Local government lawyers and private practice solicitors disagree about the significance of the perceived U-turn which the European Court of Justice made last week on employment rights.The ruling in Rygaard (case c-48/94) found that the acquired rights Directive, which was translated into domestic law by the Transfer of Undertakings (Protection of Employment) Regulations (TUPE), did not apply to a situation where a specific works contract was transferred from one company to another.The ruling could have an enormous impact on local councils in England and Wales where compulsory competitive tendering (CCT) for blue and white collar services is being carried out on the assumption that Tupe applies.Employment law specialists have said the ruling will create a wave of confusion and uncertainty as private contractors try to bid for local authority work on the basis that Tupe does not apply.The legal adviser to the Public Contractors Association, Ruth Harvey of London firm Barnett Alexander Chance, said that if the contractors did so they would run the risk of a court finding that Tupe did in fact apply.

'This ruling introduces new factors, new elements of uncertainty and increases the instability of the law,' she said.

'It is possible that lawyers will be the only ones who will benefit from it.'But the chairman of the Law Society's Local Government Group, David Carter, joined the public service union, Unison, in playing down the importance of the ruling.

'The case is not as significant and its implications are not as simple or clear cut as commentators have suggested,' he said.

'The facts were unusual and the situation was quite different from that of most CCT contracts.

Any contractor wishing to rely on Rygaard to make a bid on the basis that Tupe does not apply should read the case very carefully and should not necessarily expect it to apply to general circumstances.'Danish carpenter Ole Rygaard was employed by a company which contracted to build a canteen for another company, SAS Service Partner.

The contract, was then transferred to another contractor, Stro Molle.Mr Rygaard was dismissed by his original employer and told that he would transfer to Stro Molle who would pay him until the end of his employment relationship.When Stro Molle dismissed Mr Rygaard after three months work he sued for wrongful dismissal.

A Danish court referred issues in the case to the ECJ, asking whether the circumstances fell within the ambit of the acquired rights Directive.The European judges said Mr Rygaard's case was not covered by the Directive because a stable economic entit y had not been transferred.

The judges ruled that the building works unit in question was limited to carrying out one specific works contract and did not include the transfer of assets which would enable all or some of the activities of the transferring company to be carried out in a stable way.And the judges repeated that the criteria for deciding whether a transfer fell within the scope of the Directive was whether the business retained its identity by carrying out the same or similar activities.Unusually, the Advocate-General's opinion had conflicted with that of the judges and backed Mr Rygaard's argument that the short duration of the works was not significant.Prior to Rygaard the muddied waters of Tupe had appeared to be clearing in the UK.

Most private contractors seemed to have accepted that Tupe applied to local government work and they were bidding on that basis.The chief solicitor at Doncaster Metropolitan Borough Council, Nick Dobson, who is one of the Local Government Group's experts on CCT and Tupe, said: 'The result is surprising.

It is not clear whether it was the single or the temporary nature of the work which made the difference for the judges.

But most local authority service contracts put out discrete activities which are likely to constitute a stable economic entity.

It's arguable that Rygaard won't affect much local authority contracting out.'The case will need to taken into account by councils in Tupe deliberations but it won't materially alter the position on Tupe.

Arguably, it is too obscure and the facts are somewhat idiosyncratic.'Until Rygaard the application of the Directive had seemed to be widening through a series of decisions culminating in the Schmidt (case (c-392/92) ruling last April.In Schmidt the European judges said that the sole criterion for determining whether the Directive applied was whether the contractor carried out the same activity as the previous employer.

Mr Dobson thinks that there is a conflict between Schmidt and the apparent reasoning behind Rygaard.However, the chairwoman of the Law Society's employment law committee, Janet Gaymer of City firm Simmons & Simmons, said: 'This ruling does not constitute a U-turn in policy if you look at the facts and at the question that the court was asked.

The judges applied the test we have at the moment and did not find that what they saw was a stable economic entity.'The judges did use a new term in referring to a "stable economic entity", the new part being the word "stable".

But the term is really an extension of what has already been said.

This doesn't mean it will be used in every single case from now on.'If you are going to have an economic entity it must be reasonably stable.

This is obvious but it has taken the particular facts of Rygaard to draw it to the courts' attention.'There are currently several cases of this kind pending before the ECJ and there will be further definition of how to identify when there is an economic entity, it's all variations on a theme.'However, all the lawyers agree that the judgment in Rygaard reflects a new conservatism in the attitude of the ECJ towards the acquired rights Directive.