The History of Indonesia Labor Regulations Regime

Labor law has a unique characteristic compared to other types of public policy. First, labor law lies between public law and private law spheres. It governs the relationship between two parties, employers and employees, as in a contract. In parallel, the State interferes by imposing binding rules, sometimes followed by sanction, on the relationships in question. There are several fundamental arguments on the interference of the State in employment relations. Socio-politic, humanism, until economic arguments are likely suggested. However, the prominent and the most uncomplicated idea is innately imbalanced power relations between employers and employees.

Employers have better bargaining positions compare to employees. This is because compared to employees, they have greater economic power and societal supremacy in a very particular sense. They often privately regulate the market, which subsequently influences norms in the labor market. In other words, although employment relationships conception encompasses the principle of contractual freedom where two free and equal parties bind themselves into a contract, employees, in reality, have minimal say and almost non-existence bargaining power in the construction of employment relationships. State interference objective likely to balance power relations in the market so that employers could achieve their economic goals, as well as to ensure employees were able to bind themselves in a good faith contract. 

In modern Indonesia, the State labor regulations evolution may follow a different footstep compare to other countries. Indonesia went through eras of gentrification, independence, and the authoritarian political regime that shaped its labor regulatory system to what it is now.

Dutch Colonialism

There are very few pieces of literature or records showing the setting of employment and paid work before the Dutch colonialization. As Indonesia consisted of separate small kingdoms, feudalistic and vertical social structures likely control working as serving a master in return for shelter, food, and even protection. Loyalty and obedience were expected from servants, and the master entirely governs the relationships.

After decades of forced cultivation and forced labor to gain maximum profit from economic activity in the colony, the principle of liberalism that was flourished in the imperialist kingdoms found its way to the Dutch Indies in the mid-1800s. Liberal groups argue that the State, or the Dutch East Indies Company as the representative of the State, had excessively interfered in the economy. Thus, it violated individual freedom and rights to contract when conducting economic activities in the colony. Liberalism perceived employment as merely contractual relations to do economic activities. As liberalization of employment relations idea gained traction, in the late 1800s, the Dutch Indies employment contract was included in the private law sphere. The Dutch Indies Civil Codes only set an underlying agreement and paid work principle. It did not regulate employee’s rights or working conditions. Such rights were principally highly dependent on negotiation between employer and employee. The terms of the contract governed the relations of the binding parties. There was no legal or fundamental rights protection for employees as law principles only recognized employees and employers as equal parties.

Despite this, the Civil Code acknowledged collective power and collective bargaining. Bargaining Agreements, as stipulated by the Civil Code, take precedence over the individual contract. This perhaps influenced by the socio-collectivism principle that progressed in the Netherlands at the end of the 1800s. After the freedom of organization and collective was recognized as a statutory right, the number of trade unions in the Dutch Indies proliferated. However, it is worth noting that the Civil Code on employment contracts did not regulate native people or pribumi. Thus, at that time, most paid work and employment relations were foreign to the pribumi communities. Subsequently, “employed” pribumi was likely trapped in the master and slave system and had minimal rights; if it was not non-existence.

After Independence (1945-1965)

Three years after its independence from the Dutch colonialist, the Republic of Indonesia issued Labour Act No. 12 of 1948. The Act regulated young workers, female workers, working hours, and employers’ obligations for workplace protection. The regulatory objective behind the Act is clearly to step away from the liberal Civil Code. It imposed some rights and protections that in practice could not be negotiated between two unequal parties through private regulations. What is more, as the Civil Code did very little to protect native Indonesian, a protective employment regulation was established to set a precedent in a newly independent Republic.

