The practice of outsourcing in Indonesia has gradually developed into a form of “sell-off” of workers, whereby every time an outsourcing contract expires and the vendor changes, workers are asked to sign a new contract, their length of service is reset, and it is as if their entire employment history has simply disappeared. Constitutional Court Decision No. 27/PUU-IX/2011 addressed this very issue, and it was from there that the concept of Transfer of Undertaking Protection of Employment (“TUPE”) was explicitly incorporated into our labor law regime.
Since the ruling was read out, outsourcing is no longer a blank space that can be filled solely by business interests. There is a clear constitutional barrier where workers’ rights cannot be terminated simply because the name of the service provider company has changed.
Simply put, TUPE means that when a business activity or job performance is transferred from one company to another, the protection of employment relationships and workers’ rights is transferred along with it, rather than being lost along the way. The Constitutional Court adopted this principle, which is commonly recognized in other jurisdictions, into the context of outsourcing in Indonesia when reviewing Articles 65 and 66 of Law No. 13 of 2003 on Manpower (“Manpower Law”).
In Constitutional Court Decision No. 27/2011, the Constitutional Court distinguishes between two models of employment relationships in outsourcing schemes:
- The PKWTT model between workers and outsourcing companies. As long as the outsourcing requirements are met, this arrangement is considered constitutional.
- The PKWT model between workers and outsourcing companies. For this model, the Constitutional Court emphasized that PKWT can only be declared constitutional if there is a requirement for the transfer of workers’ rights protection when the outsourcing company changes, as long as the object of the work still exists.
It is at this point that the Constitutional Court firmly establishes the TUPE principle: outsourcing PKWT without a clause on the transfer of rights protection is conditionally unconstitutional. Workers should not lose their jobs and employment tenure simply because the user company changes the vendor performing the same work.
Constitutional Court Decision No. 27/2011 was then “translated” into written provisions. In the outsourcing regime, Article 64 of the UUTK serves as the entry point, confirming that companies may delegate part of the work to other companies through outsourcing mechanisms.
The Constitutional Court then reinterpreted the configuration of Article 65(7) and Article 66(2)(b) of the UUTK, particularly regarding the use of PKWT in outsourcing. This regulation was then reinforced with the formulation that PKWT in outsourcing companies must contain conditions for the transfer of protection of workers’ rights in the event of a change in the outsourcing company and as long as the object of the work remains (see Article 66 paragraph (3) of the UUTK in conjunction with Constitutional Court Decision No. 27/PUU-IX/2011).
At the implementing regulation level, this principle is accommodated in a more technical manner in Government Regulation No. 35 of 2021. Article 18 of Government Regulation No. 35 of 2021 stipulates that the employment relationship between an outsourcing company and workers can take the form of a PKWT or PKWTT, and the outsourcing employer is fully responsible for fulfilling the rights of workers. Most importantly, Article 19 of Government Regulation No. 35 of 2021 requires that PKWT in outsourcing schemes include a clause on the transfer of rights protection in the event of a change in the outsourcing company, as long as the object of the work remains the same.
Thus, the TUPE principle is no longer merely a doctrine or judicial consideration; it has taken shape as a normative obligation in the UUTK in conjunction with Government Regulation No. 35 of 2021.
For outsourced workers, TUPE provides concrete guidance. A change of vendor does not automatically terminate their employment period. As long as the same work continues at the user company, workers have grounds to demand that their rights and length of service be recognized and transferred to the new outsourcing company, rather than being forced to start from scratch every time the vendor contract changes (see Constitutional Court Decision No. 27/PUU-IX/2011 and Article 66(3) of Law No. 13 of 2003).
For outsourcing companies and employers, the implications are not simple. The contractual scheme must be redesigned:
- Fixed-term employment contracts in outsourcing can no longer be made without a clause on the transfer of workers and their rights in the event of a change in the outsourcing company;
- Failure to include a TUPE clause is not merely a contractual defect, but has the potential to conflict with the Constitutional Court’s decision and collide with the obligations in Government Regulation No. 35 of 2021 (vide Articles 18 and 19 of Government Regulation No. 35 of 2021).
In other words, the design of outsourcing businesses must now factor in the costs and risks of TUPE compliance as part of the cost of doing business, rather than as an option that can be negotiated unilaterally.
For legal practitioners representing workers, companies, or in-house counsel, TUPE has become a mandatory element in outsourcing dispute analysis. Reading a PKWT outsourcing contract without examining:
- Whether there is a clause on the transfer of worker rights protection if the vendor changes; and
- How the transfer mechanism is regulated in concrete terms.
is a form of professional negligence. The basis of the argument can no longer stop at the text of the UUTK, but must combine Constitutional Court Decision No. 27/2011 and its further provisions in Government Regulation No. 35 of 2021 (see Articles 18 and 19 of Government Regulation No. 35 of 2021).
Constitutional Court Decision No. 27/2011 and the TUPE concept essentially affirm one thing: the state does not prohibit business flexibility through outsourcing, but rejects models of flexibility built on the elimination of workers’ rights.
Conclusion
Ultimately, Constitutional Court Decision No. 27/PUU-IX/2011 and the TUPE principle affirm that outsourcing may be used as an instrument of business flexibility, but may no longer be carried out using a “sell-off” pattern that terminates workers’ rights and employment every time the vendor changes. when business activities or work are transferred from one company to another, employment protection and workers’ rights must also be transferred, and this has now been constructed as a normative obligation through Articles 64, 65, and 66 of the UUTK and elaborated technically in Articles 18 and 19 of Government Regulation No. 35 of 2021, which requires a clause on the transfer of rights protection in outsourced fixed-term employment contracts. This provides concrete guidance for TUPE workers, becomes an unavoidable part of the cost of doing business for employers, and serves as a mandatory element for legal practitioners on the worker, employer, and in-house sides when reading, drafting, and challenging outsourcing contracts today.
Legal Basis:
- Law Number 13 of 2003 concerning Manpower
- Law Number 6 of 2023 concerning the Stipulation of Perpu 2/2022 into Law
- Constitutional Court Decision Number 27/PUU-IX/2011
- Government Regulation in Lieu of Law Number 2 of 2022 concerning Job Creation
- Government Regulation Number 35 of 2021 concerning Fixed-Term Employment Agreements, Outsourcing, Working Hours and Rest Periods, and Termination of Employment
Author: Kemas Aryo Rekso Menggolo, S.H.