The Differences of Company Regulations and Collective Labor Agreements

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Authors

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In employment relations, companies establish internal rules to regulate workplace policies, employee rights, and obligations. These regulations can take the form of company regulations (Peraturan Perusahaan) or a collective labor agreement (Perjanjian Kerja Bersama) (“CLA”). While both serve as legal frameworks governing employment conditions, they differ in terms of their formation, applicability, and negotiation process. Understanding these distinctions is essential for both employers and employees to ensure compliance with manpower laws and to promote a fair and harmonious working environment.

As part of the ARMA Employment Series, this article will provide an analysis of the core differences between company regulations and CLA, as governed by Ministry of Manpower Regulation No. 28 of 2014 on the Procedures for the Formulation and Validation of Company Regulations as well as the Formulation and Registration of Collective Work Agreements (“MoM Reg 28/2014”), and Law No. 13 of 2003 on Manpower and its amendments (“Manpower Law”).

1. Requirement and Drafting

   Under Manpower Law, employers with a minimum of 10 (ten) employees are required to draft a company regulation as a mandatory obligation. ^[1] Pursuant to MoM Reg No. 28/2014, the drafting of a company regulation is the obligation and responsibility of the employer. ^[2] However, the employer must take into account the suggestions and considerations of worker or labour representatives within the company, as stipulated under the Manpower Law. ^[3]

   In contrast, a CLA may be established only if a registered labour union exists within the company. ^[4] Unlike company regulations, which are unilaterally prepared by the employer to ensure compliance with Manpower law, CLA are the result of negotiations between the employer and the labour union, reflecting mutually agreed-upon employment terms and conditions. As a negotiating party, the labour union appoints a representative from among its members to engage in direct negotiations with the employer. ^[5]

2. Validity Period

   Company regulations are valid for 2 (two) years and must be renewed and ratified by the Minister of Manpower or an appointed official upon expiration. ^[6] Under certain circumstances, the company regulations may be extended for an additional year if the company is in the process of drafting a CLA. ^[7] However, if the CLA drafting process is not completed within that period, the company is required to issue new company regulations, as the previous ones shall be deemed expired.

   Article 108 of the Manpower Law further states that a company regulation becomes effective once it has been ratified by the Minister of Manpower or an appointed official. In accordance with Article 7 of MoM Reg No. 28/2014, the ratification process is carried out by:

   1. The Head of the Regional Manpower Office at the Regency/City level, if the company operates within a single regency or city.
   2. The Head of the Provincial Manpower Office, if the company operates in multiple regencies/cities within a single province.
   3. The Director General, if the company operates in more than one province.

   CLA has the same period of 2 (two) years and can be extended for 1 year if the negotiations for the renewal are still on-going (30 days from the expiry date). ^[8] However if no agreement is reached in the negotiations even after the extension, the old CLA shall still be valid until an agreement is reached. With regard to the effective date of the CLA, it shall take effect on the date of its signing unless otherwise stipulated in the agreement itself. ^[9] However, the CLA that has been signed by the parties must still be registered by the employer with the relevant authority responsible for manpower affairs. ^[10]

3. Enforceability within a Company Group

   In the case of a corporate group consisting of multiple companies, company regulations must be established separately for each company within the group, therefore one company regulation cannot be used for all companies. ^[11]

   In contrary, a CLA could be used in multiple companies within the same corporate group. This is possible as if there is a single labour union representing employees throughout the group, allowing for the negotiations of one unified CLA that applies to all companies within that group. The negotiation process can be conducted collectively between the labour union and the group of companies. However, in situations where multiple labour unions exist within the group, the negotiations may involve all relevant unions and companies to ensure inclusive and comprehensive representation in the resulting agreement. ^[12]

Hierarchy in a Company

In terms of hierarchy, the CLA is considered the highest document governing manpower provisions within a company. This is reflected in the provision for the extension of company regulations, which may be temporarily extended to allow time for drafting the CLA. Additionally, should a company have a collective labour agreement, a company regulation would no longer be required.

Conclusion

The company regulation serves as a fundamental internal guideline that ensures compliance with Manpower Laws and provides clarity on workplace policies, employee rights, and obligations. It is a mandatory requirement for companies employing at least ten employees, ensuring that both employers and employees have a structured framework governing their working relationship.

In contrast, a CLA may be viewed as an elevated form of a company regulation, as it is formulated through mutual agreement between the company and the labour union, rather than being unilaterally established by the employer. Moreover, a collective labour agreement typically has a broader scope, and its applicability can extend beyond a single entity to cover multiple companies within a corporate group, depending on the structure of the agreement.

Both agreements, while having their differences, play a vital role within a company, particularly in the event of a labour dispute, a registered company regulation or CLA serves as the principal reference for resolving conflicts, as it represents the legally binding agreement between the employer and employees. This underscores the importance of ensuring that either company regulation or CLA are properly documented and officially registered, in order to provide a clear legal basis in case of disputes.

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1. Article 108 paragraph (1) of Manpower Law. ↩︎

2. Article 4 of MoM Reg No. 28/2014. ↩︎

3. Article 110 paragraph (1) of Manpower Law. ↩︎

4. Article 116 paragraph (1) of Manpower Law. ↩︎

5. Article 116 paragraph (1) of Manpower Law. ↩︎

6. Article 111 paragraph (3) & Article 108 of Manpower Law. ↩︎

7. Article 11 of MoM Reg 28/2014. ↩︎

8. Article 29 of MoM Reg 28/2014. ↩︎

9. Article 132 paragraph (1) of Manpower Law. ↩︎

10. Article 30 paragraph (1) of MoM Reg 28/2014. ↩︎

11. Article 3 of MoM Reg 28/2014. ↩︎

12. Article 16 of MoM Reg 28/2014. ↩︎

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Disclaimer:
This client update is the property of ARMA Law and intended for providing general information and should not be treated as legal advice, nor shall it be relied upon by any party for any circumstance. ARMA Law has no intention to provide a specific legal advice with regard to this client update.

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1. Hierarchy in a Company
2. Conclusion

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