Indonesia: Remedy of omnibus law progresses in face of legal challenges

In brief

The Government has begun the process of "re-doing" the Law No. 11 of 2020 on Job Creation ("Law No. 11 of 2020", also known as the Omnibus Law) as was mandated by the Constitutional Court on 25 November 2021. It has issued an amendment to the law governing the legislative process to accommodate the omnibus law method used for this law. The Government must now involve the public in a meaningful way in discussing the substance of the law that will replace Law No. 11 of 2020, while still completing the whole process by the 25 November 2023 deadline. In the meantime, the amendment itself is still subject to constitutional challenges.

The decision of the Constitutional Court

On 25 November 2021, the Constitutional Court decided that, because the process of Law No. 11 of 2020's creation was contrary to the principles of good legislation, it is conditionally unconstitutional (see our client alert of 7 December 2021). This status is subject to the condition that the Government must remedy the procedural flaws within two years. If this is done, the law, or whatever its later incarnation is, will be constitutional.

To remedy the procedural flaws of Law No. 11 of 2020, the Constitutional Court ordered the following steps. First, the Government must issue a law on how to draft an omnibus law, in conformity with the principles of good legislation. Second, Law No. 11 of 2020 must be revised to fulfil those principles, in particular the principle of openness, which requires more meaningful public participation. Essentially, the Government is required to re-do the legislative process that led to the issuance of Law No. 11 of 2020.

If the Government fails to implement the above remedy, the unconstitutional status of Law No. 11 of 2020 will become permanent, and all the pre-existing laws that it revises or replaces will become applicable once more. The legal regime would revert to that in force prior to the issuance of Law No. 11 of 2020.

As noted, the Constitutional Court specifies that its decision is limited to the formal aspects of Law No. 11 of 2020. It does not rule on the substance of this Law. 

In depth

The legislative process and legal challenges so far

On 13 June 2022, the Government issued Law Number 13 of 2022 on Second Amendment To Law Number 12 of 2011 on the Creation of Laws and Regulations (Law No. 13 of 2022). The purpose of this amendment is to address the Constitutional Court's objections to the legislative process used for the creation of Law No. 11 of 2020. To address the Constitutional Court's objection that the method of creating an omnibus law is confusing, Law No. 13 of 2022 specifies this method for the first time. To address the Court's objections that changes were made to the substance of Law No. 11 of 2020 after its text had been agreed in a plenary session of the House of Representatives, this amendment specifies that it is possible to make changes after the text has been agreed in a plenary session to correct technical errors. To address the Court's finding that there was lack of meaningful public participation in the creation of Law No. 11 of 2020, this amendment purports to introduce measures to strengthen public participation. This amendment stressed that the public have the right to be heard, to get explanations and to have their opinion considered during the legislative process.

With the issuance of Law No. 13 of 2022, the Government has fulfilled the first requirement set out by the Constitutional Court that it must issue a law on how to draft an omnibus law, in conformity with the principles of good legislation. The next step is to proceed with re-doing the legislative process in the House of Representatives.

Since it was issued, Law No. 13 of 2022 itself has become the subject of legal challenges in court. The Indonesian Labor Party submitted a petition alleging that this law itself was passed without meaningful public participation. It was alleged that the Government and the House of Representatives have rushed through the legislative process so that this law was considered and completed within just one week with no public input. The amendments introduced by this law are also alleged to amount to nothing more than a post-facto justification of the faults during the creation of Law No. 11 of 2020. However, the Constitutional Court ruled that the petition was technically insufficient and rejected it without considering its substance. The Labor Party submitted a revised petition on 26 July. On 1 August 2022, a separate petition was submitted by other labor and human rights activist groups arguing broadly the same issues.

It will be interesting to monitor the development of these petitions. If they are successful, supposing that all the petitioners' arguments are accepted by the Constitutional Court, the Government may suffer a serious setback in its effort to re-do the creation of Law No. 11 of 2020. The Government intends to re-use the omnibus method in this effort. Considering the breadth and scope of Law No. 11 of 2020, this is the only feasible method for replicating the substance of this law in its new incarnation. If the Constitutional Court rules against the introduction of this method through Law No. 13 of 2022, the Government will have to rely on other, traditional methods which may be much more complicated and onerous.

What lies ahead

The Government continues to maintain an optimistic outlook on the prospects of its effort to re-do the creation of Law No. 11 of 2020. According to media reports, this remains a top legislative priority of the Government, and it is hopeful that this task would be done by the end of 2022. This means we should see the Government and the House of Representatives moving onto considering the substance of the new incarnation of Law No. 11 of 2020 this month, as soon as the House resumes its session on 16 August 2022, one day before Independence Day, in accordance with tradition.

Aside from the potential disruption arising from the ongoing constitutional challenges to Law No. 13 of 2022, it remains to be seen what the Government and the House of Representatives would do differently from the previous time so that concerns about meaningful public participation are addressed. Also, while at this point there is no strong call to revisit the substance of Law No. 11 of 2020,  we cannot rule out the possibility that the substance will be revised in the next phase , e.g., if the Government thinks this is necessary to head off any further objection and protest against this law.

Businesses are well advised to take into consideration the possible future impact of the Constitutional Court decision of November 2021. The re-doing of the creation of Law No. 11 may yet fail or it may still involve substantial changes to this law. Any such impact is not likely to be the same for all businesses, but it is worthwhile pointing out that some provisions of Law No. 11 of 2020 affect all sectors, such as those relating to labor rules, fair competition and licensing in general. If the process of re-doing the law fails, the previous laws will come back into force in November 2023. If substantial revisions are made, the impact of those revisions will have to be evaluated.

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Mochamad Fachri
Associate Partner at BakerMcKenzie

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