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Companies Must Know The Provisions of The Transfer of Employee To Other Companies In One Company Group

Companies Must Know The Provisions of The Transfer of Employee To Other Companies In One Company Group

Companies Must Know The Provisions of The Transfer of Employee To Other Companies In One Company Group

“The company may not arbitrarily transfer employees to other companies, this cause a change in the status of the employer, employment relations and legal relations basis”

Limited company can establish a subsidiary or subsidiaries to execute the Parent Company business. Limited Company Law that has the principle of limited liability, results in all legal actions undertaken by the company including its subsidiaries to be accounted for separately even in one group of companies. This means that the Parent Company and its subsidiaries have their respective responsibilities for legal actions.

Companies that have subsidiaries may potentially make a policy of transferring employee from one company to other company in the group (“transfers”). The purpose is none other than to help the subsidiary’s business processes to proceed in accordance with the company’s goals.


Understand the Transfer of Employee Provisions. Mutation of Employee is Different from Transfer of Employee.

Many companies perceive the same understanding between the transfers of employee with the placement/mutation (mutation of employee). This misconception causes the Company to take the inappropriate policy. For example, a Parent Company places employees in its subsidiary only by using a work order and the employee then get his/her salary from the subsidiary and not from the parent company where the employee previously worked.

According to legal understanding, the company’s actions constitute the transfer of employees to a new company which causes a change in the legal status of the Parent Company, Subsidiary and employee. It is important to understand that the transfer of employees is limited to the scope of one company that is still the same as before at the same level or position, or from one location to another that is still a branch of the company. This mutation of employee process can be done only with a letter of assignment/work order. It is in contrast with the transfer of employee in which the employee is placed in a new company. If it is the case, then it is necessary to prepare legal documents including a transfer agreement where available/needed, thus resulting in a new work agreement. The objective is to protect the rights and obligations of the company with the employee.

The basic rules regarding the transfer of employees refer to Law Number 13 of 2003 concerning Labour (“Labour Act“). In Article 32 of the Labour Act, it is explained as follows:

  • Placement of employees or Employees must be carried out based on the principles of open, free, objective, and fair, and equal without discrimination.
  • Placement of employees or employees must be directed to place employees in the right position. That is in accordance with expertise, skills, talents, interests. As well as in accordance with the ability, with consideration regarding dignity, dignity, human rights, and legal protection.
  • In addition, the placement of employee or Workers must be carried out with due regard for equal employment opportunities. And also considering the supply of employees according to the needs of national and regional programs.

Other provisions contained in Article 35 of the Labour Act, namely implementing employee placement or employees are required to provide protection from recruitment to placement of employees. And it is obligatory to provide protection that includes the welfare, safety, and health of both mental and physical employee.

Thus based on the principles in the article above, the company cannot immediately transfer employees to another company. The company in this case needs to review the exceptions regulated in the work agreement and company regulations, because the fundament of the legal relationship between the Company and the employees is the work agreement. As a simple example of limited transfer exceptions, the employees by the parent company is placed in a subsidiary with several exceptions stipulated in the work agreement which include as follow:

  • Regulate the permissibility of the employee to be seconded under the Subsidiary company.
  • Confirmation in the permanent legal agreement between the parent company and the Employee, so that the status and salary of the employee is still the responsibility of the Parent Company
  • Willingness of the Employee to be seconded under the Subsidiary company.

There are many other exceptions to this matter, which will be discussed in another article. What is the legal status of the transfer of employee with a letter of assignment/work order to the subsidiary, but the employee is only seconded in the subsidiary?

Employment Relations when Transferring Employees to the Subsidiary

One proof of the employment relationship can be marked by a work agreement. When employees move to a subsidiary, it is necessary to make a transfer agreement or a new agreement to protect the rights and obligations of the parent company, subsidiaries and employees.

Regarding the employment agreement in Article 54 paragraph (1) of the Labour Law, matters that are mandatory in a work agreement, namely:

A work agreement in writing which at least contains:

  • name, address and type of business;
  • name, sex, age and address of the employee/worker;
  • position or type of work;
  • place of work;
  • the amount of wages and the method of payment;
  • working conditions that contain the rights and obligations of employers and employees/workers;
  • starting and the period of validity of the work agreement;
  • place and date the employment agreement was made; and
  • signatures of the parties on the work agreement.

Regarding the transfer agreement, Article 61 paragraph (3) of the Labour Law, stated:

In the event of a company transfer, the rights of the employees/workers will be the responsibility of the new employer, unless specified otherwise in the transfer agreement that does not reduce the rights of the employees/workers.

New work agreements and transfer agreements are very important, because it set the boundaries of the rights and responsibilities of each party.

Work Period during the Transfer of Employee

In this case, it is necessary to consider the initial agreement of the Parent Company with the Employees, whether it regulates the transfer to another company, complete with the consequences of rights and responsibilities, related to tenure, responsibilities of the parent company, and responsibilities of the subsidiary, and other arrangements related to the transfer, or there is absolutely no regulation regarding the transfer.

In the event that it is not stipulated in the initial agreement, if there is a transfer of employee, the employment relationship between the employee and the new company is considered as a new employment relationship. Then it is necessary to make a new work agreement, thus the employment time of the aforementioned employee is considered zero and he/she will be regarded as a new employee. Therefore, the previous company or parent company must first settle the obligation to pay compensation in the form of severance pay, years of service award money, compensation money, and parting money.

If the transfer of employee has been stipulated in the work agreement, it needs to be emphasized related to several things including the legal relationship of employee with the Parent company that change into the responsibility of the subsidiary, as well as related to tenure, remuneration and other matters regulated in detail in the contract of recruitment . Of course this needs to be regulated during the work transition process to mitigate future conflicts. The transfer process, certainly, must be with the agreement of the employee and the company.

If you want to consult and need legal services for your company, please contact BP Lawyers by telephone 082112341235 or email to

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