9 Mandatory Elements in Employment Agreements to Protect Employers and Employees

Introduction

An Employment Agreement governs the relationship between an employer and an employee. In practice, companies need to carefully draft Employment Agreements to ensure that all details required by applicable laws and regulations are clearly included. If certain provisions are omitted, this may create uncertainty regarding the rights and obligations of the parties and potentially lead to disputes or Industrial Relations Disputes (PHI) in the future.

 

Legal Basis

Article 54 paragraph (1) of Law Number 13 of 2003 on Manpower (“Law 13/2003”) stipulates the mandatory elements that must be included in a written Employment Agreement. Based on this provision, companies are required to include the following 9 (nine) elements in every written Employment Agreement:

1. Company Identity

The Employment Agreement must include the name, address, and line of business of the company. This information identifies the employing entity and the party responsible for fulfilling employees’ rights.

2. Employee/Worker Identity

The Employment Agreement must include the name, gender, age, and address of the employee/worker. This information ensures proper identification of the employee and supports the fulfillment of employment rights and social security administration.

3. Position or Type of Work

The Employment Agreement must specify the position or type of work to be performed. This description provides clarity regarding the employee’s duties and responsibilities.

4. Workplace

The Employment Agreement must state the employee’s work location. This information serves as a reference for the performance of work and may form the basis for placement or relocation decisions by the company.

5. Amount of Wages and Payment Method

The Employment Agreement must specify the amount of wages received by the employee and the method of payment. This information generally includes wage components, such as basic salary and allowances, as well as the payment schedule.

6. Working Conditions (Rights and Obligations)

The Employment Agreement must include provisions regarding the rights and obligations of the parties, such as working hours, leave, work facilities, and company regulations. These provisions must comply with applicable labor laws, including the prohibition of a probation period for employees under a Fixed-Term Employment Agreement (“PKWT”).

7. Commencement and Duration of the Agreement

The Employment Agreement must state when the agreement becomes effective and its duration. This provision is particularly important for employees under PKWT status to provide clarity regarding the agreed employment period.

8. Place and Date of Execution

The Employment Agreement must state the place and date of signing. This information indicates the time of execution and the commencement of the agreement between the parties.

9. Signatures of the Parties

The Employment Agreement must be signed by both the company and the employee as evidence of their agreement to all terms contained therein. These signatures confirm that both parties agree to implement the provisions set out in the agreement.

 

Be Aware of Legal Consequences of Incomplete Contracts

If an Employment Agreement does not include the required provisions, this may give rise to various legal consequences for the company. Some potential consequences include:

1. Change of Employment Status: For PKWT, the company must ensure that the type and nature of the work meet the criteria of temporary, seasonal, or non-permanent work in accordance with Article 59 paragraphs (1) and (2) of Law 13/2003. Under Article 59 paragraph (3) of Law 13/2003, if a PKWT is entered into for permanent work or does not meet the specified criteria, the agreement shall, by operation of law, convert into an Indefinite-Term Employment Agreement (PKWTT) or permanent employment. In addition, the company must comply with the administrative requirement under Article 57 paragraph (1) of Law 13/2003, which mandates that a PKWT must be made in writing using the Indonesian language and Latin script.
2. Non-Enforceability of Contract Provisions: Article 54 paragraph (2) of Law 13/2003 specifically provides that provisions regarding wage amounts and payment methods, as well as working conditions (rights and obligations) in an Employment Agreement, must not conflict with company regulations, collective labor agreements, or applicable laws and regulations. If any clause in these aspects conflicts with such regulations, the clause shall be null and void by law, and the employee’s rights shall revert to the standards set by applicable laws and regulations.
3. Difficulty in Evidence in Industrial Relations Disputes: An Employment Agreement that lacks details regarding position, wages, or workplace may create uncertainty regarding the rights and obligations of the parties. This condition may make it difficult for the company to provide evidence in the event of an industrial relations dispute in court.

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