Geopolitical tensions are currently leading to billions of euros invested in Europe’s defence sector. Companies are therefore increasingly deciding to switch production from purely civilian goods to military products. 

Due to the increasing profitability, a site conversion can also be an instrument for averting a corporate crisis. Instead of cutting jobs, companies will receive at least some of the jobs to continue production in the military sector.

The site conversion as an alternative to job cuts also has the advantage that skilled worker potential is secured and not dismissed. In times of demographic change and the increasing competition for young talent, companies can avoid cost-intensive recruiting. The metalworking industry, in particular, has great overlaps with the defence industry. In the plastics processing and textile industries, too, a slight transition from civilian production to military goods can be observed in practice.

In practice, however, such a site conversion is accompanied by numerous labour law issues. Companies should pay attention to these and develop solutions at an early stage in order to successfully transform their business model in a legally compliant manner.

For example, working in the defence sector often requires special expertise or qualifications. Employers must therefore train and requalify their employees depending on the defence equipment produced. This can take several months and be associated with considerable costs for employers. 

In some cases, however, a site conversion may also be accompanied by a partial reduction in staff if employees are unsuitable for the new business purpose even if they are requalified or if an appropriate personnel cost structure requires this. 

Dealing with employees who are to be requalified or dismissed often has to be negotiated with employee representatives, in Germany regularly with works councils or trade unions. Therefore, social policy instruments, such as a transfer agency, the use of a transfer company or temporary short-time work, can be important instruments in the context of staff retention.

In addition, defence industry jobs have special features that are of secondary importance in other industries. Unlike in the civilian sector, these jobs are often designed for long-term employment. It is not uncommon for projects to develop or produce military equipment to span a period of more than a decade. In this respect, personnel continuity is of considerable importance because of the special expertise and qualifications required for the production of defence equipment. 

In addition, it should not be underestimated that the work of the employees can be monotonous and repetitive, not least because of the long project durations in the defence industry, because the same thing is often developed or produced for years. A pacifist worldview can also dissuade employees from continuing to work in the military sector with a clear conscience after a site conversion. In practice, employers can remedy this through employee retention programs or financial incentives.

Another important aspect for defence sector employers is the confidentiality of sensitive information. For example, employees or job applicants should be subjected to thorough background checks within the framework of data protection regulations. 

Non-disclosure agreements for employees should also be reviewed and, if necessary, adjusted. In addition, any increased security requirements for the production of armaments must be reviewed, also in light of the handling of state secrets.

If, for example, a civilian production company transfers part of its operations to a company in the military industry to avoid insolvency, the question also arises as to whether and how the transfer of employees should take place. 

If production is to take place in another company, the transfer of employment relationships can be structured as a transfer of business for the employees in compliance with the legal provisions and with the takeover of essential assets. 

Alternatively, a business closure would also be conceivable initially, whereby the newly established business of the future employer could at least partially take over the employment relationships with the help of individual contractual arrangements. 

The advantage of this approach is that the working conditions of those employees who are actually taken on can be rearranged and there is no obligation to adhere to the previous working conditions. However, such a commitment would exist in the case of a transfer of a business in which the acquirer assumes the rights and obligations of the transferor. 

But, a business closure in the sense of an individual contractual transfer of individual employees also entails certain risks. This is often accompanied by complex and lengthy negotiations with employee representatives (in Germany with works councils on the reconciliation of interests and a social plan).

It can therefore be said that the means of site conversion can be the means of choice in the current geopolitical situation, not only for economic reasons, but also to protect employees from job loss. In the defence sector in particular, a number of requirements and special features must be taken into account. 

Professional preparation and implementation of the site conversion is of great importance for its success. This is also to avoid conflicts with customers and suppliers, which may preclude cooperation with defence companies in contractual relationships.