16 September 2019 (closed)
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Directors in Indonesia cannot be considered employees in Indonesia, because Indonesian Law number 13 of 2013 regarding Manpower (Labor Law) defines them as entrepreneurs. This has several implications of directors in Indonesia. The biggest implication is that directors do not enjoy the strong employee protection based on the Labor Law. Directors are therefore advised to carefully draft their service agreements to ensure sufficient protection. In this column we will explain the exact status of a director in Indonesia.
Status Director According to Labor Law and Company Law
The Labor Law makes a clear distinction between workers (employees) and entrepreneurs (employers).
Article 1 (3) Labor Law defines an employee as an individual who works and receives wages or any other form of compensation. Based on article 50 Labor Law an employment relation can only exist in the event there is an employment agreement between the employee and the entrepreneur.
Article 1 (5) defines an entrepreneur as an individual who operates a self-owned company or a company which is not self-owned. Article 92 Indonesian Law number 40 of 2007 regarding Limited Liability Companies (Company Law) explains that the operation (management) of a company is carried out by the board of directors. Based on the foregoing a director can be considered as entrepreneur rather than an employee. This is further confirmed by article 94 (1) Company Law, which states that directors are appointed by the General Meeting of Shareholders.
The foregoing explains a clear difference between directors and employees, that is employees are hired based on a superior - subordinate relationship. Directors on the other hand are appointed as a fiduciary of the shareholders.
Implications for Directors
Since directors are considered entrepreneur and not employee, they are not protected by the strong protections set out in the Labor Law, such as the right to earn wage, overtime, termination allowance, religious holiday allowance, and other rights. Instead the salary and allowances of the director are determined by the General Meeting of Shareholders or the Board of Commissioners. Since the Company Law does not regulate strong protection rules for directors, we recommend the rights to be regulated in a separate service agreement between the director and the company.
This column is provided by PNB Law Firm Jakarta