JAKARTA -- Indonesia's new labor law, which the legislature passed on Tuesday, has won applause from workers' groups in the country but is sparking anxiety among businesses worried about rising hiring costs and regulatory uncertainty further clouding the investment outlook.

The House of Representatives unanimously endorsed the bill on labor protection, restoring some rules that had been scrapped under the controversial 2020 "omnibus" law on job creation including restrictions on the types of jobs that can be outsourced and steps companies must take before firing employees.

Manpower Minister Yassierli said the new law sets the maximum period for fixed-term employment contracts at four years and introduces provisions aimed at protecting gig workers at tech companies from dismissing workers unilaterally. He outlined the bill's key points during Tuesday's parliamentary session.

"[The law] reinforces the protection of workers' rights by guaranteeing equal opportunities and equal treatment across all aspects of employment," Yassierli said. A final copy of the law has not yet been made public, but labor groups cheered its passage.

Andi Gani, president of the All-Indonesian Workers Union Confederation, said the law provided stronger safeguards for workers, citing requirements for staffing agencies to make outsourced workers permanent employees, the creation of a severance guarantee fund and improvements to wage calculations.

"Employers will no longer be allowed to dismiss workers arbitrarily," Gani told reporters. "Of the draft we submitted to the parliament and the government, 90% [of the content] was adopted into the labor protection law." Said Iqbal, president of the Confederation of Indonesian Trade Unions, said the new law offers far better worker protections, compared with the provisions of the omnibus law and the previous 2003 manpower law.

The Association of Indonesian Workers called the new law a "victory" for laborers' rights. "We are grateful today, but we will not lose our critical stance," Mirah Sumirat, president of the association, said in a statement. "We'll read through all of the provisions and oversee all of its implementing regulations." The new law comes at a time when President Prabowo Subianto's popularity is plummeting. Two surveys released over the past few months show that the president's approval ratings sank over unpopular policies and negative perceptions of the economy. Nearly all parties in the House are part of the ruling coalition.

Businesses, however, are anxious about the legal changes. Erwin Aksa, deputy chairman of the Indonesian Chamber of Commerce and Industry, said the new provisions reduce some of the flexibility provided under the 2020 omnibus law, which was passed during the administration of former President Joko Widodo and was generally considered business friendly.

Indonesian President Prabowo Subianto delivers a speech to parliament in Jakarta on May 20. The House of Representatives' passage of a new labor law on Oct. 6 comes amid sinking public support for the president.

Aksa said labor costs and hiring flexibility are a consideration for investors, and companies need certainty about their obligations. "If labor regulations change too quickly, or implementing rules create uncertainty, investors will factor in those risks," he told Nikkei Asia.

He called for better dialogue among the government, workers and employers in drafting technical guidelines for implementation: "Adequate transition periods should also be provided so companies can adjust their cost structures, employment contracts and workforce planning." Danang Girindrawardana, executive director of the Indonesian Textile Association, warned the new law could increase business risks, pointing to many more provisions stipulating criminal penalties for administrative violations, compared with the old law.

"Overly strict regulations could encourage companies to reduce their use of human labor and shift toward technology," Girindrawardana said. "Over the next one to two years, many factories will certainly collapse, while the [market] situation isn't [likely] to improve sufficiently." Dedi Dinarto, associate director at strategic advisory firm FGS Global, said higher severance costs and tighter dismissal restrictions could make employers more cautious about hiring and expansion, particularly in labor-intensive industries.

"Stronger worker protections need not undermine competitiveness, provided businesses have clear rules and sufficient time to adjust," Dinarto told Nikkei Asia. "Productivity, infrastructure and regulatory certainty matter, alongside labor costs, when companies compare manufacturing locations." Donna Priadi, managing director of the American Chamber of Commerce in Indonesia, said many aspects of the new law need further discussion, such as whether gig workers for digital platforms should be classified as employees.

Ride-hailing companies, for example, such as Singapore-based Grab and its Indonesian rival Gojek, define their drivers as "partners." The companies said they are reviewing the new law.

Priadi said many businesses have yet to receive a copy of the law and are concerned about how it will be implemented. She said U.S. companies investing in Indonesia will continue discussions with the government to seek a win-win solution.

"We need time to digest the provisions and calculate their impact on businesses," Priadi told reporters. "Changes to regulations like these are also taken into consideration when making investment decisions in Indonesia. They have also sparked considerable debate and confusion."

Nabiyla Risfa, a labor law lecturer at Gadjah Mada University in Yogyakarta, said informal workers are gaining "more explicit protection" under the new law but cautioned that the implementation details "remain unclear." Timboel Siregar, a labor rights advocate at watchdog BPJS Watch, said the law's effect on investment will depend on other measures, asserting that stronger labor protections should be accompanied by simpler investment procedures and better legal certainty to foster productivity and business continuity. "Corruption, illegal levies and bureaucratic hurdles must also be addressed to encourage businesses to invest," Siregar said.