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Labor Relations News Update November 1, 2013

Today’s Labor Updates:

Indonesia: Labor Unions Prepare Protests for Higher Wages

Legal Alert: IRS Modifies “Use It or Lose It” Rule for Health Flexible Spending Arrangements

Russian oil and gas workers fight back attack on their rights


October 30, 2013, 7:05 AM SGT

Indonesia: Labor Unions Prepare Protests for Higher Wages

By Made Sentana

JAKARTA, Indonesia – Several Indonesian labor unions are threatening a two-day strike later this week to demand large pay increases. The push comes less than a year after local governments raised salaries by an average of 30%, and is likely to challenge government efforts to put a cap on rising wages at a time when Indonesia is losing its luster among investors.

Roni Febrianto, a spokesman for a coalition of labor unions, said around three million laborers in 20 provinces would not turn up at work on Thursday and Friday. Instead, they would join in public rallies to demand an average 50% wage hike. Unions often inflate the expected turnout, however, and numbers could be far less, as has been the case in past protests.

As an attention-grabbing warm-up, around 2,000 workers protested on Tuesday in front of Jakarta’s City Hall demanding that the city government increase the minimum wage from Rp2.2 ($200) million a month to Rp3.7 million ($337). Tens of thousands of union members held similar test-runs in other cities on Monday.

“We want the authorities to listen to our demands as they are deciding the wage increase,” Mr. Febrianto said.

Each province in Indonesia is responsible for setting its own minimum wage, so rather than pressure businesses union workers are putting pressure on local governments. But that creates unwelcome uncertainties for companies looking to take advantage of the country’s comparatively low wages.

On Tuesday Jakarta’s Deputy Governor Basuki Purnama said the city could not meet union workers’ current demands after agreeing to a 42% increase to this year’s wage rate.

Early next month local governments are set to announce new minimum wages for 2014. Workers say they’re justified in demanding another large increase since rising inflation has eaten up their previous gains.

Official inflation is estimated to exceed 9% this year, triggered by the falling value of the rupiah, which has been hitting four-year lows against the U.S. dollar. A 33% increase in the price of subsidized fuel in June has added to the rising price of goods and services.

So what are the main issues?

Workers in Indonesia have become increasingly aggressive.  After several years of economic growth exceeding 6%, workers are seeking a higher share of their country’s wealth – and they’re doing it with increased bravado.

Local leaders have agreed to workers’ demands in many cases to help secure their re-elections, creating more uncertainties for investors.

But the central government is trying to limit wage increases as part of measures unveiled in late August aimed at keeping down companies’ operating costs. Following the previous wage increase, many companies said it would be hard to avoid layoffs with operating costs rising at the same time that the economy had started slowing and with further growth prospects looking dim.

Still, wage increases are causing concern among investors. Last week Indonesia’s Investment Coordinating Board reported that foreign direct investment in Indonesia fell to $6.9 billion in the third quarter of the year from $7.2 billion the quarter before.

The government has outlined measures to stem the outflow that include tax compensation for companies operating in certain sectors, such as textiles and garments.

But continued labor unrest has highlighted a lack of certainty, which is a major cause of concern among foreign investors. In just the past year, authorities have slapped an export tax on raw minerals, issued regulations forcing foreign mining companies to cut their stakes in local mining firms, tightened import quotas for beef and horticulture, and lowered the cap for bank stakes that can be bought in a single go. Economists say the moves may be attempts by policy makers to appeal to nationalist sentiment ahead of parliamentary and presidential elections in 2014.

Foreign investors, especially those in the labor-intensive industries, may move to neighboring countries, such as Cambodia and Myanmar, if local governments again bow to workers’ demand for a sharp pay increase, business groups have warned.

“We hope the local governments won’t decide the minimum wage increase based on street protests,” said Sofjan Wanandi, the chairman of the Indonesian Employers’ Association, one of Indonesia’s most influential business associations. “The investment climate around the globe is not good currently; we shouldn’t make it even worse.”

Meanwhile, companies say that a series of large pay increase in recent years have weakened their ability to invest in training employees to improve their productivity. A 2010 report by the U.S. Agency for International Development, or USAID, pointed out that Indonesia has lower-than-average productivity compared with other countries in the region – and that’s proving a major weakness on its economy.

After several years of strong economic growth, Indonesia is set to enter a period of slowdown marked by high inflation, economists say, as foreign companies ease expansion in the country.

Joko Hariyanto contributed reporting from Jakarta


Legal Alert: IRS Modifies “Use It or Lose It” Rule for Health Flexible Spending Arrangements

November 1, 2013

Jeffrey S. Ashendorf

Summary:  On October 31, 2013, the Internal Revenue Service (IRS) issued Notice 2013 -71 (the “Notice”), which made two significant changes affecting the administration of cafeteria plans under section 125 of the Internal Revenue Code. First, the Notice modifies the proposed regulations under section 125 to add a limited exception to the “use it or lose it” rule for health flexible spending arrangements (“FSAs”). Next, the Notice clarifies the “transition relief” that was provided in the preamble to those regulations allowing certain participants in non-calendar-year plans to make mid-year elections that are necessitated by the Affordable Care Act, even though there may not be a “change in status.”

