Direct effect and indirect effect and state liability

The direct effect of European law

The principle of direct effect (or immediate applicability) enables individuals to immediately invoke a European provision before a national or European court. This principle only relates to certain European acts. Furthermore, it is subject to several conditions.

The direct effect of European law is, along with the principle of precedence, a fundamental principle of European law. It was enshrined by the Court of Justice of the European Union (CJEU). It enables individuals to immediately invoke European law before courts, independent of whether national law test exist.
The direct effect principle therefore ensures the application and effectiveness of European law in the Member States. However, the CJEU defined several conditions in order for a European legal act to be immediately applicable. In addition, the direct effect may only relate to relations between an individual and a Member State or be extended to relations between individuals.
Definition
The direct effect of European law has been enshrined by the Court of Justice in the judgement of Van Gend en Loos of 5 February 1963. In this judgement, the Court states that European law not only engenders obligations for Member States, but also rights for individuals. Individuals may therefore take advantage of these rights and directly invoke European acts before national and European courts. However, it is not necessary for the Member State to adopt the European act concerned into its internal legal system.
Horizontal and vertical direct effect
There are two aspects to direct effect: a vertical aspect and a horizontal aspect.
Vertical direct effect is of consequence in relations between individuals and the State. This means that individuals can invoke a European provision in relation to the State.
Horizontal direct effect is consequential in relations between individuals. This means that an individual can invoke a European provision in relation to another individual.
According to the type of act concerned, the Court of Justice has accepted either a full direct effect (i.e. a horizontal direct effect and a vertical direct effect) or a partial direct effect (confined to the vertical direct effect).
Direct effect and primary legislation
As far as primary legislation is concerned, i.e. the texts at the top of the European legal order, the Court of Justice established the principle of the direct effect in the Van Gend & Loos judgment. However, it laid down the condition that the obligations must be precise, clear and unconditional and that they do not call for additional measures, either national or European.
In the Becker judgment (Judgment of 19 January 1982), the Court of Justice rejected the direct effect where the States have a margin of discretion, however minimal, regarding the implementation of the provision in question (Judgment of 12 December 1990, Kaefer & Procacci).
Direct effect and secondary legislation
The principle of direct effect also relates to acts from secondary legislation, that is those adopted by institutions on the basis of the founding Treaties. However, the application of direct effect depends on the type of act:

• the regulation: regulations always have direct effect. In effect, Article 288 of the Treaty on the Functioning of the EU specifies that regulations are directly applicable in the Member States. The Court of Justice clarifies in the judgement of Politi of 14 December 1971 that this is a complete direct effect;
• the directive: the directive is an act addressed to Member States and must be transposed by them into their national laws. However, in certain cases the Court of Justice recognises the direct effect of directives in order to protect the rights of individuals. Therefore, the Court laid down in its case-law that a directive has direct effect when its provisions are unconditional and sufficiently clear and precise (Judgement of 4 December 1974, Van Duyn). However, it can only have direct vertical effect and it is only valid if the Member States have not transposed the directive by the deadline (Judgement of 5 April 1979, Ratti);
• the decision: decisions may have direct effect when they refer to a Member State as the addressee. The Court of Justice therefore recognises only a direct vertical effect (Judgement 10 November 1972, Hansa Fleisch);
• international agreements: in the Demirel Judgement of 30 September 1987, the Court of Justice recognised the direct effect of certain agreements in accordance with the same criteria identified in the Judgement Van Gend en Loos;
• opinions and recommendations: opinions and recommendations do not have legal binding force. Consequently, they are not provided with direct effect.

The doctrine of ‘indirect effect’ requires national courts, as organs of the Member State responsible for fulfilment of EU obligations, to interpret domestic law consistently with directives. This doctrine achieves indirectly, through the technique of judicial interpretation of domestic law, the result obtainable through the doctrine of direct effect of directives.

