This article reviews a very recent decision of the Court of Justice of the European Union (CJEU) – the ‘Dansk Industri vRasmussen’ case - that appears to have major implications for courts (and tribunals) in Member States in terms of how they treat cases where a domestic law is identified as being in conflict with a Directive.

In order to properly understand the potential ramifications of this decision for Member States, it will first be necessary to provide some quite detailed background of the legal principles that have applied until this point and some of the consequences that have followed for employees seeking to assert their entitlements in law.

The Role of the Court of Justice of the European Union

It is commonly accepted that Irish employment law is heavily influenced by the necessity to comply with European Union (EU) directives. A Directive is a form of EU legislation generally agreed by Member States on a proposal from the EU Commission that sets out objectives and principles that require ‘transposition’ into domestic legislation, but which leaves the form and methods of transposition to each Member State to decide. Typically, such a Directive will set an implementation date of two years from the date the measure is agreed, allowing each country time to prepare the necessary legislation.

So far so good, but what if a Member State does not transpose the Directive or if the implementing legislation does not properly comply with the standards envisaged by the relevant Directive? The EU Treaties provide methods for resolving these potential problems. Failure to transpose a Directive on time or at all potentially leaves the Member State in question open to so called ‘infringement’ proceedings that may be brought by the European Commission to the Court of Justice of the EU (CJEU), the judicial arm of the Communities. However, the question as to whether a Directive has been correctly transposed is a more difficult matter to determine.

The CJEU is responsible for the interpretation and application of Union law. To this end, Article 267 of the Treaty on the Foundation Union (TFEU) allows a court or tribunal in any Member State to request a ‘preliminary ruling’ from the CJEU on the interpretation of a question of EU law that arises in national legal proceedings and is required to help make a decision in those proceedings. A significant number of such preliminary rulings have been handed down in the area of employment law in recent years and a number of these cases have sought clarification as to whether a measure has been transposed correctly.

Interpreting national legislation in light of a Directive

It is settled EU law that Member State’s legislation transposing a Directive must be interpreted in the light of that Directive. For example, in Saunders v CHC Ireland Ltd (DEC/2011/142), an Equality Officer (of the then Equality Tribunal) found that Section 34 of the (Irish) Employment Equality Act 1998 (as amended) which provided that ‘it shall not constitute discrimination on the age ground to fix different ages for the retirement (whether voluntarily or compulsorily) of employees or any class or description of employees’ must be read in light of Article 6 of the Equal Treatment Directive which it transposes.

This meant that as a retirement age in a contract of employment is, in principle, less favourable treatment on grounds of age, an employer was required, notwithstanding Section 34 above, to show that such a measure is objectively justified in that it meets a legitimate aim of the employer in question and that the means used to meet that aim are both necessary and proportionate.

For five years the Equality Tribunal and the Labour Court on their own initiative applied this test in a series of retirement age discrimination cases, until eventually the Equality (Miscellaneous Provisions) Act 2015, was passed in December 2015. Amongst other reforms, it amended Section 34 by providing that it shall not constitute discrimination on the age ground to fix different ages for the retirement of employees ‘if it is objectively and reasonably justified by a legitimate aim, and the means of achieving that aim are appropriate and necessary’.Essentially, this is the case law position finally enshrined into amended employment equality legislation.

Annual leave and the ‘Working Time’ directive

What, however, if there is no reasonable interpretation of the domestic legislation that can square that legislation with the directive that it transposes?

In January 2009 the CJEU gave its ruling in the joined cases of Schultz Hoff v Deutsche Rentenversicherung Bund and Stringer v Her Majesty’s Revenue and Customs, references from German and UK courts respectively. These cases considered amongst other questions whether there was an entitlement under Article 7 of the working time directive to accrue annual leave during a period of sick leave.

In summary, the Court found that Member States were entitled in applying the directive to provide that workers could not take paid annual leave during sick leave. However, critically, it held that they must ensure that workers have the opportunity to exercise the right to annual leave during another period and cannot make the exercise of that right subject to a condition that such leave is taken during a leave year laid down by a State.

The effect of this decision was that annual leave continued to accrue during sick leave and that the leave built up during sick leave could not be extinguished by time, no matter how long the absence. In addition, if the employee concerned had his or her employment terminated, he or she was entitled to pay in lieu for the annual leave that had accumulated during sick leave. Subsequently, in November 2011, the Court decided in KHS v Winfried Schulte that a German national law which provided that the annual leave entitlement of a worker who is on prolonged sick leave is extinguished 15 months after the end of the relevant leave year is not a breach of the working time directive. This decision reigned-in the effect of the decision in Stringer/Schultz Hoff somewhat.

