Under Law Number 13 of 2003 on Labor (“Labor Law”), in Article 1 number 14, an employment agreement means an agreement made between an employee and an entrepreneur or an employer which specifies work requirements, rights, and obligations of both parties. From that definition, it can be concluded that the employment agreement must be obeyed and enforced by the parties that make the agreement. However the employment agreement can be terminated if:

  1. The workers dies; or
  2. The employment agreement expires; or
  3. A court decision and/or a decision or  judgment of the institute for the settlement of industrial relations disputes, which has permanent legal force; or
  4. There is a certain situation or event prescribed in the employment agreement, company regulations, or the collective employment agreement which may cause the termination of work relationship.

The termination of the employment agreement as stated above is regulated in Article 61 paragraph (1)of Labor Law.

A employment agreement does not terminate because the entrepreneur dies or because the ownership of the company has been transferred through sale, inheritance, or bequest. In the event of a transfer of ownership of company, the new entrepreneur shall bear the responsibility of fulfilling the rights of the employee unless otherwise stated in the transfer agreement, which must not reduce the rights of the employee.

In the event the entrepreneur dies, his or her heir may terminate the employment agreement after negotiating it with the employee, while if an employee dies, his or her heir has a rightful claim to the worker’s rights according to law or to the worker’s rights that has been prescribed in the employment agreement, the company regulation, or the collective employment agreement.

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Under Article 62 of Labor Law, if any party terminates the employment relation before the expiration of the employment with definite of timeagreement or the end of the employment relation is not because of the condition as it is stated in Article 61 paragraph (1), the party that ends the relation is obliged to pay compensation to the other party, equal to employee’s salary until the end of period of employment agreement. It is the fairness principle that is applicable for both employers and workers to comply with and carry out the employment agreement that has been made and signed.

Maria Amanda