Modifying “Use It or Lose It”

The first change is that employers are permitted to amend plans that provide health FSAs to permit up to $500 of unused credits for a plan year to be carried over and applied toward expenses incurred at any time in the immediately following plan year. The “use it or lose it” rule would not be completely eliminated, however, and any unused credit in excess of $500 (after expiration of any “run-off” period) would still be forfeited. An employer who wishes to do so may also limit the permitted carryover to an amount less than $500.

This new carryover is an alternative to the current “grace period” rule, however, and a health FSA may not provide for both the new carryover and the current grace period. Looked at pragmatically, if a carryover is to be provided at all, the choice is between (a) permitting a carryover of a limited amount (up to $500) that can be applied during the entire following year, or (b) permitting a potentially larger carryover that can only be applied against expenses incurred during a limited period (i.e., 2½-month “grace period”).

In order to adopt the new carryover, the written plan document has to be amended to provide for the carryover (and to eliminate the grace period if one is currently provided). The amendment has to be adopted on or before the last day of the plan year from which the amounts will be carried over, but can be retroactive to the beginning of that year provided that the FSA is operated in accordance with the Notice and participants are notified of the new procedure. As a special rule for this year, the Notice permits a new carryover provision to be adopted effective for the plan year beginning in 2013 so long as it is adopted by the last day of the plan year beginning in 2014. If a plan currently provides for the 2½-month grace period, that provision should still be removed by the end of the year beginning in 2013, or, at minimum, the new limitation should be applied in operation, i.e., no amounts over $500 (or lesser amount designated by the employer) should be permitted to be used after the end of the plan year beginning in 2013.

A carryover under the Notice has no effect on the $2500 limitation[1] on salary reductions for the year to which the amount is carried over. Reimbursements for that year could total $3,000 (or more if the plan also provides nonelective credits), the entire amount of which is also required to be available at any time during the plan year, under the uniform coverage rule.

Allowing Mid-Year Elections

In addition to the FSA change, the Notice addressed the problem faced by participants in non-calendar-year plans who may need to modify their health plan elections effective January 1, 2014, as a result of Affordable Care Act changes becoming effective, but who will not be incurring a “change in status” that would allow such a modification to be made. Last December, the preamble to the proposed regulations under section 125 contained a rule allowing certain individuals in similar situations to make cafeteria plan elections related to new health coverage requirements without having incurred a qualifying “change in status.” The Notice extends that same ability to all participants in non-calendar-year cafeteria plans through which health plan coverage is provided.

If the individual had elected salary reduction to purchase health plan coverage, he or she is permitted to revoke or change that election once during the 2013-2014 year. If the individual had failed (or declined) to elect salary reduction to purchase health plan coverage, he or she can make a new election covering the remainder of the year. Employers have to amend their plan documents, and may provide more limited ability, such as allowing the elections to be made only during a limited time period.

If you have any questions regarding this Alert, or how the Notice affects you or your employees, please feel free to contact the author of this Alert, Jeffrey Ashendorf, at, or any member of FordHarrison’s Employee Benefits Practice Group. You may also contact the FordHarrison attorney with whom you usually work.

Russian oil and gas workers fight back attack on their rights


15On 24 October 2013

The Constitutional Court of Russian Federation issued a verdict in favour of ROGWU’s complaint against violation of its rights by the Gagarin district court of Moscow, Ministry of Justice, Office of the Prosecutor General and the Supreme Court of Russian Federation. The case also sets the precedent for other Russian unions who can now build their structure according to their internal decisions.

The story began two years ago when ROGWU Congress introduced changes into ROGWU statutes referring to internal structure of the union. According to the national law Ministry of Justice has to formally approve new statutes, if those do not violate federal law, without any preconditions, and with reference to the international legal obligations of Russia, in this case particularly to the ratified fundamental ILO conventions 87 and 98.

Unfortunately the Ministry of Justice decided to interpret the article in the Law on Trade Unions named “Basic Definitions” as an exhaustive list of allowed union structures. The Ministry addressed a complaint to the Office of the Prosecutor General, which urged regional court to file a legal case. Consequently ROGWU received a verdict urging it to dissolve many of its structures created over past 20 years by the union in order to maintain collective bargaining and social dialogue with permanently emerging business units and structures. De facto this court ruling undermined union capacity to fulfil its main functions.

ROGWU interpreted this verdict as an interference with their fundamental rights guaranteed by the Russian Constitution, Russian law and basic ILO Conventions ratified by Russia. None of the complaints filed by ROGWU have found support in either the Supreme Court or the Office of Prosecutor General. Finally, the union brought the issue up to the Constitutional Court of Russia and simultaneously reported the case with the ILO Workers’ group as part of the IndustriALL delegation at the International Labour Conference in Geneva in June 2013.

On the eve of the hearings in the Constitutional Court Jyrki Raina, Secretary General of IndustriAll sent a letter to the Constitutional Court of Russia supporting the international legal expertise regarding the ROGWU case and urging Constitutional Court to restore the rule of law and bring justice to labour relations in Russia.

The result is that the Constitutional Court of Russia qualified actions of the Ministry of Justice, Office of Prosecutor General, Gagarin district court of Moscow and Supreme Court as anti-constitutional interference into the union affairs, violation of the Russian law and international obligation of Russia and demanded unconditional and just revision of the earlier verdicts.

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