Employment law challenges at a “turning point” – companies between civil and military production
The “turning point” in defence policy announced by the German government is meanwhile becoming evident in day-to-day employment practice. Companies are increasingly faced by the task of realigning existing production facilities – quite often as part of “conversion” or “retooling”. Former civilian production sites, especially in the metal processing and automotive industries, can then be used to produce military goods.
At the same time, another trend recently reported on by the newspaper FAZ (Article in German only) is also apparent: while carmakers and their suppliers are under massive pressure and have to cut jobs, conventional armaments companies and start-ups are urgently looking for new employees.
This leads to complex questions under employment law reaching far beyond the mere question of production.
New trend: conversion to military manufacturing
A new trend of converting formerly civilian production sites in traditional industries, above all in the metal processing industries, into military armaments sites is emerging. Production capacity that for various reasons is no longer used for conventional industry can be put to new use. At the same time, the considerable pool of skilled labour can be secured, allowing the new military production to quickly get off the ground.
Alstom – transfer of industrial site in Görlitz as a blueprint
The transfer of the industrial site in Görlitz belonging to the railway technology group Alstom to armaments company KNDS shows how well conversion can work in practice. KNDS plans to produce various assemblies for the LEOPARD 2 main battle tank and the PUMA infantry fighting vehicle as well as modules for different variants of the BOXER wheeled armoured vehicle in Görlitz. The manufacturer intends to take on at least 350 to 400 of the 700 or so Alstom employees in Görlitz. This is a solution from which all stakeholders ultimately profit: the majority of employees keep their jobs, the transferring company avoids costly redundancy programmes and the receiving company gains qualified employees (Noerr advises Alstom on transfer of Görlitz industrial site to KNDS). It is a transformation that can serve as a blueprint for the automobile industry.
Extending existing civilian production capacities for military purposes
Apart from the example of Alstom, more and more companies want to add a military division to their existing civilian production capacities. This is no less complex, since separate production areas are often needed and wide-ranging safety requirements have to be met. Thus the question can arise whether military production should take place in a separate establishment or even separate company to be able to separate the different areas. At the same time, questions arise regarding the overlapping deployment of personnel: how can employees be flexibly deployed in both areas? Often, it is necessary to get employee representatives closely involved in this as well.
Cooperating with companies in the armaments industry
Companies converting their own manufacturing facilities to produce goods which can at least also be used for military purposes (referred to as “dual-use goods”) will often do so in collaboration with armaments companies. While one option is to form a joint venture, another is to work together on the basis of a joint business operation, bringing questions such as the right of employee representatives to participate in decision-making (co-determination) and the topic of protection of know-how into the foreground.
Key employment law questions when converting production facilities
From an employment point of view, the following key questions often arise if a production site is transferred from a company manufacturing civilian goods to an armaments company or there are plans to cooperate with an armaments company:
- Transferring employees to an “armaments company”: Whether through a transfer of undertaking or individual three-page transfer agreements – legally watertight preparation of a transfer of employees to an independent company (possibly also as a joint venture) is crucial for the success of a measure if the pool of skilled labour of the civilian manufacturing company, and in particular the employees’ know-how, is to be secured for the defence company. Employee representatives will frequently insist that working conditions and terms of employment are maintained.
- Significant business change: Converting production facilities to produce military goods or creating a joint business operation represents a significant business change within the meaning of section 111 of the German Works Constitution Act (Betriebsverfassungsgesetz), meaning that a reconciliation of interests and social plan have to be negotiated with the responsible works council committee. One example would be if a civilian production facility is closed and a new military one is set up in the same place without a transfer of undertaking. It is important to not just focus on the typical contents of a reconciliation of interests and social plan. A decisive factor is to consider qualifications, requirements for further training and possible headcount adjustments at an early stage in order to ensure a sustainable transfer of employees.
- Regulatory requirements: Safety and security requirements, confidentiality obligations, access rules and monitoring systems that are often still unknown in civilian production have to be reviewed and developed and then introduced, respecting any co-determination rights of the relevant works council body.
What counts during planning and implementation
Such transformation processes can only be efficiently managed with the help of forward-looking professional advisors. In themselves, such transformation processes are often nothing new for companies. Yet the framework conditions are often new. Apart from the employment law aspects, economic, regulatory and strategic considerations must also be taken into account. Companies benefit from legal expertise that not only minimises the legal risks but also brings specific experience of such a transformatory environment and is able to establish discreet initial contact to potential market participants – a crucial factor for success in such a sensitive field as the defence industry.
The “turning point” has reached employment law
Companies who want to transfer civilian sites to the defence industry or expand their production capacities need legal certainty and strategic foresight. We will help you successfully plan complex transformation processes in the interests of your company and employees – including structuring legally sound transfers of undertaking and employees, conducting negotiations with employee representatives, amending terms of employment to new regulatory requirements and providing strategic support during conversions and when expanding production.
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