Indirect effect can thus be seen both as an addition to and as the corollary of the doctrine of direct effect. In the case of provisions of directives having direct effect, national courts must disregard domestic law where there is a conflict between the directive and domestic law. In the case of a directive lacking direct effect, the national courts must make every effort to interpret domestic law consistently with the directive.

The doctrine of indirect effect is of vital importance to the enforcement of EU rights against private persons (horizontal direct effect). As directives only have vertical direct effect in claims based on directives against private persons, domestic law may be the only legal basis for a claim. The domestic court is obliged to exert itself to ensure that domestic law is interpreted consistently with the EU directive. However, this result is obtainable as far as the national law is not wholly inconsistent with EU law.

The European Court of Justice (ECJ) has developed a general principle of state responsibility for non-compliance with EU law. State liability derives from the fact that EU Member States are responsible for the creation and above all for the implementation and enforcement of EU law. Enforcement of state liability for violations of rights granted to individuals by EU law, including in the fields of employment and industrial relations, is carried out through the national courts of the Member States.

Many EU rights, particularly those in the many directives in the fields of employment and industrial relations, are enforced through the doctrine of direct effect of directives: the state and emanations of the state are liable, even where responsibility for the non-implementation of the EU directive lies with other organs of the State. The impact of directives remains limited, however, by the insistence of the ECJ on the exclusively vertical responsibility of the state (vertical direct effect) which prevents enforcement of directives against private individuals (horizontal direct effect) even where EU law imposes responsibilities on these persons.

The ‘useful effect’ (from the French effet utile) rationale for direct effect requires a remedy where private individuals fail to respect provisions of EU law. To circumvent the limitations of the doctrine of horizontal direct effect, the ECJ developed a general principle of state responsibility for compliance with EU law. This doctrine was created by a case in the field of employment rights: Andrea Francovich and Others v. Italian Republic, Joined Cases C-6/90 and C-9/90, [1991] ECR I-5357, and the resulting principle of state liability is called the Francovich principle.

The elements of liability, which comprise the Francovich principle, that emerged from the decision of the ECJ include: (i) a breach of EU law; (ii) attributable to the Member State; (iii), which causes damage to an individual. If these elements are established, compensation may be claimed in a legal action before a national court.

The principle of state liability was said to be also explicit in Article 4(3) TEU. It relies on a basic principle of the EU legal order: that national courts must protect the rights conferred by EU law on individuals, including enforcement of these rights where the state is responsible.

The breach of EU law in the Francovich case itself was a violation of the EU directive by reason of the national legislator failing to act to implement it. However, total failure to implement a directive is only one type of violation of EU law. Implementation of a directive by a Member State may be partial or incorrect or inadequate. There are numerous decisions of the European Court upholding complaints against Member States for faulty implementation of a directive.

The Member State remains responsible even when it has entrusted ‘management and labour, at their joint request, with the implementation of directives adopted pursuant to paragraphs 2 and 3’, according to article 153(3) TFEU. In this case, the Member State must ensure that ‘management and labour have introduced the necessary measures by agreement’ and must take ‘any measure enabling it at any time to be in a position to guarantee the results imposed by that directive’.

Violations of EU law by different organs of the state will engage liability; the state is responsible for acts of public law bodies or others to which the state has delegated the performance of its responsibilities. For example, the Court has held that failure to transpose a directive into national law within the prescribed time limit amounts of itself to a sufficiently serious breach, giving rise to state liability (Dillenkoffer and others v. Federal Republic of Germany, Cases C-178-9/94, 188-190/94 [1996]).

The principle of state responsibility has potentially far-reaching implications for the enforcement of EU labour law. If an individual has a definable interest protected by the directive, failure by the state to act to protect that interest may lead to state liability where the individual suffers damage, provided causation can be demonstrated. The directives on health and safety at work, on equal treatment of women and men, and an increasing number of directives regulating individual and collective interests of workers, are a fertile field for exploration of the scope of state liability.