Secretary of State for Work and Pensions v Gubeladze

The Supreme Court considered whether the Secretary of State's 2009 decision to extend the Worker Registration Scheme (WRS) was open to challenge on grounds of proportionality under the transitional provisions of the Act of Accession and, if so, whether that decision was proportionate. The Court held that measures adopted pursuant to the transitional derogations in Annex VIII to the Act of Accession are subject to the general principle of proportionality in EU law and that the 2009 extension of the WRS was disproportionate and therefore unlawful. The Court also determined the correct interpretation of article 17(1)(a) of Directive 2004/38/EC: the requirement that workers who have ceased activity must have "resided in the host member state continuously for more than three years" refers to factual continuous residence rather than residence exclusively under the legal regime established by the Citizens Directive.

Background and parties: The respondent, a Latvian national who arrived in the United Kingdom in 2008 and worked intermittently between 2009 and 2012, claimed state pension credit. Entitlement turned on whether she had acquired a right of permanent residence under article 17(1)(a) of Directive 2004/38/EC as implemented by regulation 5(2)(c) of the Immigration (European Economic Area) Regulations 2006. The Secretary of State refused the claim on the basis that the respondent had not continuously "legally" resided for three years because she had not complied with the Worker Registration Scheme before August 2010.

Procedural history: The First-tier Tribunal dismissed the respondent's appeal on jurisdictional grounds. The Upper Tribunal accepted jurisdiction, remade the decision and allowed the appeal on two grounds: that article 17(1)(a) requires only actual residence and that the 2009 extension of the WRS was disproportionate. The Court of Appeal dismissed the Secretary of State's appeal on the proportionality point but upheld the Secretary of State on the proper construction of article 17(1)(a). The Secretary of State appealed to the Supreme Court.

Issues framed: (i) Whether a national decision to extend the WRS under Annex VIII is subject to proportionality review; (ii) if so, whether the 2009 extension was disproportionate; (iii) whether article 17(1)(a) requires "legal" residence throughout the three year period; and (iv) if article 17 requires legal residence, whether actual residence suffices for the domestic implementing regulation.

Court’s reasoning: The Court held that the transitional derogations in the Act of Accession operate by derogation from rights that A8 nationals otherwise acquire on accession and that such national measures remain subject to the EU general principle of proportionality (following Zalewska). It rejected the Secretary of State's submission that reliance on a transitional derogation removes any proportionality review, analysing relevant CJEU authorities (including Vicoplus and Valeško) and domestic authorities (including Lumsdon and British Sugar). Applying the proportionality test, the Court accepted that retaining the WRS in 2009 could have a small mitigating effect on labour market disturbance but concluded that the speculative and limited benefit was outweighed by the substantial burdens on employers and A8 nationals (including exclusion from benefits and loss of credit for residence), so the extension was disproportionate and unlawful. On interpretation, the Court concluded that article 17(1)(a) tracks earlier instruments such as Regulation 1251/70 and that "resided" in article 17(1)(a) means factual continuous residence rather than "resided legally" as in article 16(1).

Remedial outcome: The Supreme Court dismissed the Secretary of State's appeal, held the 2009 extension of the WRS to be unlawful for lack of proportionality, and endorsed the view that article 17(1)(a) requires factual continuous residence.

The appeal is dismissed. The Supreme Court held that national measures adopted under the transitional derogations in Annex VIII of the Act of Accession are subject to the EU principle of proportionality; the 2009 extension of the Worker Registration Scheme was disproportionate and unlawful in the circumstances; and article 17(1)(a) of Directive 2004/38/EC requires factual continuous residence (not exclusively "legal" residence under the Citizens Directive) for the three year residence condition.

First-tier Tribunal: appeal dismissed on jurisdictional grounds. Upper Tribunal: accepted jurisdiction, retained the appeal by consent and remade the substantive decision in favour of the respondent. Court of Appeal: Secretary of State appealed and the appeal was dismissed [2017] EWCA Civ 1751; [2018] 1 WLR 3324. Supreme Court: appeal dismissed [2019] UKSC 31.