Judicial Review Strengthens Workers’ Rights on Severance Pay

RRI.CO.ID, Jakarta - The Constitutional Court (MK) has partially granted a petition for judicial review of Law No. 4/2023 on the Development and Strengthening of the Financial Sector (P2SK).

The Court affirmed that pension fund benefits cannot replace workers’ normative rights, such as severance pay, long‑service awards (UPMK), and compensation pay.

The government welcomed the ruling, which clarifies the status of workers’ rights in employment relationships, particularly in cases of termination due to retirement.

“The Manpower Ministry appreciates the Constitutional Court’s decision, which provides legal certainty and strengthens protection for workers’ normative rights,” said Manpower Ministry Secretary General Cris Kuntadi in Jakarta on Wednesday, July 1, 2026, as quoted by Antara.

The ruling resulted from a material review of Article 161 paragraph (2) and Article 164 paragraph (1) letter d and paragraph (2) of Law No. 4/2023 in Cases No. 139/PUU‑XXIII/2025 and No. 164/PUU‑XXIII/2025. The petitions concerned pension fund benefits and workers’ rights to severance pay, long‑service awards, and compensation pay.

In its deliberations, the Court emphasized that employers must fulfill workers’ normative rights to severance pay, long‑service awards, and compensation pay upon termination, including retirement.

Pension fund benefits, the Court stressed, cannot substitute for these entitlements. Pension programs are voluntary and provide additional benefits, while employers’ obligations to pay severance and other rights remain binding under labor law.

The Court also ruled that pension fund benefits may be paid in a lump sum or periodically, according to the wishes of the participant, their widow or widower, or their children. Such payments may include severance pay, long‑service awards, and compensation, but must comply with pension fund regulations.

According to Cris, the ruling serves as an important reference for strengthening worker protection and providing legal certainty in the implementation of pension fund provisions. “This ruling is an important step in strengthening the protection of workers’ rights while providing legal certainty for all parties,” he said.

He added that the Manpower Ministry will continue to oversee employment policies to ensure they align with the constitutional mandate and the Court’s ruling. “We view this ruling as further strengthening the Manpower Ministry’s commitment to protecting workers’ rights and providing legal certainty in the implementation of pension fund provisions,” Cris said.

He hopes that the ruling will further strengthen worker protection and foster more harmonious, productive, and equitable industrial relations in Indonesia. ***