Legal developments in Indonesia in recent years show a fundamental shift in paradigm. National regulation is no longer simply about changing legislation; it now touches the philosophical aspects of law enforcement itself. This is marked by a wave of regulations that embrace reform and a more humane approach to law, from the enactment of Law Number 1 of 2023 on the Criminal Code (KUHP), which applies restorative justice in the courts, to the recognition of privacy rights in Law Number 27 of 2022 on Personal Data Protection (the PDP Law). This wave of regulatory change requires everyone to adapt, including corporations as legal persons (rechtspersoon). As legal subjects, corporations must align their own legal instruments with the applicable positive law. In industrial relations, for example, a corporation’s legal instrument is its Company Regulations (Peraturan Perusahaan, PP). As mandated by Article 108 of Law Number 13 of 2003 on Manpower, as amended by Law Number 6 of 2023 on the Enactment of Government Regulation in Lieu of Law Number 2 of 2022 on Job Creation into Law (the “Manpower Law”), Company Regulations serve as guidelines setting out terms of employment and workplace rules, and should embody legal certainty and protection for both workers and employers.
In practice, however, there remains a gap between the spirit of national legal reform and the way Company Regulations are drafted. Most corporations in Indonesia are still caught in a highly positivist drafting paradigm. Company Regulations are often prepared merely as a formality to satisfy administrative obligations to the manpower office. In substance, they tend to be rigid, simply copy out the wording of legislation and are dominated by an emphasis on sanctions and punishment. The positivist approach, which sees law purely as the written command of those in authority, creates serious problems when it meets new legal concepts. Restorative justice, for example, now the preferred approach to dispute resolution, struggles to find a place in positivist Company Regulations. In many Company Regulations, disciplinary breaches are met immediately with formal sanctions such as Warning Letters or even termination of employment (PHK), without any internal mediation or attempt to put things right first. The same applies to personal data protection. In the digital era, corporations collect data about their employees, yet many Company Regulations still lack adequate employee data protection mechanisms in line with the standards of the PDP Law.
Rigid Company Regulations often fail to capture the essence of human rights protection in this area. This leads to one major problem: the corporation’s failure to achieve Good Corporate Governance (GCG). The principles of GCG, particularly Fairness and Responsibility, cannot be achieved if workers feel the Company Regulations are unfair. A relationship built on rigid, inhumane rules risks breeding distrust, lowering productivity and inviting industrial disputes that drain the corporation’s time, energy and attention, all of which is counterproductive for the business. A legal breakthrough in how Company Regulations are drafted is therefore needed. The positivist approach that prizes legal certainty must begin to give way to, or at least be complemented by, a more substantive and humane approach. This is where Satjipto Rahardjo’s Theory of Progressive Law comes into its own. Progressive Law teaches the fundamental maxim that law exists for people, not people for the law. Company Regulations should not be shackles that stifle creativity and a sense of justice, but instruments that liberate and promote welfare. Applying the values of Progressive Law in drafting Company Regulations requires corporations to have the courage to break with rigid normative habits in pursuit of substantive justice. This can be done by adopting restorative-justice-based dispute resolution so that sanctions become the last resort (ultimum remedium), and by drafting clauses that protect workers’ privacy rights. In this way, Company Regulations become humane rules.
The urgency of this article lies in the need to set out how the abstract concept of Progressive Law can be translated into concrete clauses in Company Regulations. If a corporation can draft rules that treat its workers humanely through a progressive approach, it automatically lays a solid foundation for GCG. Good governance is measured not only by regulatory compliance, but also by how a corporation treats its greatest asset, its employees, through fair internal rules. On this basis, the author sets out a number of ideas in an article entitled “Applying Progressive Law in Drafting Company Regulations to Achieve Good Corporate Governance”. The questions addressed are:
How should Company Regulations that adopt the values of Progressive Law be formulated?
What are the implications of Progressive-Law-based Company Regulations for achieving Good Corporate Governance?
Formulating Company Regulations That Adopt the Values of Progressive Law
Company Regulations are the highest law within a corporation. They tend to be drafted with a legal positivist mindset, in which law is seen as a coercive and binding command that may or may not be wise and fair. As a result, Company Regulations are often dominated by lists of prohibitions, burdensome obligations and tiers of sanctions. When a breach occurs, punishment is imposed according to the rules without regard to why the breach happened. Yet Company Regulations should fundamentally be an instrument for promoting the welfare and dignity of workers, not merely a disciplinary tool. Satjipto Rahardjo’s Theory of Progressive Law offers a way to achieve this, teaching that the law exists for people.
