The latest in a series of meetings between EU government officials and MEPs broke down after midnight - meaning plans to update the Working Time Directive fall and the opt-out continues.
Employment Relations Minister Pat McFadden said today: "We refused to be pushed into a bad deal for Britain. We have said consistently that we will not give up the opt-out and we have delivered on that pledge.
"Everyone has the right to basic protections surrounding the hours that they work, but it is also important that they have the right to choose those hours.
"In the UK and many other member states, choice over working hours has operated successfully for many years.
"The current economic climate makes it more important than ever that people continue to have the right to put more money in their pockets by working longer hours if they choose to do so."
Business Secretary Lord Mandelson said: "Millions of people are better off because of the opt-out and I am relieved we have been able to resist its removal."
The opt-out was once only defended by the UK, but today at least 14 other member states take advantage of it.
Nevertheless, last December MEPs voted by 421-273 to scrap the opt-out - after EU governments had already voted to keep it.
The issue then had to go to "conciliation", and even the European Commission, a staunch opponent of the opt-out, urged MEPs to be realistic and respond to pressure from so many governments to keep the flexibility of longer working hours.
But most MEPs share the trade union view that the opt-out exploits workers who need the protection of a fixed maximum permitted number of working hours.
A series of meetings failed to break the deadlock between the European Parliament demanding a deadline for scrapping the opt-out, and governments offering to accept an absolute working hour ceiling of 65 hours a week in return for keeping the right to exceed 48 hours a week.
After the breakdown of the latest round of talks, and with MEPs stepping down to face elections in June, both sides agreed to abandon the negotiations.
The current European Commission is also stepping down after the summer, but the incoming Commission team is likely to produce new proposals later in the year - possibly including fresh plans to end the opt-out.
Employment Commissioner Vladimir Spidla said he was "sorely disappointed" by the failure to agree revised working time rules now.
"The Commission did its utmost to try and find a compromise by putting forward many proposals to help bring both co-legislators closer to a final deal. But, in the end, the positions were irreconcilable. In particular, the European Parliament insisted on an end date for the opt-out, something the Council (EU governments) could not accept."
He said the lack of a deal means no solution under the current working time rules for sectors with high levels of "on-call" work where the definition of working hours is still not clear.
"The likely outcome is that more - not less - member states will start using the opt-out, which is not something I want to see happen. And there won't even be more safeguards for workers who do use the opt-out."
Mr Spidla added: "I will now need to reflect (with fellow Commissioners) on this result, and decide what, if anything, we do next."
Conservative employment spokesman in the European Parliament, Philip Bushill-Matthews, who took part in the talks, said: "Over three million people in the UK work more than 48 hours a week, and in these tough times it is more important than ever that people should have the free choice of how best to fend for their families.
"The result of the breakdown of negotiations is that the opt-out remains secure - until the next attempt to undermine it. The current Commission proposal for review automatically lapses, and it will be up to the Commission to come up with a new proposal.
"We have to see this as an opportunity, not a problem. The fact that 15 out of 27 EU countries wanted to make use of the opt-out shows that this was a duff directive in the first place.
"The Commission needs to look at the issue afresh and, although this will essentially be a task for the incoming Commission and the incoming MEPs after the European Parliament elections, some of the groundwork can usefully start straightaway."
Well over half of Gordon Brown's 19 Labour MEPs were among those backing the end of the opt-out - even though the Prime Minister himself now supports a policy first secured by the Tories in 1993 as part of the original Working Time Directive.
Czech Deputy Prime Minister and labour minister Petr Necas, whose country holds the EU presidency and who represented the other EU governments in the talks, slammed MEPs for blocking an accord which he said would have given employees greater protection.
"The MEPs were not willing to accept a deal that would improve the employees' situation and, at the same time, lead to a more flexible labour market," he said.
"This is what Europe needs at a time of the economic downturn."
He said there was no doubt that a deal would have been an improvement.
"For example, in those member states that use the so-called opt-out clause, the current legislation allows working for up to 78 hours per week. The Council (EU governments) offered to decrease the current maximum weekly working time limit to 60-65 hours, but the Parliament refused to accept this."
The opt-out, he went on, was important for solving difficulties in sectors involving regular stand-by duty, such as healthcare workers and firefighters.
"Despite that, the Parliament wanted to abolish it - the Parliament gave priority to ideology over political and economic reality."
Now, thanks to MEPs' "inflexibility", he said, the opt-out would become "a rule rather than an exception".
Mr Necas revealed that he was prepared to continue negotiating further, but MEPs refused to carry on.
The outcome was welcomed by EEF, the UK manufacturers' organisation.
EEF head of employment David Yeandle said: "Manufacturers will be relieved that they and their employees can now continue to use the individual opt-out from the average 48-hour working week.
"The Government and its allies in other member states are to be congratulated on maintaining a firm position on this important issue.
"Retaining the opt-out will help employers to manage working time so that they can respond quickly and efficiently to changing customer demands and enable employees to choose to earn more by working longer hours.
"In view of this failure to reach agreement despite lengthy negotiations over many years, the Commission and the European Parliament should not seek to re-open this issue in the future."
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