Legally Terminate

Terminating employment in Indonesia is not a unilateral management right—it is a structured legal process. Foreign employers often underestimate the complexity, leading to disputes that can escalate quickly to court.

By law, termination must fall within recognized grounds, such as resignation, mutual agreement, company closure, efficiency measures, or employee misconduct. Employers cannot dismiss staff “at will.” The process begins with bipartite negotiation between the employer and employee. If no settlement is reached, the dispute moves to mediation and ultimately the Industrial Relations Court (PHI).

Employees are entitled to statutory compensation consisting of severance pay, long-service awards, and compensation for unused entitlements (such as annual leave). The exact formula depends on the reason for termination and the employee’s length of service. For example, termination due to redundancy generally requires a higher payout than resignation. In contrast, dismissal for proven gross misconduct may significantly reduce the employer’s financial obligation.

A landmark case illustrates this: PT PG vs. Yulius S. (Supreme Court Decision No. 647 K/Pdt.Sus-PHI/2013). The company terminated an employee for alleged inefficiency without sufficient negotiation or documentation. The court ruled the dismissal unlawful and ordered substantial severance and long-service compensation. This case underscores that even large multinational corporations must strictly follow due process.

To mitigate risk, many companies use mutual termination agreements (Perjanjian Bersama). When properly documented and registered with the Industrial Relations Court, these agreements give legal certainty and prevent future claims.

The key lesson: in Indonesia, termination is not a managerial discretion but a negotiated and documented legal act. Foreign employers should approach it with patience, compliance, and professional guidance. For tailored advice on lawful termination strategies, consult our HR Specialist Urwah AlBarki (+62 815-1852-024).

References

1. Law No. 13 of 2003 on Manpower, Articles 151–172.
   Source: BPK – UU No. 13/2003
2. Law No. 11 of 2020 on Job Creation (Omnibus Law) – amendments on termination.
   Source: BPK – UU No. 11/2020
3. Government Regulation No. 35 of 2021, Chapter VI on Termination.
   Source: BPK – PP No. 35/2021

Supreme Court Decision No. 647 K/Pdt.Sus-PHI/2013 (PT Panasonic Gobel Energy Indonesia vs. Yulius Saputra).
Source: Mahkamah Agung RI Directory Putusan