Under Indonesian law, termination of fixed-term employees for serious misconduct is legally permitted without triggering early termination damages. However, employers remain obligated to pay statutory PKWT compensation, as it reflects service rendered, regardless of the reason for termination.
In practice, companies often face the same question: when an employee under a fixed-term employment agreement (PKWT) commits serious misconduct, even a criminal offence and the employment is terminated before the contract expires, does the company still have payment obligations toward the employee?
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Under Indonesian employment law, termination of employment must be assessed based on legally recognized grounds. Article 61(1) of UU 13/2003 provides that an employment agreement may end due to certain events or circumstances stipulated in the employment agreement, company regulation, or collective labour agreement. In practice, serious misconduct is typically classified as such “specific circumstances.” Consequently, termination in this situation is not considered an unlawful early termination, but rather a termination based on a legally recognized ground.
This distinction is important when viewed together with Article 62 of UU 13/2003, which regulates compensation for early termination of PKWT. Article 62 applies only when one party ends the agreement before its expiry without relying on grounds recognized under Article 61(1). Therefore, where the employer terminates employment due to serious misconduct that has been properly regulated beforehand, the conditions for Article 62 are not met. The company is not required to pay damages equal to the remaining contract period, and the employee cannot automatically be held liable for contractual damages either.
However, another obligation is frequently misunderstood: the statutory PKWT compensation payment. Following the amendments to Indonesian employment regulations, PKWT are entitled to compensation under Article 61A of the Manpower Law and GR 35/2021. This compensation is not a reward for the manner in which employment ends, but recognition of the period of service already performed.
As long as the employee has worked for at least one continuous month, the employer remains obligated to pay proportional PKWT compensation calculated up to the employee’s last working period, even if termination occurs due to serious misconduct. The regulation does not distinguish the reason for termination when determining entitlement to compensation.
From a company perspective, the legal framework can be summarized as follows: termination of PKWT for serious misconduct is permissible provided the grounds are clearly regulated in the employment documents; payment of remaining contract damages under Article 62 is not required; yet statutory PKWT compensation remains a mandatory obligation.
In many employment disputes, the issue is not the employee’s misconduct itself, but the assumption that employer obligations automatically cease once wrongdoing occurs. Employment compliance ultimately concerns not only the decision to terminate employment, but whether that decision is taken within the correct legal framework.
Tulisan ini pernah dimuat dalam Linkedin Andi Akhirah Khairunnisa, dengan judul “When a Fixed-Term Employee Commits Serious Misconduct: Is the Company Still Obliged to Pay Compensation” dan telah mendapatkan persetujuan untuk dipublikasikan.
