Insights

There is a shortage of skilled workers throughout Germany, which will become even more pronounced in the coming years due to demographic change in the form of the retirement of the so-called ‘Baby Boomers’. At the same time, large German companies such as SAP, Volkswagen and Bosch are reporting job cuts. What initially seems contradictory can be explained by the fact that the requirements for many jobs are changing and becoming more demanding due to the increasing digitalisation of work.  

How can employers meet the challenges of a shortage of skilled workers on the one hand and major waves of costly worker layoffs on the other? By looking inwards and placing a greater emphasis on re-skilling and up-skilling.  

These terms refer to the well-used workplace development tools of further training and retraining, although there are subtle differences.  

Up-skilling builds on existing skills to enhance the worker’s capabilities within their current role or industry, whereas re-skilling involves learning new skills for a different area of the business. Re-skilling tends to be a more radical approach to skill development, gearing the worker towards entirely new opportunities in the workplace.  

Both tools can carry real benefits for employers and so first and foremost, it is recommended that employers check, prior to making any dismissals, whether skilled workers can remain in the organisation following a program of further training or retraining.

Such a long-term and future-oriented approach pays off for organisations in several ways.  

• Employees are valued and motivated in the long term: Professional and personal growth lead to greater satisfaction for individual employees. This, and conscious investment in the form of sustainable training and future-oriented retraining, through which the employer demonstrates their appreciation for the employee, can lead to increased employee satisfaction. Such measures can in turn contribute to the stability of the organisation. 

• The investment directly benefits the organisation: Employees who have been further trained or retrained and remain with the organisation are able to return to their previous role if business-needs change. At the same time, employees who acquire further qualifications and skills can often be put to better use within the organisation. This flexibility gained through up-skilling and re-skilling is directly beneficial to employers. 

• Further costs are avoided: By consciously investing in employees, the cost of recruiting in the form of paying a headhunter or placing job advertisements can be reduced. Furthermore, no money flows out of the organisation in the form of severance payments when employment contracts are terminated. Through re-skilling and up-skilling employers can therefore avoid bearing the costs associated with new hires and layoffs. 

One question that emerges is how can employers protect their investment in re-skilling or up-skilling their workforce? In Germany, it is possible to bind employees to the organisation through repayment clauses. Under such clauses, the employee undertakes to fully or partially repay the expenses that the employer has incurred for the employee’s training or further education measures if the employment relationship ends before the expiry of a specified period. The length of the specified period for repayment is usually linked to the duration of the training measure. In this respect, German case law has developed the following gradation, which can serve as a useful guide for employers.  

• Training of up to one month = repayment commitment of up to six months;  

• Training up to two months = repayment commitment of up to twelve months; 

• Training of three to four months = repayment commitment of up to 24 months; 

• Training from six months to one year = repayment commitment of not longer than three years; and  

• Training of more than two years = repayment commitment of up to five years. 

However, when drafting repayment clauses, various legal pitfalls and specific requirements set out in case law must be taken into account. For example, training costs are generally business expenses that are the employer’s responsibility and so repayment clauses must not place the employee at an unreasonable disadvantage.  

Consequently, and when drafting the contract, the parties must take into account the circumstances in which repayment will be due. Specifically, repayment should only be agreed in cases where the termination of the employment relationship is the sole responsibility of the employee (e.g. by means of resignation or dismissal due to severe misconduct). The employee should not be liable for repayment where they have not contributed to their dismissal. Accounting for the different possible reasons for termination of an employment relationship is essential when it comes to drafting repayment clauses. 

The re-skilling and up-skilling of employees is a critical building block for overcoming the current and future challenges that employers are facing in the labour market. Training and further education for employees can provide an incentive for company loyalty and avoid costs associated with recruitment and dismissals.  

When drafting repayment clauses, however, the requirements specified by case law must be observed and employers should give very careful thought as to the types of situations under which repayment will be required. 

Skilled worker shortages and widespread redundancies have created a very difficult landscape for employers as we move into 2025, with a shrinking talent pool fueling a ‘war for talent’ in this age of digitalised work. Investing in skills should therefore be high on the list of new year’s resolutions for organisations, helping them navigate the changing landscape of work and claiming victory in this ongoing battle.