Brief Overview

On the 25th of November 2021, under its final and binding ruling No. 91/PUU-XVIII/2020 (“Ruling”), the Indonesian Constitutional Court (Mahkamah Konstitusi - “Court”) ruled on an application for a judicial review of Law No. 11 of 2020 on Job Creation (commonly known as the “Omnibus Law”) – a law which (i) changed 78 Indonesian laws; and (ii) has been implemented by 51 implementing regulations across different sectors in hopes of boosting investment and making doing business in Indonesia easier.

In the Ruling, the Court concluded that the formation of the Omnibus Law is procedurally flawed (cacat formil) and ruled, among other things:

The Court found that the formation in the Omnibus Law does not comply with the Constitution and Law No. 12 of 2011 on the Formation of Laws and Regulations as lastly amended by Law No. 15 of 2019 on the same subject (“Law No. 12/2011”) resulting in a procedural flaw. As the Court considers Law No.12/2011 a delegation of the Constitution, examining the Omnibus Law in relation to Law No. 12/2011 is still within the framework of a judicial review applied for to the Court.

To determine the procedural flaw, the key problems considered by the Court in its Ruling include, among others:

MOVING FORWARD – POSSIBLE IMPLICATIONS

Despite the exposure and many concerns about this new Ruling, for now, and at least until 25th of November 2023, the Omnibus Law, together with all its already issued implementing regulations, remains in effect, valid and legally binding.

However, one major impact of the Ruling is the suspension of the further issuance of implementing regulations of or relating to the Omnibus Law, presumably, until the necessary revisions have been made. This vacuum of implementing regulations may cause uncertainty and confusion in the implementation and practical application of the Omnibus Law, which consequently may affect future investments in Indonesia. For example, the risk-based licensing system introduced by the Omnibus Law may return to the previous licensing regime if the Omnibus Law is eventually declared ‘permanently unconstitutional’. What will happen to the licenses or approvals obtained under the Omnibus Law has not yet been determined, although their being declared invalid is unlikely. However, adjustments to these licenses or approvals may be required. Nevertheless, it is still a risk that investors and potential local business entrepreneurs need to consider.

The government and the House of Representatives have stated in the news that they respect the Ruling and will adjust the Omnibus Law accordingly, but have not made any definite promise as to when and to what extent the revisions of the Omnibus Law will be made as the Ruling does not specify what revisions of the Omnibus Law must be included.

We will continue to observe and follow up on the implementation of the Ruling by the government and legislature and at the practical level ie, in the Online Single Submission System, the Ministries and decisions of the Indonesian courts on disputes or matters related to the Omnibus Law, including on industrial relations disputes.