Implication of Indonesian Constitutional Court Decision No. 72/XIII/2015 on the minimum wage postponement regime

Interestingly enough, although fundamentally minimum wage is the floor wage and safety net which means it is the lowest wage in the labour market for single and unskilled workers, Indonesian Labour Laws recognize a minimum wage postponement mechanism.[1] Employers that were unable to pay minimum wage could postpone the application if the Governor approved. Employers should the obtain union in the enterprise level and /or workers agreement and produce evidence that they have been operating at a loss for two consecutive years before applying for minimum wage postponement to the Governor. Postponement, in this discourse, is waiving the statutory responsibility to pay the prevailing minimum wage. After reviewing postponement application, the Governor could either agreed on wage deferral for a whole year or a certain number of months. The amount itself would not be lower than the last year minimum wage, as stipulated by the concerned regulations.

The minimum wage postponement mechanism had been causing a prolonged debate between trade unions, government, and employers. The regulatory objective to the mechanism is to ensure business could maintain operation even when it at loss and thus workers employment is secured. On the other hand, worker’s right to wage is still protected by setting a lowest (postponement) wage level rather than liberalize postponement negotiation in which the regulator (agency) may eventually have no power to influence. However, trade unions argued that in practice, postponement minimum wage instrument was used to keep labour costs at bay. Instead of genuinely at a loss, businesses that want to control its operation cost select this scheme of which it would not in a position of breaching the regulations that lead to criminal penalties.  It was also repeatedly reported cases, employers, pressing the workers or union to approve postponement proposal by, for instance, threatening workers that if they did not do so, the company would be ceased to operate. Additionally, the minimum wage is a safety net to assure worker a very frugal decent living. Depriving workers of the minimum wage is not in line with the philosophical idea that underpins minimum wage rationale and could have a detrimental effect on worker welfare.

The latter rationale becomes of the Constitutional Court reasoning on the union’s judicial review application. According to the Court in its Decision No. 72/XII/2015, the minimum wage is not only safeguarded of worker’s basic rights but as well as a safety net so that wages to fall to the lowest level. In other words, minimum wage protects the rights of the workers of decent living and welfare. Also, it balances the power relations in the markets where workers often stand on the disadvantaged position due to lack of bargaining capacity. The Court also asserts that in principle, employers are prohibited from paying wages lower than the minimum wage set by the Governor or other government officials concerned as the wage fixing take into consideration to the recommendations of the Wage Council and /or regent/mayor. This shows another fundamental idea of the minimum wage that is not only intended to protect worker’s rights of decent income but also the mechanism of minimum wage fixing takes importance. Wage council, by law, consists of representatives of employers, representatives of trade unions and the Government. Thus, minimum wage itself is a product of industrial relations mechanism set by the law of which recommendation of the Council likely similar with the product of negotiation in contract law. The difference is that unlike contract where usually consists of two parties, there is a third party, a body of law, that perhaps its primary role in the minimum wage fixing is as umpire or mediator.

The Court construes Article 90 of Labour Act No. 13 of 2003 and argues the paragraphs within the Article as contradictory. While Article 90 par 1 stipulates that employers are prohibited from paying lower than minimum wage, and such action is deemed a criminal offense, paragraph 2 provides a leeway for the employers to pay the prohibited criminally sanctioned action. The same degree of law should not repudiate one another. Moreover, it is likely that as non-compliance of paragraph 1 incur a criminal penalty, it takes precedence over paragraph 2. Therefore, the Court found that Article 90 para 2 has no legal force. Payment of minimum wage is mandatory and cannot be moderated.

What is more, the Court asserts that basically minimum wage deferral approval does not necessarily eliminate the obligation of employers to pay the minimum wage difference during the period of suspension. Consequently, if employers obtain permission to suspend the minimum wage from the Governor, they must pay the difference between deferred wage and the applicable minimum wage, in the future. The difference in question is considered an employer debt to the employee.

The direct implication of the Constitutional Court Decision No. 72/XIII/2015 is that paying lesser than minimum wage is no longer a legal option for employers whether they have a valid reason or not. The lowest wage paid to the employee must be at the same rate as the prevailing minimum wage. Nonetheless, the somewhat indirect implication for a heavily dependent on foreign investment country such as Indonesia is that the Government should interfere more on the wage construction in the market, taking into account economic rationale as well as socio-political interest and revisit its welfare policy so that workers well-being level does not entirely depend on their wage. On the other side of the field, employer and trade union should establish a relationship that is not only based on adversary notion in which different interests clashes but to find common ground that could support business operation sustainability but also guarantee workers well-being.

Putusan MK No. 72_XIII_Tahun 2015


[1] See Article 90 of Labour Act No. 13 of 2003

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