Indonesia’s Omnibus Law in limbo

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Following a petition submitted by three individuals and three civil organisations, the Constitutional Court of Indonesia has declared Law No. 11 of 2020 – the Omnibus Law on Job Creation, which was passed by parliament in October 2020 to revise 78 laws and regulations – as unconstitutional.

The court also instructed the Indonesian government to revise the law within two years, leaving many questions for lawyers and their clients. “The ruling indeed leaves confusion for foreign investors to do business in Indonesia, particularly since there are possibilities that we would revert to the situation pre-Omnibus Law if the lawmakers fail to fix it within two years,” said Ruben Soeratman, a partner at Nurjadin Sumono Mulyadi & Partners.

Soeratman explained that the laws amended by the Omnibus Law consisted of 11 clusters, namely regulations on licensing leniency, investment growth, employment, research and innovation, empowerment and protection of small to medium-scale enterprises and co-operatives, ease of doing business, government administration, land procurement, imposition of sanctions and penalties, government investment, and national strategic projects and economic zones.

“The sectors affected by the recent ruling would be those within the 11 clusters,” said Soeratman.

walalangi & partners
Luky Walalangi

However, Luky Walalangi, managing partner at Walalangi & Partners in Jakarta, said that the Constitutional Court had merely focused on the procedural flaws in the establishment of the Omnibus Law.

“The court did not immediately invalidate the Omnibus Law, but ordered the government and the House of Representatives to revise it within two years, and if no revision is made within the prescribed timeframe, the Omnibus Law will be deemed permanently unconstitutional and invalid,” said Walalangi.

During the two-year period, he explained, the Omnibus Law remained in force, but the government was prohibited from issuing new implementing regulations. All business licences that had been issued before the court’s decision would remain in full force and effect.

“However, it remains to be seen whether the government will take a conservative approach and suspend all future applications of business licences under the Omnibus Law, although this is unlikely to be the case considering the government’s constant positive attitude towards investment,” said Walalangi. “The rationale of this is to provide legal certainty to the Indonesian legal system and businesses.”

Denny Rahmansyah, partner at SSEK Legal Consultants, agreed that foreign investors would largely not be impacted during this transition period as all 51 implementing regulations would still be applicable and in full force.

“Regulations regarding risk-based licensing for investors will likely remain largely untouched, and there will be no effect on business activities,” said Rahmansyah. “Nevertheless, we note that there still is uncertainty surrounding the outcome of the Constitutional Court decision, putting investors in the position of having to wait and see the implications of any revisions to the Omnibus Law.”

Rahmansyah noted that several sectors had been affected by the Omnibus Law. For example, prior to the enactment of the Omnibus Law, Law No. 13 of 2003 on Manpower recognised the activities of subcontracting and outsourcing of labour or services.

“With the enactment of the Omnibus Law, subcontracting is no longer recognised as a manner of providing services,” said Rahmansyah. “As a result, we note that in the event of a revision of the Omnibus Law, the above-mentioned provision on subcontracting may be subject to change and/or further regulation.”

Pramudya Oktavinanda UMBRA
Pramudya Oktavinanda

Referring to the general legal principles applicable in Indonesia, Pramudya Oktavinanda, managing partner at UMBRA, said that any implementing regulations could not be deemed annulled without the Supreme Court’s final and binding decision.

“This means that these implementing regulations will remain valid unless deemed otherwise by the Supreme Court,” said Oktavinanda. “If the government is prevented from issuing implementing regulations as mandated by the Omnibus Law, while existing implementing regulations are deemed void by operation of the law, the adverse consequences to our legal certainties are unimaginable.”

From a strict legal perspective, Oktavinanda sees that the Constitutional Court’s decision is actually a huge win for the government and its House of Representatives, as they would have enough time to fix the formal aspects of law, ensuring that it will be “cleanly” constitutional at the end of the day.

Oktavinanda explained that the Constitutional Court’s order for the government to not issue any new strategic policies and implementing regulations was not enforceable for a couple of reasons.

“Such an order is not in line with the decision of the Constitutional Court that the Omnibus Law is still valid for the next two years,” he said. “If a law is deemed valid, it does not make any sense if its provisions cannot be implemented. As such, the Constitutional Court is making a paradoxical order that cannot be enforced.”

“More importantly, the Constitutional Court does not have any authority to prevent the government from implementing those new policies or regulations, nor do they have any power to enforce such an unauthorised order if the government does not comply with it,” he said.