The greatest challenge is how to turn the values of Progressive Law into concrete provisions in a set of regulations. Below is an analysis of how to formulate Company Regulations that adopt progressive values:
Shifting the Paradigm from Certainty to Utility and Justice
Classical legal theory recognises three basic values that are always in tension: certainty, justice and utility. Until now, Company Regulations have always put legal certainty first. Drafters are often obsessed with making rules that are easy to enforce. Consider, for example, a typical provision on punctuality: “An Employee who is late more than 3 (three) times in one month shall be subject to a sanction in the form of Warning Letter I.” This provision offers legal certainty: its elements are very clear, three late arrivals lead to a sanction. But is it fair? Does it benefit the employment relationship? Progressive Law invites us to look at the context behind the rule. What if the lateness was caused by force majeure, such as flooding, or by humanitarian reasons, such as taking a sick parent to hospital? Through a positivist lens, such reasons are irrelevant because rules are rules. As a result, employees feel unfairly treated, their motivation falls and the company loses their loyalty.
In a progressive formulation, the paradigm shifts. Utility and substantive justice are placed above legal certainty, and the provision becomes more flexible and solution-oriented. For example: “Every Employee shall observe the established working hours. In the event of lateness, the Company shall prioritise a coaching process to identify the root cause. Administrative sanctions are a last resort (ultimum remedium), applied only if coaching fails to change the behaviour or if the lateness is deliberate and harms the Company’s operations.”
The difference is fundamental. Under the progressive formulation, lateness does not automatically lead to punishment. There is a process of coaching and identifying the root cause. If an employee turns out to be late because of transport problems, the solution may be an adjustment to their working hours rather than a sanction. In this way, company rules become living and useful, solving problems without offending workers’ sense of justice. This is the essence of a law that serves people.
Prioritising Restorative Justice in Dealing with Breaches
The most crucial breakthrough in progressive Company Regulations is changing the paradigm of sanctions. Until now, sanctions in industrial relations have been retributive. The logic is: “You did wrong, so you must be sanctioned as a deterrent.” This approach often breeds resentment and conflict, making the workplace unproductive. Progressive Law aligns with restorative justice, which resolves breaches by focusing on restoring the original situation rather than retribution, and can help reduce such conditions. Moreover, restorative justice is being actively promoted in national criminal law, so it is entirely appropriate to adopt it in Company Regulations as well. How can this be drafted into Company Regulations? A specific provision on the Principles for Resolving Breaches should be inserted before the chapter on sanctions. It could read as follows:
Principles for Resolving Breaches
Any alleged breach of workplace rules shall be resolved by prioritising dialogue aimed at improving behaviour and restoring the situation.
Before imposing an administrative sanction, the Company shall seek clarification (the right of reply) and take the Employee’s good faith into account.
Where a breach consists of negligence causing material loss, the Company may offer a compensation (restitution) scheme or other corrective action in place of an administrative sanction, provided both parties agree.
Let us consider the implications by imagining an employee who accidentally spills coffee on an office laptop and damages it. A positivist approach would treat the employee as negligent in damaging company property; they would receive a Warning Letter and still be required to pay compensation. Under a progressive approach, because the act was accidental, the company could offer the option of compensation alone, with no Warning Letter.
Under the progressive approach, the company’s loss is made good and the employee’s career is protected. This is likely to keep the working relationship harmonious, and the employee will feel the company has acted wisely. This is Progressive Law in practice: it solves problems without offending the sense of justice.
Changing the Wording from the Language of Power to More Humane Language
Law cannot be separated from language. The language used in drafting rules shapes how readers perceive them. Company Regulations often use language that places the employer above the worker. Words such as “Punishment”, “Strictly Prohibited”, “Mandatory” and “Violation” dominate the text. Psychologically, such language breeds intimidation and deference. Employees tend to obey the rules out of fear rather than conviction, and when supervision is ineffective, breaches are likely to occur. Progressive Company Regulations must reform their language. The aim is to appeal to employees’ moral awareness, using more persuasive and inviting language without weakening the binding force of the rules. Some drafting strategies include:
Chapter titles: Change the chapter title “Sanctions and Punishment” to “Coaching and Disciplinary Measures”. “Coaching” implies the company’s good intention to help employees improve, whereas “punishment” implies an intention to retaliate.
