THE IMPACT OF THE CORONAVIRUS DISEASE 2019 (COVID-19) ON EMPLOYMENT CONTRACT



On 11 March 2020, World Health Organization declared Coronavirus Disease 2019 (“COVID-19”) as a pandemic that has spread worldwide.[1] COVID-19 outbreak has a significant impact on global economy due to some restriction which have been imposed by some countries towards the movement of people and trade activities (lock-down).

In Indonesia, as of 31 March 2020, number of cases which have been confirmed as positive for COVID-19 has reached 1,528 (one thousand and five hundred twenty eight) patients. The number of fatalities has reached 136 (one hundred thirty-six) people while the number of patients who have recovered are 81 (eighty-one) people.[2]

As measures to contend the outbreak of COVID-19, the Government declared that COVID-I9 is a type of disease which qualified as public health emergency through Decree No. 11 of 2020 on Determination of Public Health Emergency of COVID-19 (“Presidential Decree 11/2020”) issued on 31 March 2020.

Local Policy on Labor

Prior to the issuance of the Presidential Decree 11/2020 as measures to cope with the outbreak of COVID-19 towards labor, the Minister of Manpower of the Republic of Indonesia (“the MOM”) has issued Circular Letter No. M/3/HK.04/III/2020 on Employee Protection and Business Continuity in the Context of Prevention and Control of COVID-19 (“MOM Circular Letter 3/2020”) on 17 March 2020. MOM Circular Letter 3/2020 instructed the Governors in Indonesia to: (i) implement measures to prevent and manage matters related to COVID-19 on the work environment; and (ii) ensure the continuity the salary payment for the employees who have been infected with COVID-19 in their respective provinces of Indonesia.

Since MOM Circular Letter 3/2020 is intended for the Governors, the said regulation may be treated as a recommendation for private sectors on what should be done to adapt with the COVID-19 pandemic for the sake of business sustainability.

However, following to the issuance of the Government Regulation No. 21 of 2020 regarding Large-Scale Social Restrictions in the Context of Accelerating Handling of COVID-19 (“Government Regulation 21/2020”), the Ministry of Health of the Republic of Indonesia and regional government are given the authority to impose large-scale social restrictions or restrictions on the movement of people and goods for one particular province or district/city. These are the following restrictions which may be taken by the Government:

  1. Dismissal of school and office activities;

  2. Restriction on religious activities; and/or

  3. Restriction towards activities on public places or facilities.

Force Majeure

The COVID-19 outbreak may be determined as a force majeure condition which may lead to a non-performing contract between parties (i.e. employment contracts). Under the Indonesian Civil Code, particularly on Article 1244 and Article 1245, there are two elements required in order to determine a force majeure, namely an unforeseeable event and uncontrollable circumstances of the parties. A clearer concept of force majeure may be seen under the Law No. 18 Year 1999 regarding Construction Services, whereby that the construction work contract shall at least formulate the force majeure clause describing the conditions on events beyond the will and power (uncontrollable) of the parties causing damage to any of the parties.[3]

Since the Indonesian Government has issued regulations with respect to the implication of COVID-19 pandemic as an event of public health emergency, any private contractual relationships in Indonesia are currently has the legal standing to enforce the force majeure clause, including but not limited to the employment contractual matters subject to the limitation of force majeure clause as set forth under the agreement, for instance:

  1. Has the COVID-19 outbreak significantly affected the performance of an employee and business activity in general?

  2. Are there any efforts to be fulfilled by the employee or employers to mitigate the risk of the force majeure?

  3. What are the consequences of non-performance due to force majeure?

Therefore, both employers and employees in private sectors may re-negotiate and treat the pandemic of COVID-19 as a force majeure event which may provide relaxation on labor related matters, for instance postponing the payment of holiday allowance (THR) subject to the consent of the Employee. Employers, nevertheless, shall bear in mind that Indonesian Labor Law (Law No. 13 of 2003) puts a caveat on such relaxation to prevent employers unilaterally suspend and/or reduce the salary unless there is an express consent by the employee.

The employers may also consider terminating its employees due to efficiency caused by the force majeure[4]. If this happens, the employee shall be entitled to one time of severance pay, reward pay and compensation pay for entitlements that have not been used (if any). However, the employer may also end up on an industrial relation dispute due to the said termination, thus, the employer needs to go through the employment agreement in order to take an optimal decision for both the employer and employee.

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[1] CNBC: World Health Organization Declares the Coronavirus Outbreak a Global Pandemic, accessed on 28 March 2020 through https://www.cnbc.com/2020/03/11/who-declares-the-coronavirus-outbreak-a-global-pandemic.html. [2] UPDATE 31 March: 1528 Positif Corona di Indonesia, 136 Meninggal, 81 Sembuh, accessed on 31 March 2020 through https://www.kompas.tv/article/73956/update-31-maret-1528-positif-corona-di-indonesia-136-meninggal-81-sembuh. [3] point j of paragraph (2) of Article 22 [4] Paragraph (1) of Article 164 of Law No. 13 Year 2003.

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