When foreign investors enter Indonesia’s dynamic labor market, they often focus on contracts and compliance — yet one major player is frequently underestimated: labor unions. In a country where industrial relations emphasize balance and dialogue, understanding unions and collective labor agreements (CLAs) is vital for maintaining stable, lawful, and productive workplaces.

Understanding Unions and Collective Labor Agreements

Labor unions (serikat pekerja/serikat buruh) represent employees in negotiations with employers regarding wages, working conditions, and employee welfare.
A Collective Labor Agreement (CLA), known as Perjanjian Kerja Bersama (PKB), is a formal agreement between the union and the company, outlining mutual rights and obligations. Unlike general company policies, a CLA has binding legal force and must be registered with the Ministry of Manpower.

Legal Framework in Indonesia

Unions and CLAs are primarily governed by Law No. 21 of 2000 on Labor Unions and Law No. 13 of 2003 on Manpower (as amended by the Job Creation Law).
Under Article 119 of the Manpower Law, a CLA is valid for two years and can be extended for one year upon mutual consent.
Employers are prohibited from interfering in union formation or activities. Violations may lead to administrative and criminal sanctions, as stipulated under Article 28 of Law No. 21/2000.

Real Case Example

In 2021, a large manufacturing firm in West Java faced a strike over unilateral policy changes. Mediation revealed that the employer had bypassed the valid CLA’s provisions. Following reinstatement of negotiated terms and renewed dialogue with the union, operations stabilized. The case demonstrated that recognizing unions’ role isn’t just compliance — it’s good business practice.

Best Practices for Foreign Employers

1. Build open communication channels with union representatives.
2. Align company policies with existing CLA terms.
3. Document every negotiation and meeting.
4. Seek local legal advice before making changes affecting employee rights.
5. Treat unions as partners in productivity, not adversaries.
   

Conclusion

In Indonesia, unions are not obstacles but partners in sustainable industrial harmony. For foreign employers, acknowledging their legal and cultural significance strengthens compliance, trust, and long-term workforce stability.

References

• Law No. 21/2000 on Labor Unions
  
• Law No. 13/2003 on Manpower (as amended by Job Creation Law)
  
• Ministry of Manpower Regulation No. 28/2014 on Registration of CLA
  
• ILO Indonesia: Freedom of Association and Social Dialogue Report