The term “obligations”: Change “Employee Obligations” to “Professional Responsibilities”. “Obligations” suggests a burden imposed from outside; “responsibilities” suggests awareness that comes from within.
Preamble/introduction: It is strongly recommended to add a preamble at the start of the Company Regulations. Most Company Regulations go straight into the rules, whereas a progressive formulation sets out its purpose, including the company’s moral values, so that they resonate with employees. For example:
“These Company Regulations have been drawn up as an expression of our shared commitment to creating a conducive, fair and dignified working environment. They are not merely a tool of supervision, but a code of conduct for achieving shared prosperity for the Company and all its Employees.”
An opening statement like this may look simple, but its impact is significant. It affirms that employer and employees are partners. When employees feel respected through the language of the rules, voluntary compliance takes root in each of them.
Policy and Discretion
One of Satjipto Rahardjo’s most radical ideas is “rule breaking”, i.e. departing from the rules for the sake of justice. He often said that those who enforce the law must not be robots. In a corporate context, Company Regulations often backfire when faced with extraordinary, unforeseeable situations. Drafters cannot possibly foresee every future event, and there are times when applying the rules actually offends our sense of humanity. For example, the Manpower Law provides bereavement leave only for the death of immediate family members such as parents, a spouse, children or parents-in-law. What if an employee was orphaned and raised by their grandmother from childhood? When the grandmother dies, in positivist terms the employee is not entitled to bereavement leave and must accept a deduction from their annual leave or their pay. That is correct according to the rules, but we can each answer for ourselves what our conscience says. To address this, progressive Company Regulations should include a Discretion Clause, which authorises management to depart from the written rules on humanitarian grounds. For example:
Policy and Discretion
“The Board of Directors or an appointed Official has the authority to adopt a special policy that differs from the provisions of these Company Regulations, based solely on pressing humanitarian considerations, an emergency or the interests of substantive justice, while observing the principle of non-discrimination.”
For positivists, such a clause creates uncertainty. For proponents of Progressive Law, it is the very soul of the regulations. With this clause, HR can grant bereavement leave to an employee whose grandmother has died without fear of breaching the rules, because the rules themselves allow for the exception.
Implications of Progressive-Law-Based Company Regulations for Good Corporate Governance
Having examined how to formulate Company Regulations based on Progressive Law, one fundamental question arises: what is in it for the company? Employers often mistakenly assume that humane law means weak, permissive rules. The worry is that if Company Regulations are too flexible or involve too much dialogue, discipline will collapse, management will lose its authority over employees and corporate governance will fall into disarray. In reality, the opposite is true. In this section, we will see that progressive Company Regulations that treat workers humanely are in fact a solid foundation for Good Corporate Governance (GCG).
To understand this, we need to look at the Stakeholder Theory developed by R. Edward Freeman. It teaches that a successful company is not just one that makes a profit, but one that creates value for all stakeholders, especially its employees. Employees are the company’s main driving force. If the Company Regulations governing them are well designed and fair, the company’s performance will naturally improve. The following analysis shows how progressive Company Regulations can realise the core principles of GCG.
Creating a Sense of Fairness, Not Just Compliance
One of the main pillars of GCG is Fairness. This principle is often misunderstood as being limited to protecting minority shareholders from being cheated by majority shareholders. In a broader sense, however, Fairness also concerns the fair treatment of everyone in the company, including employees. Company Regulations drafted in a positivist style often fail to meet this principle. Why? Because the balance of power is very unequal. The employer has full control over making rules and imposing sanctions, while employees can only comply or leave. When disputes arise, employees often feel unheard, and this sense of unfair treatment poisons corporate governance. Progressive-Law-based Company Regulations change this. Recall the restorative justice provision in the previous section: when a company’s rules require dialogue and clarification before a sanction is imposed, the company is practising Fairness. Employees no longer see management as “rulers” but as objective partners. Dialogue gives employees room to defend themselves or explain what really happened. Even if an employee is ultimately found at fault, they will accept the decision gracefully because the process felt fair. When this perception of fairness is established, the working atmosphere becomes conducive. There is no more destructive manoeuvring or office politics because everyone trusts the system. This is good governance in practice: the end of arbitrariness and the upholding of procedural justice.
