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In brief

On 25 November 2021 the Constitutional Court decided that Law No. 11 of 2020 on Job Creation (Law No. 11 of 2020) – commonly known as “Omnibus Law” after its format – is conditionally in-constitutional. Though the Law will remain in effect, the Government must remedy the procedural flaws within two years. This decision creates potential uncertainties: 

  • it opens up the possibility that the substance of the Omnibus Law will be changed during this process; and 
  • the Court has also ordered the Government to stop making strategic decisions, which may deter it from implementing key measures mandated by this Law.

Contents

  1. The Petition 
  2. The Decision of the Constitutional Court
  3. What Does the Future Hold for Law No. 11 of 2020 on Job Creation?

The Petition 

The petition in this case was submitted by three individuals and three civil organizations. These petitioners claimed that they suffered losses due to the lack of public participation in the creation of Law No. 11 of 2020. For instance, one of the petitioners is an organization for the protection of the rights of indigenous people. It claims that Law No. 11 of 2020 includes revisions to the criminal and administrative sanctions for usage of customary land rights by business actors without permission. These revisions may encourage more violations by business actors as the sanctions are not as strict as those under the previous regulation. The Constitutional Court agreed that these parties have standing to sue and accepted this case. The following is a summary of the arguments of the petitioners that are addressed in this Court’s decision.

The Decision of the Constitutional Court

The petitioners argue that the drafting of Law No. 11 of 2020 in the format of an omnibus law is contrary to the norms of legislation as it creates confusion as to whether that law amends pre-existing laws or revokes them. The Constitutional Court essentially agrees. It observed that the structure of Law No. 11 of 2020 does not comply with proper and standard formulation of laws as it creates the impression that it is new legislation, although in fact it mostly contains amendments of pre-existing laws.

  1. The petitioners argued that substantial changes had been made to the content of Law No. 11 of 2020 after its final text had been agreed by the House of Representatives and the President.  The Constitutional Court found that there are indeed instances where the final text of the law is different to the text agreed by the House of Representatives and the President. These include clauses that were deleted and terms that were changed.  
  2. The petitioners argue that due to the above-mentioned faults in its drafting, Law No. 11 of 2020 contravenes the principles of legislation, namely clarity of purpose, efficiency, effectiveness, clear drafting and openness. The Constitutional Court agrees that the principles of clarity of purpose and clear drafting and openness are not complied with. 
  3. With regard to openness it found that the legislators did not give maximum space to the public to participate in the legislative process. Even though there were meetings held to introduce the draft of the law, the text of the draft was not properly shared so that the public remained uninformed as to its substance. Thus, members of the public did not find it easy to access the draft or to give input.

As a consequence of its findings, the Constitutional Court decided that Law No. 11 of 2020 is conditionally unconstitutional. Due to the process of its creation being contrary to the principles of good legislation, the law is unconstitutional. However, this unconstitutional status is temporary. 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 Government to immediately issue a law on how to draft an omnibus law, in conformity with the principles of good legislation. Then 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 leading 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.

While the creation of Law No. 11 of 2020 is being re-done, strategic decisions concerning matters that have wide-ranging consequences are to be suspended, including the issuance of further implementing regulations of the law.

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. 

What Does the Future Hold for Law No. 11 of 2020 on Job Creation?

So, considering the content of the Constitutional Court decision, what should we expect in the next couple of years?

  1. In practice, Law No. 11 of 2020 will continue to be in force as well as its implementing regulations. The Constitutional Court did not revoke this Law. Rather, it merely provides that the Government must re-do the process of legislating the content of this Law. This time, in full compliance with the principles of legislation.
  2. Judging by the early remarks of the executive and legislative branches of the Government it does appear that they are keen to reassure business and investors that the reform program initiated by Law No. 11 of 2020 will continue. This indicates that the Government is keen to ensure that the remedy demanded by the Constitutional Court is fulfilled so that there shall be no further challenge to this Law and that the potential for disruption shall be minimized. So we should expect that a Law will be issued to provide for the process of issuing an omnibus law and that the Government and the House of Representatives will then issue a new iteration of Law No. 11 of 2020, presumably one that is not flawed.
  3. That said, a re-doing of the legislative process with its demand for more meaningful public participation carries a possibility that the resultant new iteration of Law No. 11 of 2020 would not be exactly the same as its current form. There is a possibility that a more engaged stakeholders would demand revisions to the substance of this Law and the Government and House of Representatives would be compelled to accommodate these demands. So we may see some of the measures introduced by Law No. 11 of 2020 being withdrawn or modified. There may be compromises on the substance of this Law
  4. Further, considering the Government cannot issue further implementing regulations of Law No. 11 of 2020, there is the possibility that the Government capacity to solve issues arising from this Law would be constrained. There is a risk that legal loopholes and defects would remain unresolved
  5. A potential wild card is the broader order of the Constitutional Court that strategic decisions of wide-ranging importance shall not be made. This can be read widely as a prohibition against the implementation of major decisions and measures that are clearly mandated by Law No. 11 of 2020. This provision can act as a deterrent against issuance of major permit or concessions for fear that it may constitute a prohibited strategic decision.
  6. The worst case scenario is the Government fails to adequately remedy the defects of Law No. 11 of 2020, which means the provisions of other Laws that were replaced or amended by this Law would return into force. However, the effect of these revived provisions should not be retroactive; the Constitutional Court decision does not provide for retroactivity.  

In summary, businesses are well advised to take into consideration possible future impact of the Constitutional Court decisions two years from now and beyond. This impact is not likely to be the same for all businesses, but it is worthwhile to note that some provisions of Law No. 11 of 2020 affect all sectors, such as those relating to labour rules, fair competition, licensing in general. 

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Author

Wimbanu Widyatmoko is a senior partner in Mergers & Acquisitions Practice Group. He has experiences in handling various legal corporate/commercial issues, corporate Indonesian tax and international tax planning on inbound and outbound investment. Wimbanu has been consistently ranked as a leading lawyer by leading legal directories, such as Chambers Asia, Asia Pacific Legal 500, AsiaLaw Profiles and International Tax Review for several years.

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