Opinion: uncertainty over UK employment law is bad for both bosses and workers, says Ralph Nathan

Employment laws in Britain are increasingly being reversed by the courts because they fail to take into account principles of European law. This is beginning to have a debilitating effect on our system of employment law and means that employers and the Government will need to take more account of the European dimension in framing law and practice.

The Court of Appeal delivered another landmark decision recently when Nicole Seymour-Smith and Laura Perez successfully challenged the statutory requirement for an employee to have two years' service in order to complain of unfair dismissal. It concluded that the two-year requirement amounted to indirect sex discrimination. This was because the proportion of women qualifying was less than the proportion of men.

Strictly speaking, all the Court of Appeal has decided is that the two- year qualification period was discriminatory between 1985 (when it was increased from one year) and 1991 (when they were dismissed). The two persuaded the court that with 15 months' service they should have been able to claim unfair dismissal. The Government has said it will appeal to the House of Lords.

The immediate implications are said to be that an estimated 25,000 women can claim compensation against the Government or (if employed by an "emanation of the state") against their employer. Technicalities such as how far back the claims can go need to be worked through. The decision applies equally to men dismissed with one but less than two years' service in the period 1985 to 1991.

The case continues a recent trend in employee protection - that is UK domestic legislation being challenged and overturned because it breaches European principles.

Further examples of this trend abound. Less than two years ago, the European Court of Justice concluded that the pounds 11,000 maximum compensation for sex discrimination failed to provide an adequate remedy under European Commission directives. As a result, the Sex Discrimination Act 1975 was amended to remove any cap on compensation. Because the legislation on racial discrimination is similarly structured, the cap there was removed, too.

Then the Equal Opportunities Commission persuaded the House of Lords in March 1994 that the requirement for part-timers to have worked three years longer than their full-time colleagues to qualify for statutory rights was also indirectly discriminatory and was without justification. The Government had to change the legislation so that there is now no distinction between part-timers and full-timers seeking redress for redundancy or unfair dismissal.

On the equality front again, recent decisions from the European Court (Vroege and Fisscher) have led to a glut of claims by part-timers for entitlement to pension rights. Many of those claimants have long left their employers and are seeking retrospective entitlement to pension benefits as far back as 1976. The position in this area remains uncertain and needs clarification. The Government has already introduced revised regulations giving employees retrospective rights for service on or after 31 May 1995. For service before that, the tribunals will have to clarify the position. Further legislation is in the pipeline.

Moving away from equality issues, it caused something of a furore when the Employment Appeal Tribunal decided earlier this year that it was not necessary for an employee to have two years' service in order to claim unfair dismissal in the context of the transfer of an undertaking. Despite having been in employment less than two years, a Mr Milligan successfully claimed unfair dismissal against Securicor Cleaning Limited when North Yorkshire County Council transferred cleaning work to another contractor. The decision was based on an EC directive.

What would Labour do about this? At a Fabian Society event in June, Harriet Harman MP, Labour spokeswoman on employment, said that a Labour government would review the two-year requirement with a view to its removal. In light of recent events, it seems there may be amending legislation without the election of a Labour government.

If the Seymour-Smith and Perez decision is upheld by the Lords, will the Government legislate to reduce the qualifying period from two years to one or will it just play the waiting game until the point is argued on a 1995 dismissal? And if the period is reduced to one year, would a Labour government reduce it further or abolish it altogether?

Is even a one-year qualification period susceptible to attack? And what of the position of employees pending the decision of the House of Lords and legislation? This uncertainty is unsatisfactory both from the employer's and the employee's perspective.

So what should employers conclude from this? They should work on the basis that any employee with more than one year's service might have unfair dismissal rights. If compelled to predict, a six-month qualifying period seems to be a strong contender, and possibly three months with a change of government.

The author is a partner at the British-based commercial law practice Osborne Clarke.