Termination due to illness in Indonesia is one of the most complex issues employers face. With the laws in place that protect employees against dismissal on grounds of illness, it can create quite a challenge for employers and also for employees who are absent for prolonged periods of time.
NDP recently advised a Company on the rights and obligations under employment legislation where an employee suffered from a chronic illness, missing work for several months. NDP guided the parties through the consequences of her continued absence, including whether or when she should be let go.
Legal Framework for Termination Due to Illness in Indonesia
Indonesian labour law sets strict conditions before an employer can proceed with termination due to illness.
Under Law No. 13 of 2003 on Manpower and Government Regulation No. 35 of 2021 (GR 35/2021), employers cannot terminate an employee for illness during the first 12 consecutive months, provided the employee submits valid medical certification.
During this protected period, employers must continue paying wages on a tiered basis:
- 100% for the first 4 months
- 75% for the next 4 months
- 50% for the following 4 months
- 25% thereafter
Only after the 12-month period can an employer consider termination. Even then, the employer must follow a structured process. This includes bipartite negotiations, mediation through the Manpower Office if needed, and escalation to the Industrial Relations Court (PHI) if disputes remain unsettled.
If termination proceeds, the employee is entitled to statutory payments which includes :
- Double severance pay (uang pesangon)
- Long-service pay (uang penghargaan masa kerja)
- Compensation for outstanding rights (uang penggantian hak)
These payments are mandatory under Indonesian law.
NDP’s Approach to a Sensitive Illness Termination Case
In such context, the company sought NDP’s guidance to manage both legal risk and ethical responsibility. The goal was clear it was to ensure full compliance while maintaining fairness and dignity for the employee.
NDP’s role focused on four key areas.
1. Legal Advisory on Rights and Obligations
NDP provided a clear interpretation of the legal framework governing prolonged illness. This included the employee’s entitlements and the company’s obligations under Indonesian labour law.
2. Development of Internal Policies
Beyond the immediate case, NDP also advised on building structured internal policies. These policies help ensure consistency when handling similar cases in the future and reduce legal uncertainty.
3. Drafting the Settlement Agreement
NDP drafted a comprehensive settlement agreement. It addressed compensation, termination terms, and post-employment benefits. The structure protected both parties while minimizing legal exposure.
4. Ensuring a Compassionate Resolution
NDP handled with sensitivity throughout. All parties accepted the final settlement in good faith, reflecting both legal compliance and ethical conduct.
The Human Dimension of Illness-Related Termination
Long periods of time can feel like eternity for people suffering from serious health problems. How a company handles employees during prolonged absences will reflect on its reputation.
A poorly managed termination process can result in claims before the Industrial Relations Court (PHI), damage to the company brand and performance post-termination. On the other hand, a well-managed termination helps to maintain and reinforce organisational credibility by ensuring the company manages the exit process honestly and fairly.
Key Considerations for Employers
Employers dealing with prolonged illness-related absence should adopt a structured approach:
- Clarify legal obligations beforehand to avoid compliance gaps
- Review employment contracts and company policies thoroughly alongside statutory law
- Respect the 12-month protection period before initiating a termination
- Maintain proper documentation, including medical records and communications
- Prioritize settlement where appropriate to reduce disputes and delays
A proactive framework allows companies to act consistently and confidently in these time-sensitive situations.
Conclusion
Termination due to illness in Indonesia requires careful legal and strategic handling. Employers must balance both statutory obligations with human considerations.
In this case, NDP supported the company in achieving a legally compliant and ethically sound outcome. The engagement of NDP not only resolved the immediate issue but also strengthened the company’s internal approach to similar related matters.
This reflects the value of structured legal advisory in managing complex employment challenges in Indonesia.
NDP’s Employment and Industrial Relations Practice advises multinational and domestic companies across Indonesia on termination, dispute resolution, workforce restructuring, and policy development. NDP is a collaborating member of the DFDL network, providing employment law advisory across Indonesia and Southeast Asia.
Disclaimer
This article provides general information on illness-related termination and settlement in Indonesia and does not constitute legal advice. The law in this area is subject to change as at the date of publication. Readers should obtain independent legal advice before acting on any matter discussed here. NDP Nusantara DFDL Partnership accepts no liability for any loss or damage arising from reliance on this content.
