How to Deal with Employment Termination due to this "Indirect" Acquisition?
It commonly happens that a change of control, or more commonly called an 'acquisition', of a company is followed by employment terminations. This situation raises 2 (two) practical issues: (1) who is entitled to ask for a termination: the company as the employer or the employees? (2) what about if the acquisition takes place at the level of the shareholders of the company; is the termination of the company's employees still allowed?
The basic provision regarding terminations of employment is set out in Article 163 of Law No. 13 of 2003 concerning Manpower ("Manpower Law"), which states as follow:
- The employer may terminate the employment of an employee in the event of a change of status of the company, merger, consolidation, or change in the ownership of the company if the employee is not willing to continue with the employment, and the employee will be entitled to severance pay 1 (one) times the amount of severance pay provided by subsection (2) of Article 156, gratuity for period of employment 1 (one) times the amount provided by subsection (3) of Article 156, and compensation pay for entitlements that have not been used according to what is provided by subsection (4) of Article 156.
- The employer may terminate the employment of an employee in the event of a change in the status of the company, merger, or consolidation of the company if the employer is not willing to accept the employee to work in the new company. The employee will be entitled to severance pay twice the amount of severance pay provided by subsection (2) of Article 156, gratuity for period of employment 1 (one) times the amount provided by subsection (3) of Article 156, and compensation pay for entitlements according to what is provided by subsection (4) of Article 156.
If the acquisition occurs, who is entitled to ask for a termination: the company as the employer or the employees?
Under the provisions of the Manpower Law above, employment can only be terminated if the employee is not willing to continue employment with the company in the event of a change of ownership of the Indonesian employer. In other words, Article 163 of the Manpower Law does not specify the right of the employer to dismiss the employee due to a change of ownership of the employer.
It is understood from the Indonesian Ministry of Manpower's point of view published on its website ("Manpower Ministry's Interpretation")1 that a change of ownership under Article 163 paragraph (1) of the Manpower Law does not simultaneously entitle the employees to claim compensation thereunder as it needs to be followed by a change of policy by the employer which endangers or lessens the current welfare of the employees (including repositioning or rotation or demotion of the employee concerned). If no such change of policy occurs, the employees cannot claim compensation under Article 163 paragraph (1) of the Manpower Law and if the employee still requests termination, then the employee will be deemed to be resigning from their employment.
Is the termination of the company's employees still allowed if the acquisition takes place at the level of the shareholders of the company?
According to the Manpower Ministry's Interpretation, in interpreting Article 163 paragraph (1) of the Manpower Law, the Manpower Ministry considers a change of ownership to be a change of control in the company where the employees work. The Manpower Ministry also views that the change of ownership in the shareholders of the company (shareholders of the employer) cannot be used as a reason to claim a severance payment due to the occurrence of a "change of ownership" under Article 163 paragraph (1) of the Manpower Law.
However, we found a case in which a company was required to compensate its employees due to an indirect change of control. In that case, in December 2009, the Indonesian Supreme Court – issued Decision No. 416 K/PDT.SUS/2009 which upheld a lower court decision, Industrial Relations Court Decision No. 262/PHI.G/2008/PN.JKT.PST. The Industrial Relations Court's Decision required a company to meet the request of employees who wished to be compensated with a severance payment package due to the indirect acquisition of the company.
The case was initiated after the company informed its employees of the acquisition of its holding company. This information was sensitive to the company's employees and triggered the dispute where the employees asked the company to give them compensation in the form of a severance payment package as a result of an indirect acquisition. When the acquisition was occurred, some of the company's employees requested termination and the company paid them 2 (two) times severance payment and thereafter continued the employment status of those employees starting again from 0 (zero) years2.
The other employees who did not ask for an employment termination filed a lawsuit alleging that there had been a change of ownership in the company and such change of ownership had caused a change of the employment system, employment relationship, and legal domicile of the company. They filed a lawsuit and asked the company to pay them the severance package. They demanded a higher calculation of the severance package payment than the package that company paid to the employees who had resigned earlier. They argued that the law provides a lower compensation for an employee who voluntarily resigns than that given to an employee who is dismissed for other reasons. Thus, they demanded 3 (three) times the severance package payment under Article 156 of the Manpower Law. Responding to this suit, the Industrial Relations Court approved their claim, even though the compensation amount granted by the Industrial Relations Court was lower than what was requested. The Industrial Relations Court's decision was then upheld by the Indonesian Supreme Court. It appears from the decision that the compensation given to each of the employees filing the lawsuit was proportionate to the amount given to the employees who resigned.
Although in the Indonesian legal system a court judgment does not bind other proceedings after the judgment, the judges in the later proceeding may take the judgment in the previous case into consideration. In that regard, the abovementioned Indonesian Supreme Court's Decision should be carefully considered by any company facing an acquisition at the shareholders level, in particular in facing objections from the employee(s) to continuing their employment due to the change of control at the level of any of its shareholders.
However, in some cases, good internal communications and relations between the management and the employees or labor union may help the process of acquisition run smoothly, especially in relation to the employment.
 http://naker.go.id/id/faq (accessed on 26 November 2015)
 There is no comprehensive information in the Decision of the Supreme Court on the back ground as to why those employees wished to terminate their employment.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.