At this very early stage, labor regulations only provided basic protections. Labour Act No. 12 of 1948 was issued to define employment relations; and the rights and responsibilities entailed, rather than simply left it to a perceived unpredicted market to regulate. The Labour Act was preceded by Workplace Accident Act No. 33 of 1947 and followed by Law No. 23 of 1948 on Labour Inspection, Law No. 21 of 1954 on Labour Agreement between Employer and Union, Law No. 18 of 1956 on Ratification of ILO Convention No. 98, Ministry of Manpower Regulation No. 90 of 1955 on Union Registration Law No. 22 of 1957 on Industrial Relations Dispute Settlement. 

The laws and regulations in question were not effective in practice as the new Republic was still politically and administratively struggling to establish its governance. Additionally, labor union’s activities were closely monitored and heavily regulated to avoid political insurgency. Despite these challenges, the first set of National Labor Regulations lay the cornerstone of the modern Indonesian Labor Regulations.

New Order Government Era (1966-1998)

After it comes as the champion in the 1965 political turmoil, the new military junta adopted authoritarian modernization. Principally, a militaristic regime often views itself as bringing political, social, and economic stability to justify the rigid control of the State in every aspect of life. For instance, the State controls the economy to pursue maximum economic growth. Naturally, in Indonesia during the military junta, labor movements were closely monitored more than before. Labor activities outside of the production of goods and services were perceived as a disturbance to the smooth rotation of industrial wheels. 

Notably, labor was viewed as a political risk to the ruling government. Organized labor movements likely generate and circulate the idea of collectivism, which was feared the most by an authoritarian state. Thus, a barren single union is created, operated, and monitored by the State. This scheme is likely formed only as a legal consequence of ratifying ILO Convention No. 98 by Law No. 18 of 1956. The Regime produced Labor Act No. 14 of 1969 instead of rightly providing a voice to the collective to equally and actively participate in industrial relations.

In the early era of the New Order Regime, State interference in labor matters is apparent. For instance, Labour Act No. 14 of 1969 stipulated that the State runs labor provision, dissemination, and arrangement. Laborers were also viewed as production tools which primary and sole role were to produce goods and service for the social welfare. Worker rights were limited to the protection of safety and health, and morals, right to be treated with dignity and provided with a workplace that maintains workforce morale. Although collective right was legally recognized during this period, history shows that this was not the case in practice. 

Unlike collective rights, the authoritarian government seemed to view Safety and Health as a safe subject matter to regulates further in a separate Act. Occupational safety and health discourse are less likely to create a rift in the workplace. Moreover, sound occupational health and safety have a direct link to worker productivity. Thus, the Safety Act No. 1 of 1970 is issued. It stipulates the employer’s responsibilities to provide a safe and healthy workplace in detail, as well as recognizing worker rights to a safe and healthy workplace.

Over time, the effect of global economic competitiveness and geopolitical shifts weaken the power of the authoritarian government. The new reform State speedily enacted Labor Act No. 25 of 1997 to replace the outdated Act No Act No. 14 of 1969. Even though industrial relations and workplace dialogue were still unrecognized by the Act in question, Labor Act No. 25 of 1997 lays the elements of universal workplace rights and protections such as employment conditions, floor wage, statutory leaves, and social insurance. Despite its drawback, Labor Act No. 25 of 1997 put a sterner foundation for advancing workplace protection and worker rights in Indonesia.

Reformation Period (1998-present)

Highly Protected Labor Market

The Economic crisis that hit Asia in 1998 become the primary trigger of the reformation movement. Rapid high-cost economy brings about the ideas of deregulation, privatization, market liberalization, and democracy. Strict authoritarian administrative was considered to affect the Country’s economic resilience and competitiveness. Thus, in order to survive the crisis, it is necessary to change the political map of the Country. All things considered. The reformation movement is altered not only the state industrial design but also social and political principles.

Of labor matters, Reformation brought new opportunities to deregulate the national labor market to increase competitiveness in the global economy. The first step taken by the Transition Administration was to ratify the ILO Convention No. 87 on Freedom of Association and Protection of the Right to Organize and ILO Convention No. 138 on Minimum Age to be Allowed to Work in 1998-1999. Ratifications of these conventions put Indonesia back on the democratic free world map as a country that respects human rights.