Realising Corporate Responsibility in the Workplace
The next GCG principle is Responsibility. Companies often compete to run Corporate Social Responsibility (CSR) programmes in the community. That is commendable, but they often forget their responsibility to the workplace. Company Regulations are a mirror of that responsibility. If Company Regulations still contain provisions that restrict human rights or disregard privacy, the company has in fact failed to apply the principle of Responsibility. In relation to personal data protection, for example, progressive Company Regulations will strictly provide that management may not freely access employees’ personal data, such as private chats or GPS location outside working hours, without consent. In today’s social media era, news of a company’s mistreatment of employees can go viral within hours. We often see companies boycotted by netizens because they are perceived to restrict human rights or disregard privacy. In some cases, companies have been exposed for dismissing employees inhumanely or unilaterally withholding diplomas. Progressive Company Regulations seek to prevent such things. Because the rules themselves are designed to be humane and careful, the risk of a “boycott” is relatively small. Applying Progressive Law therefore helps protect the company’s reputation and value in the eyes of the public and investors.
Turning a Culture of Fear into One of Self-Awareness
One aim of GCG is to create a compliance culture. Companies want all their employees to obey the rules, but the question is: why do they obey? Positivist Company Regulations try to create compliance through strict sanctions and binding rules. In practice, however, the stricter and more binding the rules, the more creative employees become in finding loopholes. The company then has to step up supervision to monitor employees, and as soon as supervision slips, breaches occur again. Corporate governance becomes inefficient. Progressive Law offers a different approach: principle-based compliance. When Company Regulations use more humane language, they invite employees in and appeal to their professional responsibility, so that compliance is no longer merely an obligation but changes the way employees think.
Humane Company Regulations build employees’ psychological wellbeing. Employees feel that the company has treated them well and with dignity. The implication for GCG is that supervision costs can be reduced. In companies that apply Progressive Law, trust is high and employees tend to regulate themselves. They work not out of fear of sanctions but because they feel well treated. When trust is high, operating costs fall and decisions are made more quickly. GCG is not only about ethics but also about economic efficiency, and Progressive Law is the key.
Ensuring Sustainability
The ultimate aim of GCG is to ensure the company’s sustainability. One threat to a company is not only business competition but also internal conflict. Progressive-Law-based Company Regulations help mitigate the risk of conflict. Many industrial relations conflicts arise from poor communication between employees and the company. Rigid rules close off communication channels because everything has to go through the mechanisms prescribed by positivist law. Progressive Company Regulations, by contrast, open communication channels as widely as possible. With a policy and discretion clause and mandatory dialogue built into the rules, potential conflicts are defused early. Problems that might have escalated into industrial disputes can be resolved in the company’s meeting room.
By defusing potential conflicts early, the company can focus on innovating, expanding and serving its customers. Management does not spend its time dealing with letters of demand or court summonses. For investors, success in defusing conflict is one of the main indicators of a company’s health; investors are reluctant to put money into a company whose employees are constantly protesting. Having progressive Company Regulations can therefore help secure industrial peace, which signals to investors that the company is managed prudently with a long-term, sustainable orientation.
Formulating Company Regulations that adopt the values of Progressive Law means overhauling the drafting paradigm, moving from the pursuit of legal certainty to a flexible, humane approach. In concrete terms, this is achieved through four strategic steps. First, shifting the priorities of the law by putting utility and justice ahead of certainty. Second, applying restorative justice to breaches, requiring dialogue and restoration of the situation before any sanction is imposed. Third, reforming the language of the rules by using humane and persuasive terms that appeal to employees’ moral awareness. Fourth, providing for policy and discretion that authorises management to adopt special measures outside the written rules for pressing humanitarian reasons.
The implications of Progressive-Law-based Company Regulations for Good Corporate Governance are significant. Applying humane rules in the workplace directly realises the principles of Fairness and Responsibility. Progressive rules balance the bargaining positions of employer and workers, creating a shared perception of fairness. Furthermore, this approach changes employees’ compliance culture from fear to awareness that becomes a working principle, leading to lower supervision costs and greater sustainability. Progressive Law is therefore not only about morality, but a strategic step towards good corporate governance.