From the Irish perspective, however, it was clear that existing legislation on annual leave – principally Section 19 of the Organisation of Working Time Act 1997 (OWT) – was in direct conflict with these decisions. It provided that an employee must work at least 1365 hours per leave year to be entitled to a period of four weeks’ annual leave or must work 117 hours per month to be entitled to 1.66 days annual leave or is entitled to annual leave at a rate of 8% of hours worked. Section 20 also provided that an employer must ensure that annual leave is taken in the leave year to which it relates or with the employee’s consent, within six months of the next leave year. These sections were clearly incompatible with the Stringer, Schulz Hoff and Schulte decisions and no interpretation of the OWT could find a way around this.

The doctrine of ‘Direct Effect’ and the ‘Francovich’ principle

A Directive only takes effect once it is transposed. However, where it is not transposed or is transposed incorrectly, it may be said to have ‘direct effect’ where provisions give rights to individuals that are sufficiently clear and precise.

In the years that followed Stringer and Schulz Hoff, the Labour Court on appeal made a clear distinction between employees who worked for the State and those who worked for private sector employers. It held that State employees were entitled to rely upon the ‘direct effect’ of the working time directive. Thus, for example, it decided in July 2009 in HSE North East v  A Worker that a clinical nurse manager who was absent on sick leave for over 12 months retained her right to annual leave for that year.

On the other hand, in Roskell Limited and Armands Rikmanis (WTC/11/235, September 2012) the Court noted that the respondent employer was a private sector employer and therefore the doctrine of direct effect could have no application. In Seclusion Properties and O’Donovan (9th December 2014) an employee who had been on sick leave for a substantial part of the 2010/2011 leave year and who resigned his employment in April 2011 sought payment for annual leave that had accrued during his sick leave. In finding against his claim on appeal, the Court confirmed that there was no interpretive rule available to it to construe the working time legislation in Ireland in a manner in conformity with the working time directive.

These decisions accorded with the existing view of the CJEU that even a clear, precise and unconditional provision of a directive seeking to confer rights on individuals could not of itself be applied in proceedings exclusively between private parties, such as an employee and an employer.

This would not prevent any aggrieved employee from potentially suing the State according to the principles established in the ‘Francovich’ case (Francovich v Italy (1991) C-6/90). This case established the principle that a Member State may be liable to pay compensation to individuals who have suffered economic loss by reason of that State's failure to transpose a Directive into national law. However, that meant that an employee seeking payment for annual leave that had accrued during sick leave would have to have brought a case against the State, rather than against his or her employer.

As with retirement ages, the State finally (after some six years) moved to plug this gap in the law. Section 86 of the Workplace Relations Act 2015, which was commenced on 1st August 2015, essentially implemented the Stringer/Schultz Hoff decisions with the restrictions of Schulte in amending Sections 19 and 20 of the Organisation of Working Time Act 1997. Although this was welcome, it did not of course assist those private sector employees who had been denied entitlements in the interim.

Dansk Industri (Acting on behalf of Ajos A/S) v Estate of Karsten Rasmussen (Judgment of CJEU, 19 April, 2016, Request for Preliminary Ruling referred 22 September 2014).

The late Mr Rasmussen was dismissed by his employer, Ajos A/S, on 25 May 2009 when he was 60 years old. Relevant Danish legislation (the ‘law on salaried employees’) provided as follows:

• A salaried employee with 12,15 or 18 years’ service shall be entitled on termination of employment to a severance allowance in the sum of one, two or three months’ salary  from his or her employer
• This right will not apply if 1) the employee will receive a State retirement pension on termination of employment or 2) the employee will receive an old age pension from his or her employer and the employee joined the relevant pension scheme before he or she reached 50 years of age.

Mr Rasmussen had 25 years of service at the time of his dismissal and so became entitled in principle to a three month payment. However, as he was also entitled to an old age pension from his employer under a scheme he had joined before reaching 50 years of age, the severance allowance was refused.

