216 garment factories are taking part in the Better Work Indonesia programme

216 garment factories are taking part in the Better Work Indonesia programme

Indonesia's parliament has passed into law a controversial bill to reform the country's labour market and regulations – prompting concern from apparel brands, labour rights groups and unions.

The bill was due to be deliberated by Members of Parliament today (8 October), but was instead approved on Monday (5 October) ahead of planned protests against the legislation.

The so-called "Omnibus" bills on job creation and taxation are part of government plans to overhaul the country's nearly two-decades old labour law – with reforms aimed at boosting jobs and investment in Southeast Asia's largest economy.

They will replace dozens of overlapping laws that have been in place since 2003, as well as make it easier for companies to secure permits and relax foreign ownership rules.

The Omnibus Law on Job Creation changes more than a thousand articles in 79 existing statutes, according to the International Trade Union Confederation (ITUC), and includes provisions that would cut wages, remove important sick leave provisions and other protections, make it easier to hire and fire workers, and open jobs across more sectors to foreign labour.

"The sheer scale, complexity and contents of the law are a violation of Indonesia's responsibilities under international human rights law," the union says. 

Brands and retailers including Aldi, Lidl, Haglofs, Hugo Boss, S.Oliver, Schöffel and VF Corporation, along with the American Apparel and Footwear Association, Social Accountability International, Fair Wear and the Fair Labor Association, have also warned that "many of the provisions in the proposed Omnibus Bill's Labour Cluster raise serious concerns regarding the continued protection of worker rights." 

They add: "The protection of worker rights and the guarantee of decent working conditions are among the principle reasons why brands choose to invest and maintain operations in Indonesia, or source from Indonesian manufacturers."

The urge the government "to ensure that any amendments to current labour laws resulting from the Omnibus Bill remain consistent with international standards."

Namely, they want a limit to repetitive short-term contracts that provide fewer social security benefits with reduced legal protections, clearly defined grounds for dismissal, wages to be established in consultation with representative organisations of employers and workers, appropriate paid and unpaid leave, and reasonable working hours.

They also note the amendments "would have particularly negative implications for short-term contracts and would set low barriers for dismissal. Such changes would undercut the capacity of unions to organise workers and sign collective bargaining agreements in workplaces."

The textile industry is one of Indonesia's largest earners of foreign exchange, with exports valued at $13bn and a further increase to $15bn seen in 2019.

Investment boost

Analysts at Moody's Investors Service are broadly supportive of the new law, as it could help to revive Indonesia's economic growth by facilitating both domestic and foreign investment.

They say authorities are streamlining the cumbersome business licensing process, making one authority – the Investment Coordinating Board – responsible for issuing licenses through an online submission system. The bill also introduces a new, shorter list of sectors where foreign investment will be restricted, with tax reforms also introduced to incentivise investment. 

However, "the relaxation of environmental standards and reporting is also a credit negative. Moreover, labour reforms have sparked protests by unions which, if prolonged, could limit the benefits of the law for the investment climate."

The analysts add: "Without offsetting benefits, weaker protections for a large and growing working class could spark opposition from various political and social interest groups, with counterbalancing effects on labour productivity over the near term."