenging to qualify this pandemic of COVID-19 as a Force Majeure. An argument from the employee(s) (should they are well informed) may come from the angle of continuity of other similar businesses. If other similar businesses are able to maintain the continuity of their business without going through PHK, the COVID-19 pandemic may not be qualified as a force majeure event. On the other hand, the business actors should also be able to demonstrate that they have carried out their best effort to continue their business (such as having a proper business continuity plan in case of difficult situation presents itself) and all those measures put in place have not been able to help the business, before they (the business actors) declare a force majeure event leading to the PHK. This is important to differentiate between force majeure and lack of management capabilities on the business actors' end.

2. The Status of the Employee In Accordance with His/Her Employment Agreement.

Other aspect to be considered by the business actor is the status of their employees, whether she/he is a fixed term employee based on a Fixed Term Employment Agreement ("PKWT") or a Permanent Employment Agreement ("PKWTT").

It should be noted that if the company terminates the employment relationship with an employee under PKWT before the end of the work period, then, according to Article 62 of the Manpower Law, the business actor must pay compensation to the employee in the amount of the employee's salary until the expiry date of the PKWT. However, if the company exercise the PHK to the permanent employee, then the company is obliged to pay compensation as referred to in Article 164 paragraph (1) of the Manpower Law.

Other than the obligations as set out in the Manpower Law, the business actors also need to pay attention to each employment agreement of their employees if there are any specific benefits or provisions mutually agreed by the company and the employee when she/he was hired.

3. The Signing of a Mutual Agreement and to Record the Signed Mutual Agreement to the Industrial Court.

Basically, PHK must be avoided (i.e. only as a last resort) as stipulated in the Manpower Law. The parties must make their best efforts to prevent the PHK. Pursuant to Article 151 of the Manpower Law, if agreements between the business actors and the employee(s) are not achieved in preventing a PHK, the business actors may only terminate the employment relations with their employees after obtaining an order (penetapan) from the industrial relations dispute resolution institution. Failing this, the PHK is void by law.

Even so, in the event where the PHK is mutually agreed by the employer and the employee by for example, granting more entitlements/compensation than the statutory entitlements/compensation to the employee, it is advisable that the employer and its employee still sign a mutual agreement to minimize the risk of eventually going into a long and tiring court process in the event one of the parties violate the terms and conditions of the termination agreement. It is also advisable to have the agreement be registered at the industrial relation court.

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The above is a summary prepared by Solis Advisors – Attorneys and Consultants (“Solis”), an Indonesian based Law Firm. It is only intended to inform generally on the topics covered and should not in any way be treated as legal advice or relied upon when making investment or business decisions. If you have any questions/comments on the matter set out above, or other subject(s) you wish to inquire, please contact your usual Solis contact or email us at consult@solis.consulting.