Sitting in Luxembourg the court declared that Britain had failed to consult employees adequately when public services were sold or 'contracted out'.
Yesterday's ruling means that even where there is no union or employees' association, workers must be given the opportunity to voice their opinions 'with a view to seeking agreement' on such matters as redundancy. Under British law employers are absolved of such responsibilities where there is no representative body.
The court also confirmed the view of the European Commission that until last year the Government unlawfully failed to protect the pay and employment conditions of workers when an 'undertaking' was switched from the public to the private sector. In the 1993 Trade Union Reform and Employment Rights Act ministers conceded those points, but the court's decision will force ministers to go a step further.
The ruling could add to the queue of litigants already pursuing the Government and employers over a failure to obey European employment law. Last November unions issued writs against the Government in the names of more than 1,000 workers dismissed by companies which took over when local authority services were privatised. The TUC believes that Britain's failure to introduce the European 'Acquired Rights Directive' has affected about 1 million workers.
Fraser Younson, vice-chair of the Employment Lawyers' Association, believes the judgment will eventually mean that all workers will have to be consulted on other issues such as health and safety.
But last night David Hunt, Secretary of State for Employment, said no new compensation cases would arise from the ruling.
He claimed the only new element that arose was over consultation - that in future cases of privatisation employers would be compelled to consult with all their employees, not merely recognised trade unions which, he said, both Labour and Conservatives had believed to be the case.
Mr Hunt said reports that many so-called illegally sacked workers would be eligible for compensation were wrong. 'It is outrageously misleading to suggest there will be thousands of court cases as a result of this judgment.'
And he insisted the test cases brought by the Transport and General Workers' Union were brought before this judgment and related to changes in legislation last summer.
The judgment came as an embarrassing blow to John Major on the eve of the European elections, and a gift for the Labour Party, which has highlighted workers' rights and the social chapter as part of its campaign.
The Prime Minister warned it would have far-reaching consequences for the rest of Europe, and gave a clear hint that Britain would be seeking to change the law in the European Union.
Mr Major also made it clear he expects it to lead to restrictive European employment regulations being swept away in an audit of Euro rules under the German presidency.
Kenneth Clarke, the Chancellor, said: 'We are going to remove a lot of this unnecessary legislation. On Monday in Luxembourg, the German minister and I reached agreement that there are going to be outside experts with businessmen going through all this and clearing the unnecessary ones away.'
Jack Straw, the Labour environment spokesman, said the judgment was a 'disgrace' for the Government. Michael Meacher, the shadow minister for public service, said it cast doubt on the legality of the Government's opt-out on the social chapter.
Mr Meacher added: 'At the very least it casts a doubt on the propriety and legality of the Tory government in Britain trying to rule out these terms and conditions at the workplace.'Reuse content