Ratification of Convention No.87 resurrects collectivism in the labor realm. It abolishes the single union system and, with the issuance of Union Act No. 21 of 2000, places trade unions as an important stakeholder in creating sound industrial relations and enforcing workers’ rights. Although its regulatory objective is to protect worker’s right to associate, the Union Act, however, received numerous criticisms. For instance, the stipulation of establishing a union at the company level with only ten persons not only rapidly proliferate the number of unions but also opening a possibility of saturated industrial relations. It gives, as the opponents argue, too much power on collective labor in dealing with the individual employer, which could jeopardize sound industrial relations and hamper day-to-day business processes. The concern of union polarization is also often argued by the opponent of the Act.

Of the ILO Convention No. 138 ratification, it enhances the degree of protection of underage workers by increasing the working-age from 10 years old to 15 years old. It averts exploitation of children as cheap (and docile) labor. Additionally, in the socio-community perspective, it protects school-age children to get a compulsory education and thus, in time, increase the capacity of the future workforce. It is worth noting that working-age revision to 15 years is in line with the State’s nine years- compulsory education which has been a public policy since 1994.

Ethical and community values on labor and employment relations may perhaps change in the early Reformation era: from labor as economic tools to fulfill the needs of the society to individual or collective who have specific rights as human beings and as workers. These good tidings, however, were not followed by a revision of the regulatory umbrella, Labor Act No. 25 of 1997. At least not until 2003, when the State enacted Labor Act 13 of 2003. The Act in question replaces as many as 15 labor regulations. From the day it was enacted, Labor Act No. 13 of 2003 becomes the legal umbrella for other derivative labor regulations such as government or ministry regulations.

The Act consists of 17 chapters and regulates almost every aspect of labor, except Safety and Health. Labour Act No. 13 of 2003, a regulatory product of the reformation era, could be seen as the actual bedrock of modern labor regulations. It implants universal worker’s rights (human rights) in labor policy such as the conception of decent work, anti-discrimination, protection for women at the workplace, rights to associate, and job security. The core improvement compares to the previous obsolete Acts is the principle of labor as an individual and social being. It introduces labor (first) as individuals with protected individual rights to meet their needs and life demands, and (second) as a social being that contributes to the greater objective in the Country’s economic development. Thus, it could be argued that Labour Act 13 of 2003 aim is to humanized labor to achieve a financial goal.

Despite this strong central point, the Labour Act No. 13 of 2003 is far from perfect. Some argued that the Act creates more challenges instead of answers to the ever-changing and competitive market and problematic social conditions. Type of employment contract: permanent full-time, non-permanent full time, daily/casual, outsourcing that is regulated by the Act in practice create new challenges and sometimes dispute between employee/collective of employees and employer. Employers claimed that the scheme, in reality, is not flexible enough to tackle business challenges. While employee/s or collective of employees perceived the system as a way to legally evade ethical responsibility to provide protection and ensure worker’s rights are upheld.

The revision of the definition of children from persons under the age of 15 to 18 years is also socially problematic. This is because the revision is not followed by the improvement of the policy of compulsory education. It still regulates nine years of compulsory education which means children are only required to go to school until they reached 15 years of age. As such, in some regions where access to education provided is only up to the compulsory level, the labor market likely becomes saturated with children age less than 18 years, the legal full-time working age. The proponents of this legal definition may perhaps argue that it was established to provide more protection to children in the crucial stage of mental and physical development. Additionally, there is separate regulation that imposed rigorous protection requirements that allow children between 15-17 years to work. Nonetheless, these arguments do not address the problematic social issues prone to those qualified as children by the Labour Act, such as exploitation, poverty, and other socio-economic issues.

