How to Understand Them
Non-compete clauses are often found in employment contracts around the world, intended to stop employees from working for competitors or starting similar businesses for a certain period after leaving an employer. However, these clauses have different levels of enforceability depending on the jurisdiction. In Indonesia, the legal situation regarding non-compete clauses is especially complicated and disputed.
In this article, we will discuss the enforceability of non-compete clauses in Indonesia, especially when the employee does not have access to unique intellectual property (IP) of their employer. We will also give some best practices for employers and employees to handle this issue effectively.
A Legal Summary
Indonesian labor laws do not clearly regulate non-compete clauses. The principle of freedom of contract, as stated in Articles 1337 and 1338 of the Indonesian Civil Code, allows parties to include any provisions in their contracts, as long as they do not go against public order or mandatory legal provisions. This means that while non-compete clauses can be included in employment contracts, their enforceability is not assured.
There are several legal provisions that challenge the enforceability of non-compete clauses in Indonesia:
Article 27 of the Indonesian Constitution guarantees every citizen the right to work and earn a decent living.
Law No. 13 of 2003 on Employment emphasizes equal rights and opportunities for employees to choose and obtain jobs.
Law No. 39 of 1999 on Human Rights states that everyone has the right to freely choose their job and enjoy fair employment conditions.
Based on these provisions, non-compete clauses may be considered as violating an individual’s right to work and could be deemed null and void.
The enforceability of non-compete clauses in Indonesia is often doubted, especially when the employee does not have access to unique IP or confidential information. Courts tend to examine these clauses to ensure they are reasonable and not overly restrictive. Factors considered include:
Duration and Geographic Scope: The clause should be limited in time and geographic area to be considered reasonable.
Legitimate Business Interests: The employer must show a legitimate business interest, such as protecting trade secrets or confidential information.
For employees who do not have access to unique IP or confidential information, the rationale for a non-compete clause becomes weaker. Employers may find it difficult to prove that such employees pose a significant threat to their business interests. In these cases, non-compete clauses may be viewed as unnecessarily restrictive and potentially unenforceable.
A Practical Perspective
As a leading headhunter in Indonesia, Select Headhunter understands the importance of protecting our business interests and maintaining our competitive advantage. However, we also respect the rights and goals of our employees and candidates. That is why we have developed a balanced and fair approach to non-compete clauses in our employment contracts.
Our non-compete clause prevents an employee from contacting clients and candidates they had direct contact with while working for us for a set period of time. This clause does not limit the jobs the employees can consider, but protects the relationships of our business. We also set the financial penalty for infringing the non-compete period to a lvel that is in line with the employees salary to make the clause more reasonable and fair.
Andrew Hairs, the CEO of Select Headhunter, explains why this approach works for us:
"We believe that non-compete clauses are necessary to safeguard our business interests and avoid conflicts of interest. However, we also recognize that our employees and candidates have the right to pursue their career goals and opportunities. That is why we have crafted a non-compete clause that is reasonable, enforceable, and beneficial for both parties. We do not want to restrict our employees from working in the industry they are passionate about, but we also do not want to lose our valuable clients and candidates to our competitors. By providing compensation and limiting the scope of the clause, we ensure that our employees are fairly treated and our business is protected."
On the other hand, some of our competitors have adopted a more aggressive and restrictive approach to non-compete clauses. For example, one of them has a clause that does not allow employees to join any other recruitment business for a period of 12 months, which is highly unlikely to be enforceable as it limits the person's ability to secure alternative employment that is in line with their recent skills and experiences.
Andrew Hairs comments on this practice:
"We think that such a clause is unreasonable and unjustifiable. It does not only violate the employee's right to work, but also harms the industry as a whole. We do not think that such a clause serves any legitimate business interest, but rather reflects a lack of trust and confidence in the employer's own value proposition."
What You Should Do
If you are an employer or an employee in Indonesia, you should be aware of the legal and practical implications of non-compete clauses in your employment contracts. Here are some tips to help you handle this issue effectively:
Review the Clause for Reasonableness: Non-compete clauses must be reasonable in terms of duration, geographic scope, and the activities they restrict. If the clause is overly broad or restrictive, it may be deemed unenforceable. Employees can argue that the clause is unreasonable and thus invalid
Lack of Legitimate Business Interest: Employers must show a legitimate business interest to justify a non-compete clause. If the employee did not have access to unique intellectual property or confidential information, the employer might find it hard to prove that the clause is necessary. Employees can argue that the clause does not protect any legitimate business interest.
Violation of Constitutional Rights: Non-compete clauses can be challenged on the grounds that they violate constitutional rights. Article 27 of the Indonesian Constitution guarantees every citizen the right to work and earn a decent living. Employees can argue that the clause infringes on their constitutional right to work.
Employment Law Protections: Indonesian employment laws emphasize equal rights and opportunities for employees to choose and obtain jobs. Law No. 13 of 2003 on Employment and Law No. 39 of 1999 on Human Rights support the right to freely choose a job. Employees can argue that the non-compete clause violates these legal protections.
Lack of Consideration: In some cases, non-compete clauses may be challenged if there was no additional consideration (e.g., compensation) provided to the employee in exchange for agreeing to the clause. Employees can argue that the clause is invalid due to a lack of consideration.
Employer Breach of Contract: If the employer has breached any terms of the employment contract, the employee may have grounds to challenge the non-compete clause. This could include failure to pay agreed-upon wages or benefits.
Seek Legal Advice: Employees should seek legal advice to understand their rights and the best course of action. A lawyer can help assess the enforceability of the non-compete clause and provide guidance on how to challenge it effectively.
Conclusion
Non-compete clauses are a common and controversial feature of employment contracts in Indonesia. While they can be a valuable tool for protecting business interests, they must also be reasonable and fair for both parties. Employers and employees should be aware of the legal and practical aspects of non-compete clauses and seek professional guidance to ensure they comply with the law and their contractual obligations.