Key Labour And Employment Restructuring Considerations Under Indonesian Law

Regulatory Background

• Indonesia does not have a single, standalone, restructuring regulatory regime on employment. In practice, employment-related restructuring issues are generally governed under: (i) Law No. 40 of 2007 on Limited Liability Companies, as amended by Government Regulation in Lieu of Law No. 2 of 2022 on Job Creation, subsequently enacted into law by Law No. 6 of 2023 (“Company Law”); (ii) Law No. 13 of 2003 on Manpower, as amended by Government Regulation in Lieu of Law No. 2 of 2022 on Job Creation, subsequently enacted into law by Law No. 6 of 2023; (iii) Government Regulation No. 35 of 2021 on Fixed-Term Employment Agreements, Outsourcing, Working Hours and Rest Periods, and Termination of Employment (“GR 35/2021”); and (iv) Law No. 2 of 2004 on Settlement of Industrial Relations Disputes as amended by Law No. 1 of 2026 (“Law 2/2004”).

Preliminary Announcement to Employees

• Under Article 127 (2) of Company Law, a company proposing a merger, consolidation, acquisition, or spin-off must announce a summary of the proposed corporate action and announce it to its employees in writing no later than 30 days before the notice convening the relevant General Meeting of Shareholders. From a practical perspective, this is often the first formal employee-facing step in a corporate restructuring exercise. Please note that, if the restructuring involves situations as specified in Article 127 (2) of the Company Law, the announcement cannot be omitted.

Types of Employees and Termination Exposure

• Indonesian law recognises 2 main types of employment, based on the type of employment agreement, namely: (i) fixed-term employment (Perjanjian Kerja Waktu Tertentu or “PKWT”); and (ii) indefinite-term employment (Perjanjian Kerja Waktu Tidak Tertentu or “PKWTT”).
• If a PKWT employee is affected in the context of a restructuring, the position should be assessed carefully against the relevant PKWT, the Manpower Law, and GR 35/2021. In particular, if the PKWT is terminated before its agreed expiry, the employer may be required to pay both PKWT compensation under GR 35/2021 and damages equal to the wages payable until its original expiry date under Article 62 of the Manpower Law. Article 15 (5) of GR 35/2021 further provides that foreign employees or expatriate are not entitled to PKWT compensation.
• For PKWTT employees, termination in a restructuring context should be analysed by reference to the specific statutory ground relied upon under the Manpower Law and GR 35/2021, as different consequences apply to different corporate actions. GR 35/2021 stipulates that:

1. in the event of a merger, consolidation, or spin-off, if the employee does not wish to continue the employment relationship, or the employer does not wish to retain the employee, the employee is entitled to 1 time severance pay, 1 time longservice pay, and compensation of rights;
2. in the event of an acquisition, if the employer does not wish to continue the employment relationship, the employee is entitled to 1 time severance pay, 1 time long-service pay, and compensation of rights; and
3. if an acquisition results in changes to the employee’s terms and conditions of employment and the employee does not wish to continue employment, the employee is entitled to 0.5 time severance pay, 1 time long-service pay, and compensation of rights.

• Accordingly, in Indonesia, “restructuring” should not be viewed as a single termination category. The relevant corporate action and the legal ground for termination should be considered separately, as the applicable compensation will depend on the specific statutory basis.

Termination Procedure

• Indonesian law places significant emphasis on the termination process. GR 35/2021 provides that the employer, employee, labour union, and government should first avoid termination where possible. If termination cannot be avoided, the employer must notify the employee, and the relevant labour union, of the intended termination and the reasons for it. The notice must generally be delivered, at least, 14 business days before the intended termination date, and the employee may object within 7 business days after receiving the notice (Articles 37 and 39 of GR 35/2021).
• If the employee objects, the dispute must first be resolved through bipartite negotiations. If no settlement is reached, the dispute may proceed through the industrial relations dispute resolution mechanism, including tripartite mediation facilitated by the local Manpower Office, and legal proceeding at the Industrial Relation Court if the bipartite negotiation and tripartite mediation failed (Article 3 of Law 2/2004).
• From a practical perspective, employers should ensure that the termination rationale, supporting documents, timeline, and calculation of entitlements are aligned before implementation, particularly where multiple employees are affected.

Labour Unions, Company Regulations, and Collective Labour Agreements (“CLA”)

• Where a labour union exists, the employer should consider the union’s role in collective bargaining, the implementation of any applicable CLA, and the resolution of any industrial relations dispute arising in connection with the restructuring.
• Moreover, the relevant employment agreements, company regulations, and any CLA should be reviewed, as they may set out procedural requirements, additional employee benefits, or other internal arrangements relevant to the proposed restructuring.

National Social Security Considerations

• Under Law No. 24 of 2011 on the Social Security Administering Bodies as lastly amended by Law No. 1 of 2026 (“Law 24/2011”), every employee (including foreign employees) who has worked in Indonesia for, at least, 6 months, must participate in the applicable social security programs. In particular, employers are required to register themselves and their employees in the relevant programs. Non-compliance may result in administrative sanctions, including written warnings, fines, and restrictions on certain public services (Article 17 of Law 24/2011).
• In a restructuring context, it is important to ensure that employee data, participation status, and any deregistration or transition process are administered properly, including in a merger or acquisition scenario.

Practical Takeaway

• From a practical perspective, the Indonesian framework requires employers to assess restructuring issues not only from the standpoint of the transaction itself, but also by carefully matching the intended business step with the correct employment law basis, termination process, and compensation formula. In that sense, employee-related issues in an Indonesian restructuring exercise are usually less about a single “restructuring rule” and more about how the relevant corporate action interacts with the applicable employment law requirements.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.