It could also be argued that, to some degree, the protection provisions stipulated by the Act are a form of shifting public responsibility to private actors. For instance, in the case of termination of employment relations, the significant amount of severance that employers should pay likely shows the unfair distribution of social welfare responsibility between the State and private sector. Instead of creating a sustainable system of social protection in relation to (post) employment, the State requires private actors to hold social welfare burdens. This policy, in return, would negatively affect workers when employers, intentionally or unintentionally, circumvent the stipulated regulation because they did not have enough capital or were unwilling to risk part of their capital to comply with the rules.

Labour Act No. 13 of 2003 is not the only regulation that aimed to align public policy with labor socio-economy and political norms that are progressively changing after the reformation movement in 1998. The proliferation of labor collectivism likely resulted in the issuance of Act No. 2 of 2004 on Industrial Relations Dispute Settlement. It introduces resolution outside the litigation system and Industrial Relations Court in Indonesian labor policy.   

A Looking Glass into a more Flexible Labor Market 

After contentious discussion and mass protests, the President of the Republic of Indonesia signed the Omnibus Bill into Law on 2 November 2020. The 1,187-page Act – 769 pages on Articles of Law and 418 pages of Explanation, is registered in the State Gazette as Law No. 11 of 2020 concerning Job Creation. On the employment subject matter, Chapter IV concerning Labour did not repeal Labour Act No. 13 of 2003 but instead change, remove or stipulate new provisions, as stated in Article 80 (a) Part One Chapter IV of the Omnibus Law. This means that those provisions of Labour Act 13 of 2002 that were not amended, removed, or reset (and its derivative regulations) are still applicable as long as they are not in conflict with provisions stipulated in the Omnibus Law.

Chapter IV of the Job Creation Act is perceived by many of the opponents as the Government’s effort to liberalize the labor market even more by reducing the perceived excessive labor protections stipulated by the Labour Act No. 13 of 2003 and its derivate regulations. Over-protection clauses and the implied meanings of the creation, such as the excessive amount of severance payment and social insurance that somewhat divert the State responsibility to the private sector, have made Indonesia less attractive for foreign investors than other South East Asia producer countries.

Conclusion

Labor regulatory objective during the period after the Indonesian independence was to move away from the imperialist legal system that disadvantaging labor. The State, at this period, interfered with the market to set new labor standards and strike a balance between corporate/employer power and labor power. However, as the new country was constantly changing in search of its sovereign form, labor matters become less important. At some point, labor collectivism was viewed as a hazard to the harmonious socio-political life that the State eagerly pursued.

The fundamental change in the labor sphere in the new order regime era was greater State interference in the market. It is solely directed by the State’s main agenda to achieve maximum economic gain and political amity. The State was standing on the side of those who have capital as a regulatory objective heavily influenced by financial interests. Labour was viewed as merely a production instrument, as it is often viewed in the liberal market. Also, collectivism was perceived as a risk to the economy and socio-political harmony; thus, the State minimizes the power of labor. Consequently, power relations between employers and employees were very much imbalanced, which in time create adversarial industrial relations at the workplace. Unlike the previous era, the State labor policy in the reformation era was to adopt the universal values of human rights and worker protections. The central concept of the Act was providing decent work while balancing power relations between employer/s and employee/s. However, some aspects of the Act by design likely increased friction of interest between employer and employee, such as in the matter of the type of employment contract.

Ethical and community values on labor and employment relations which have been continuously transforming since the early reformation era in 1997-1998, shows that a major shift in the perspective from labor as economic tools to fulfill business needs to workers with specific rights would not easily be reversed by a regulatory relief. At the same time, ever-shifting pandemic-influenced perspectives of labor stakeholders on the flexible labor market and flexible employment shall be taken into account to ensure Indonesia continues to be a competitive market that respects labor and human rights principles. The Job Creation Act might be perceived as the regulatory relief to a very complex dynamic by both the State and the industry. Its agility, however, has yet to be seen and tested by time.

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