Employment Termination - It’s Not Like the Movies!

“I’m here to inform you that your position is no longer available.” If only terminating an employee was that simple by only saying those words. 

We all know that employees are the core parts of a running engine. However, there may be reasons why those core parts need to be replaced. Those reasons may be that the part is no longer fit to run the engine or that the engine itself is out of commission. With this analogy, there are numerous grounds as to why termination occurs.  

Termination may be made by an employee by resigning, retiring, or requesting termination due to the employer’s misconduct. On the other hand, an employer may also terminate an employee due to the employee’s misconduct or poor work performance, the employer is carrying out corporate actions, carrying out efficiency to avoid losses, closing down, and other justifiable reasons. 

Understanding that this topic is both disheartening to the employees and the employer, employment termination requires certain considerations and a circumstance like this does occur, it would be beneficial if both parties reach a compromise. This article specifically discusses the termination of permanent employees.

Notice of Termination

In the unfortunate circumstance that the parties do not reach a compromise, the first step of an employment termination would require a written notification and grounds of termination of the relevant employee to be given within 14 days before the day of termination. If such termination is to be carried out during the probationary period of such employee, the notice must be provided 7 days before the day of termination. 

If the employee agrees to the termination, the employer must report the termination to the local Manpower Office. On the other hand, if the employee rejects the termination, the employee must submit an objection letter along with their justifications within 7 days of receiving the termination notice. 

If the employee rejects the termination, the employee and the employer would then proceed to a bipartite negotiation, or in some cases, the industrial relation court.

Severance Package

Correspondingly, another thought that an employer must take into account is the severance package, which is regulated in the Government Regulation No. 35 of 2021 (“GR 35/2021”). The following is the formula for severance package as stipulated in GR 35/2021:

1. Basis of Calculation

    

   1. Severance Pay

      Years of Services	Severance Pay (x monthly salary)
      Less than 1 year	1
      1 year or more but less than 2 years	2
      2 years or more but less than 3 years	3
      3 years or more but less than 4 years	4
      4 years or more but less than 5 years	5
      5 years or more but less than 6 years	6
      6 years or more but less than 7 years	7
      7 years or more but less than 8 years	8
      8 years or more	9

   2. Long-Service Pay

      Years of Services	Long-Service Pay (x monthly salary)
      3 years or more but less than 6 years	2
      6 years or more but less than 9 years	3
      9 years or more but less than 12 years	4
      12 years or more but less than 15 years	5
      15 years or more but less than 18 years	6
      18 years or more but less than 21 years	7
      21 years or more but less than 24 years	8
      24 years or more	10

   3. Compensation of Rights

      The compensation of rights to be given to the employee includes (i) annual leave that has not been taken and has not lapsed; (ii) relocation expenses; and (iii) other matters set out in the employment agreement, company regulation, and collective labour agreement.

   4. Separation Pay (Uang Pisah)

      GR 35/2021 and the Manpower Law (Law No. 13 of 2003) do not set the minimum amount of separation pay for the employee in the event of termination. GR 35/2021 only regulates that the separation pay amount shall be regulated in the employment agreement, company regulation, or collective labour agreement.

       

2. Severance Package Formula (Linked to Basis of Calculation (a) and (b))

    

   Reason for Termination	Severance Pay	Long-Service Pay	Compensation of Rights Pay	Separation Pay
   An employee has been on a prolonged illness or was in an accident and is unable to resume work after a period of 12 months	2	1	√	×
   An employee requests to be terminated as a result of prolonged illness or was in an accident and could not resume work after a period of 12 months
   An employee passes away
   An employee has entered retirement age	1.75	1	√	×
   Merger, consolidation, or spin-off of a company	1	1	√	×
   Acquisition of a company
   A company carries out an efficiency to avoid losses
   A company closes, but not as a result of a loss
   A company is in a suspension of debt payment proceeding without suffering any losses
   A termination claim made by the employee on the basis of Article 154A paragraph (1) of the Manpower Law
   A force majeure that does not result in the closure of a company	0.75	1	√	×
   Acquisition of a company that results in a change of the terms and conditions of employment and the employee does not wish to continue the employment relationship	0.5	1	√	×
   A company carries out efficiency as a result of losses
   A company closes as a result of 2 years of consecutive losses or 2 years of non-consecutive losses
   A company closes as a result of force majeure
   A company is in a suspension of debt payment proceeding as a result of losses
   A company is declared bankrupt
   An employee violates the provisions of the employment agreement, company regulation, or collective labor agreement
   Issuance of a court decision stating that the company has not committed actions set out in Article 154A paragraph (1) of the Manpower Law	×	×	√	√
   An employee resigns
   An employee is absent for 5 consecutive days or more
   An employee commits a violation considered as an urgent reason set out in the employment agreement, company regulation or collective labor agreement
   An employee is unable to perform work as a result of being detained by the authorities for 6 months as a result of being made a suspect in a criminal case which causes losses to the company
   A criminal court decision indicating that the employee is guilty of a criminal act (i.e., which causes losses to the company) prior to the conclusion of the 6 months period
   An employee is unable to perform work as a result of being detained by the authorities for 6 months as a result of being made a suspect in a criminal case which does not cause losses to the company	×	1	√	×
   A criminal court decision indicating that the employee is guilty of a criminal act (i.e., which does not causes losses to the company) prior to the conclusion of the 6 months period

Exemption for SMEs and Employees’ Pension Programme

Small and medium-sized enterprises (“SMEs”) are not obliged to comply with the abovementioned formulas. The amount of severance package applicable for SMEs will be agreed upon by the employer and the employee.

Additionally, if an employer enrols their employees in a pension programme, the contribution to be paid by the employers may be set off against the employers’ severance package payment obligation. 

Conclusion

Ultimately, terminating an employee may not be as cool and easy as George Clooney makes it in the movie “Up in the Air.” It is crucial for employers to cover the full scope of having to comply with relevant regulations, such as the notice of termination and the severance package on top of having to support their laid-off employees emotionally.

By: Emir Pohan and Gracia Elrica

DISCLAIMER:

This material is prepared for general information purposes only. It is not intended to give legal or any other professional advice, opinion or recommendation and, accordingly, it should not be relied upon. Specific legal advice should be sought before taking any action based on the contents in this material. Please contact us if you need any assistance regarding this matter.