In March 2012, a trade union brought an action claiming this payment on his behalf and this claim was upheld. On appeal, in January 2014, this decision was confirmed by the Danish ‘Maritime and Commercial’ Court on the basis that it was clear from the CJEU’s decision in the case of Ingeniorforeningen i Danmark (C-499/08) that the relevant paragraph of the law on salaried employees was contrary to Directive 2000/78 on equal treatment in employment and occupation and the general principle, enshrined in EU law, prohibiting discrimination on grounds of age. Ajos in turn appealed this decision to the Danish Supreme Court.

That Court decided to stay the proceedings and to refer the following questions to the CJEU for a preliminary ruling:

1. Does the general EU law principle prohibiting discrimination on grounds of age preclude Danish legislation which deprives an employee of entitlement to a severance allowance where the employee is entitled to claim an old-age pension from the employer under a pension scheme which the employee joined before reaching the age of 50, regardless of whether the employee chooses to remain on the employment market or take his retirement?
2. Is it consistent with EU law for a Danish court hearing an action in which an employee seeks from a private-sector employer payment of a severance allowance (which under the Danish law the employer is not bound to pay even though that is contrary to the general EU principle prohibiting discrimination on grounds of age) to weigh that principle and the issue of its direct effect against the principle of legal certainty and the related principle of the protection of legitimate expectations and to conclude on that basis that the principle of legal certainty must take precedence over the principle prohibiting discrimination on grounds of age so that the employer is, in accordance with national law, relieved of its obligation to pay the severance allowance. In order to determine whether such a balancing exercise may be carried out, is it necessary to take into consideration the fact that the employee may, in appropriate cases, claim compensation from the Danish State on account of the incompatibility of Danish law with EU law?’

On question 1 the CJEU found that by generally excluding a whole category of workers from entitlement to the severance allowance, the Danish legislation affects the conditions of those workers regarding dismissal for the purposes of Directive 2000/78 and therefore comes under the scope of EU law and the general principle prohibiting discrimination on grounds of age. It then reaffirmed the decision in the Ingeniorforeningen case that the relevant Danish legislation is precluded.

On question 2, in summary the Court asserted that where it is apparent that national legislation arising in proceedings between individuals is contrary to EU law, it is the obligation of national courts to provide the legal protection which individuals derive from the provisions of EU law and to ensure that those provisions are fully effective.

It went on to state that where a national court finds it impossible to arrive at an interpretation of national law that is consistent with the general principle prohibiting discrimination on grounds of age given concrete expression in the Directive 2000/78, it is obliged, within the limits of its jurisdiction, to ensure the full effectiveness of EU law, ‘disapplying if need be any provision of national law contrary to that principle’.

It also found thatthe fact that employees may be entitled to claim compensation where their rights are infringed by a breach of EU law attributable to a Member State (under Francovich and other case law) ‘cannot alter the obligation the national court is under to uphold the interpretation of national law that is consistent with Directive 2000/78 or, if such an interpretation is not possible, to disapply the national provision that is at odds with the general principle prohibiting discrimination on ground of age’.

Conclusion

This decision most certainly calls for a rethink on the question of the obligations of national courts when considering questions of EU law that arise in proceedings before it.

The traditional perception appears to be that a national court is only obliged to interpret and apply national law transposing a Directive in light of that Directive (such as in retirement age discrimination cases as outlined above), but is powerless where the transposed legislation and the Directive are irreconcilable (such as in the ‘annual leave during sick leave’ cases also explained above).

This perception is more than challenged in the Rasmussen decision. In holding that if a national court considers that it is impossible for it to interpret a national provision at issue in a manner that is consistent with EU law, the national court must disapply that national provision, the CJEU seems to effectively require national courts to strike down legislation enacted by their elected Parliaments, where that legislation runs contrary to a Directive.

The ramifications of this in Ireland where, for example,  a written Constitution enshrines a ‘separation of powers’ model which provides that ‘the sole power for making laws vests in the House of the Oireachtas’ are interesting.

In any case, such an obligation would seem to require a national court to be far more dynamic and pro-active in protecting the EU rights of their citizens. For example, the arguable import of this decision is that following the decisions in the Stringer, Schultz-Hoff and Schulte cases explained in some detail above, the Labour Court could (and perhaps should if it came within the limits of its jurisdiction) have disapplied Section 20 of the Organisation of Working Time Act 1997 insofar as it disallowed the accrual of annual leave during a period of sick leave, rather than waiting for the legislative amendments that came much later.

A note of caution too though: It is not unknown for the CJEU to ‘push the boat out’ only to row back a little in subsequent cases