Secretary of State for Employment, Ex parte Seymour Smith

The Employment Protection (Consolidation) Act 1978, s.64(1)(a) provided that the right not to be unfairly dismissed did not apply before a qualifying period which the Secretary of State extended from one year to two years by the Unfair Dismissal (Variation of Qualifying Period) Order 1985. The employees challenged that Order as indirectly discriminatory under Article 5 of Council Directive 76/207/E.E.C. and/or as incompatible with Article 119 of the EC Treaty.

The House held, following the Court of Justice jurisprudence in Marshall and Faccini Dori, that a directive does not have horizontal effect between private parties and therefore a declaration that domestic legislation is incompatible with a directive would not, of itself, enable the employees to enforce rights against private employers in the industrial tribunal. The Court therefore discharged the Court of Appeal declaration that the Order was incompatible with the Directive.

Because the question whether compensation for unfair dismissal falls within "pay" under Article 119 is directly determinative of the employees' private-law remedies, the House referred specific questions on the scope of Article 119 (including the meaning of "pay", the scope of Article 119 or Directive 76/207, the test for indirect discrimination, timing of application of that test, and objective justification) to the European Court of Justice for preliminary rulings.

Background and parties: Two employees, Ms Seymour-Smith and Ms Perez, were dismissed after more than one but less than two years' service. They sought to challenge the Secretary of State's 1985 Order extending the unfair dismissal qualifying period to two years on the ground that it indirectly discriminated against women contrary to Article 5 of Directive 76/207/E.E.C. They also raised a possible infringement of Article 119 of the EC Treaty (equal pay).

Procedural posture: The Divisional Court examined evidence and concluded that the Order had not been shown to be discriminatory. The Court of Appeal reached the opposite conclusion and declared the Order incompatible with the Directive (the Court of Appeal's citation is not stated in the judgment). The Secretary of State appealed to the House of Lords.

Relief sought: The applicants originally sought quashing of the 1985 Order; alternatively they sought a declaration of incompatibility with the Directive in order to enable private unfair dismissal claims.

Issues framed by the House: (i) whether a declaration that domestic legislation is incompatible with a directive can enable private parties to enforce rights against other private parties; (ii) whether Article 119 of the EC Treaty includes compensation for unfair dismissal as "pay" and, if so, whether the conditions for that remedy fall within Article 119 or Directive 76/207; (iii) the appropriate legal test for indirect discrimination under Article 119; (iv) the appropriate temporal point at which that test must be applied; and (v) the legal conditions for objective justification for social-policy measures.

Court's reasoning: Relying on the Court of Justice decisions in Marshall and Faccini Dori, the House concluded that directives do not impose obligations on private individuals and therefore do not have horizontal direct effect; they can be relied upon only against the State or an emanation of the State. The House considered and distinguished CIA Security. It held that a declaration of incompatibility limited to past dates would not give the applicants enforceable private-law rights against their employers in the industrial tribunal and would not necessarily form an appropriate basis for Francovich damages claims. For the Article 119 point, because it had been raised in the Court of Appeal and could be resolved on the existing evidence, the House considered it appropriate to refer specific preliminary questions to the European Court of Justice rather than require the applicants to litigate first in the industrial tribunal.

Disposition: The House discharged the declaration made by the Court of Appeal and deferred further disposal pending the European Court of Justice's rulings on the posed questions.

Appeal allowed in part. The House discharged the Court of Appeal's declaration of incompatibility with Council Directive 76/207/E.E.C. on the ground that directives do not have horizontal direct effect between private parties and the declaration would not have enabled the applicants to enforce unfair dismissal rights against private employers; but the House referred five questions on the construction and scope of Article 119 (including whether compensation for unfair dismissal is "pay", scope, test for indirect discrimination, timing and objective justification) to the European Court of Justice for preliminary rulings.