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Labor groups seek to build on Indonesian palm oil court win in new cases

  • Last year, Indonesia’s Supreme Court ordered one of the world’s largest palm oil companies to make severance payments worth tens of thousands of dollars, handing palm oil workers an important victory in a labor dispute.
  • Asserting the decision as a new precedent, activists and union groups are mounting a case for two new lawsuits against the company, London Sumatra, on behalf of 200 workers over unfair dismissals.
  • Indonesia is the world’s top palm oil producer but allegations of labor abuses have dogged the industry.

Indonesian palm oil workers and labor rights activists are looking to press their advantage following the success of four labor rights appeal cases heard in Indonesia’s Supreme Court last year.

The appeals found PT London Sumatra (Lonsum) — a subsidiary of the palm oil giant Indofood, Indonesia’s largest food manufacturer — in breach of 10 casual employment contract terms, an outcome activists and union groups are asserting as a new precedent.

Now, the Rainforest Action Network (RAN), U.S.-based activist group, in partnership with Indonesian labor rights group OPPUK, independent palm oil union SERBUNDO and Sumatran legal aid organization LBH Palembang, are mounting a case for two new lawsuits against the company on behalf of 200 Lonsum workers in South Sumatra province over unlawful dismissals.

Labor rights appeal to Indonesia’s Supreme Court upheld

In February 2020, LBH Palembang, OPPUK and SERBUNDO filed six lawsuits against Lonsum at the Medan Industrial Relations Court alleging the company breached Indonesian labor laws by failing to recognize 12 casual oil palm plantation employees’ contracts as permanent.

The plaintiffs in the cases were all originally engaged on oral contracts with Lonsum, but the company appeared to shift the workers to written casual daily labor contracts between 2016 and 2017. The workers were later laid off between late 2018 and early 2019.

The Medan Industrial Relations Court found that Lonsum had failed to formalize the casual daily labor contracts by registering them with the local labor department.

Palm oil estate worker
Palm oil estate worker in Tenom district, Sabah, Malaysia. Image by CEphoto, Uwe Aranas via Wikimedia Commons (CC BY-SA 4.0).

The nature of the work being completed was also deemed “continuous.” Workers were recognized as having worked more than 21 days per month, a further breach of the legal provisions underpinning casual daily labor contracts.

These two factors led the court to deem that the plaintiffs were engaged on a permanent, fixed-term basis and therefore entitled to redundancy severance pay calculations associated with permanent contracts.

On appeal, in June 2021, Indonesia’s Supreme Court upheld that legal reasoning in four of the cases and found Lonsum in breach of 10 casual employment contract terms, ordering the company to reinstate the employees and pay severance entitlements worth about $35,600.

Precedent under Indonesia’s palm oil labor regime

Human, labor and land rights conflicts are ubiquitous in Indonesia’s palm oil industry, with a long legacy of palm oil firms engaged in the annexation of community lands, deforestation and labor abuses.

Some 7 million people work in Indonesia’s palm oil industry — 70% of them without formal contracts.

Indonesia’s legislative recognition for informal workers is minimal, with prevailing practices, such as informal and verbal contracts, often disguising the existence of a formal or permanent employment relationship.

Such practices restrict entitlements to benefits such as employer-sponsored insurance, paid time off, advance notice of dismissal and severance pay — benefits otherwise afforded to permanent staff.

Compounding this, unregistered, unregulated and unprotected informal workers across Indonesia have been disproportionately affected by the economic repercussions of the COVID-19 pandemic, with a surge of some 2.7 million informal workers into farming, forestry and fishery sectors.

RAN senior forest campaigner Fitri Arianti heralded the Supreme Court’s decision to uphold the employment status of palm oil workers that found Lonsum in breach of labor rights conditions.

“Unions and civil society groups have been arguing that workers are unfairly kept in these precarious conditions, so companies like Indofood can continue to profit off cheap labor,” Fitri told Mongabay.

“The determination that these workers have been permanently employed does not just have implications on their severance pay, but also means they were working all these years without the full pay, protections and rights that were owed to them as permanent employees,” she said.

View of palm oil plantation in Cigudeg
View of palm oil plantation in Cigudeg, Bogor, Indonesia. Image by Achmad Rabin Taim via Wikimedia Commons (CC BY 2.0).

RAN’s partners at OPPUK, SERBUNDO and LBH Palembang are using the momentum and these case findings as the basis for two new lawsuits on behalf of 200 SERBUNDO union members over unfair dismissal.

“The precedent lies in the court confirming [that] the employment of palm oil workers under casual and fixed-term employment, as is widely practiced at Indofood’s plantations and in the palm oil industry, is against the law,” Fitri said.

Petra Mahy, senior lecturer at Monash University and chief investigator on an Australian Research Council (ARC) Discovery Project titled “Formal and Informal Regulation of Labour Disputes in Southeast Asia” was optimistic about the Supreme Court’s findings on PT Lonsum’s breaches.

“These cases clearly indicate that PT Lonsum has tried to switch workers away from permanent contracts onto casual daily labour contracts as a way of avoiding the need to pay severance entitlements,” Mahy wrote in an email.

“It is encouraging to see that the Medan Industrial Relations Court and the Supreme Court have not been fooled by this and have been willing to deem the existence of permanent contracts based on the facts of the working arrangements,” she added.

Despite this, Mahy is unsure whether the appeals set any new legal principles that will provide a stronger legal framework for informal workers under the two new lawsuits, asserting that the facts of each individual employment case will be the ultimate determinant.

“It’s very common for dismissal cases to bring up the legal status of the type of contract in play, and for the Court to deem the existence of a permanent contract with its associated rights to severance pay according to the provisions in the law and the specific factual situation,” Mahy said.

“That is, I cannot see that the courts have set any new legal principles through these cases.”

Laborers ride a motorbike in an oil palm plantation in Indonesia’s Riau province. Image by Rhett A. Butler/Mongabay.

In addition, the regulatory framework has changed since the Supreme Court appeals were handed down, with the passage of Indonesia’s omnibus 2020 Job Creation Act.

“The requirements for fixed term and casual daily labour contracts and their registration have changed slightly [and] the severance pay calculations for certain types of dismissals have been reduced under the [new regulations],” Mahy added.

Moreover, according to Mahy’s study published in the Asian Journal of Comparative Law in April this year, if the subsequent lawsuits are considered under the Job Creation Act, many amendments lessen worker protections in favor of a more flexible labor market.

OPPUK, SERBUNDO and LBH Palembang said they would file the two lawsuits following the receipt of a recommendation letter from the North Musi Rawas district labor department.

“If this recognition can be applied across the industry in Indonesia, it would be a significant step up in improving workers’ lives who have served as the backbone of the palm oil economy,” Fitri said.

Banner image: A worker harvests palm fruit on a plantation in Indonesia’s Riau province. Image by Rhett A. Butler/Mongabay.


Mahy, P. (2022). Indonesia’s Omnibus Law on Job Creation: Legal Hierarchy and Responses to Judicial Review in the Labour Cluster of Amendments. Asian Journal of Comparative Law, 17(1), 51-75. doi: 10.1017/asjcl.2022.7.

Octavia, J. (2020). Towards a national database of workers in the informal sector: COVID-19 pandemic response and future recommendations (CSIS Commentaries DMRU-070-EN). Retrieved from

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