Indonesia rolled back parts of a business-friendly labor law, tightening restrictions on outsourcing and fixed-term contracts. Parliament approved the legislation Tuesday after weeks of small, peaceful rallies by labor unions seeking stronger safeguards for workers. The measure shifts the balance back toward employees after years of efforts to give firms more flexibility over hiring and layoffs.
While the final text of the legislation hasn't been made public, Manpower Minister Yassierli said the law eliminates a provision that allowed severance to, in some cases, be calculated at half the standard rate. The changes will also make it more difficult for companies to dismiss workers on efficiency grounds. The law will also provide for a severance reserve intended to ensure funds are available when companies lay off workers.
The changes partly unwind the sweeping Job Creation Law introduced by former President Joko Widodo in 2020 and recast in 2023. That overhaul addressed longstanding employer complaints about rigid labor rules as part of a broader effort to attract more overseas investment into Indonesia. In October 2024, the Constitutional Court said lawmakers must separate employment provisions from the 2023 legislation and place them in a standalone labor law within two years.
The Indonesian Employers Association, which has raised concerns the new law will add to businesses' costs and deter investment, didn't immediately respond to a request for comment.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing