"Conducting an acquisition may result in employee termination. As the result of the termination of an employee for the company's acquisition, the company shall give severance pay, tenure awards, and compensation per enacted law and regulation. Uniquely, there are conditions when the acquisition leads to changes in the work requirements, and the employee does not want to continue working in the company; the compensation calculation is different from the termination generated by the company because of the acquisition itself."

Acquisition is referred to as a company takeover, which is a legal act carried out by a legal entity or individual to take over the shares of a company which results in the transfer of control over the company. According to Article 125 para. 1 of Law No. 40 of 2007 regarding Limited Liability Company ("Law No. 40/2007"), an acquisition shall be carried out by way of acquiring the shares that has been and/or about to be issued by a company through the Directors or directly from the shareholders.

Apart from that, the legal consequences resulting from company's' acquisition will affect the status of workers or employees who work for the company.

In this article, we will elaborate further for the termination of employee in regard to company's acquisition.

Employee Termination Process

In accordance to Article 154A as stated in Government Regulation in lieu of Law No. 2 of 2022 on Job Creation ("GR No. 2/2022") that abolish Article 154 on Law No. 13 of 2003 on Employment ("Law No. 13/2003"), termination of employee can occur due to:

a. The company conducts merger, consolidation, acquisition, or spin-off and the employee are not willing to continue the employment relationship or the company are not willing to accept the employee;
b. There is efficiency in the company that is followed by the closing of the company or due to the company experiencing losses;
c. The company closes due to the company experiencing losses for 2 (two) consecutive years;
d. The company closes due to force majeure;
e. The company is in the suspension of debt payment;
f. The company is declared bankrupt;
g. There is an application to terminate employment relationship that is submitted by the employee with reasons that the company commit the following actions:

  • Assault, insult in a rude manner or threaten the employee;
  • Persuade and/or order the employee to commit actions contrary to laws and regulations;
  • Failed to pay wage at the appointed time for 3 (three) months consecutively or more, although businesses pay wage on time after that;
  • Fail to perform obligations that have been promised to the employee;
  • Order the employee to do work other than those that were agreed upon;
  • Give work that endangers life, safety, health, and morality of the employee, while such work is not included in the employment agreement;

h. The employee has resigned based on their own initiative and shall fulfill the procedures as it stated in the prevail laws and regulation; and

i. The employee has violated provisions that are regulated in the employment agreement, company regulation, or collective employment agreement which previously have been give warning in accordance to prevail laws and regulation.

Furthermore, in accordance to Article 35 of Government Regulation No. 35 of 2021 regarding Temporary Employment Agreement, Outsourcing, Working Hours and Breaks and Termination of Employment Relationships ("GR No. 35/2021") that company along with its employee, and the government shall make efforts so that there is no termination of employment. However, it is stated further in Article 367 para. (2) in GR No. 35/2021 that if the termination cannot be avoided, then the company shall give objectives and reasons for termination to the employee in the form of notification. The notification should be in the maximum period of 14 (fourteen) business days prior to the termination. In regard that the termination is in the probation period, the notification shall be delivered in the maximum period of 7 (sever) business days prior to the termination.

However, there are many factors that can be the reason for the termination of employee which we will focus on the termination in regard to company's acquisition. As it stated in Article 154A para. (2) in GR No. 2/2022 that the reason for termination of employee can be regulated further in the Employment Agreement, Company Regulation, or Collective Employment Agreement.

In conclusion, the company and its employee can set the requirements for termination of employee based on the consent of both parties.

The Termination Due to Company's Acquisition

In the event that a company conducts acquisition or takeover of a company, the company must pay attention to the interests of the parties in accordance with Article 126 paragraph 1 of the Law No. 40/2007, one of which is the interests of employees. The employees are part or people who can be said to play an important role in advancing the running of the company. Therefore, in carrying out company acquisition practices, the company must first prioritize the interests of the workers who work for the company because in this way the acquisition process can proceed without having to harm the parties, especially the workers.

According to Article 42 of GR No. 35/2021, the Company may conduct termination of employment to Employee due to company's acquisition. Therefore, the Employee are entitled to:

a. Severance Pay in the amount of 1 (one) time according to provision in Article 40 para. (2) of GR No. 35/2021;
b. Tenure Awards in the amount of 1 (one) time according to provision in Article 40 para. (3) of GR No. 35/2021;
c. Compensation of Right in accordance to provisions in Article 40 para. (4) of GR No. 35/2021.

Furthermore, in terms of company's acquisition that results in change of work requirements which the Employee are not intend to continue their employment in the company, then the company may conduct termination which the employee is entitled to have:

a. Severance Pay in the amount of 0.5 (zero point five) times according to provision in Article 40 para. (2) of GR No. 35/2021;
b. Tenure Awards in the amount of 1 (one) time according to provision in Article 40 para. (3); and
c. Compensation of Right in accordance to provisions in Article 40 para. (4).

As the result for the termination of employee for company's acquisition, the company shall give severance pay, tenure awards, and compensation in accordance to enacted law and regulations.

Given the legal consequences which affect the status of employee in a condition that a company conducting acquisition, employees should receive appropriate legal protection. Every employee has the same rights and opportunities to receive their rights without any discrimination so the income can be used by the employee and their families.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.